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  4. Stock & Ship vs Dropship

Is Catalog Marketing Worth the Investment?

Stock & Ship vs Dropship

You've jumped through the hoops and over the hurdles of establishing your business and you're ready to start making money. But before you can do so, you have one very important task left to complete-you must find and purchase inventory.

Finding trusted and reputable wholesalers can be a daunting task in itself. Deciding whether you should purchase in bulk or dropship is an added stress that we hope to help eliminate. Let us explain.

Stock and Ship
Historically, retailers would purchase inventory in bulk directly from a wholesale distributor. This method is referred to as stock and ship. Many retailers who are able to purchase in bulk do so as bulk orders are generally sold to retailers at a discounted price. Discounted bulk rates can provide the retailer with higher profit margins once their inventory has sold.

Profit margins aside, there are certain downfalls to purchasing in bulk. Regardless of whether you operate out of a physical location or online, you will need a secure location to store the inventory. Warehousing and logistics are not cheap, so it is important to consider these costs prior to investing in bulk orders.

In addition, it's important to remember that not all inventories are guaranteed to sell. Remember to review sales records and trends prior to placing an order. Otherwise, you run the risk of ending up with excess inventory, which you'll be forced to sell at a deeply discounted rate, potentially costing you money.

Drop Shipping
Drop shipping is defined as an arrangement between a business and the manufacturer or distributor of a product the business wishes to sell in which the manufacturer or distributor-and not the business-ships the product to the business's customers.

Here are some key points to keep in mind when deciding if drop shipping is right for your company:

Low Upfront Costs
As an online retailer, you can save money on brick and mortar as well as inventory. Drop shipping can reduce your upfront costs significantly. You aren't required to purchase merchandise in bulk, secure warehousing or maintain staff for pack-and-ship. All upfront costs are relayed to the drop shipping company.

A Broad Product Base
Drop shipping affords retailers the opportunity to offer a more diverse product base than what might otherwise be feasible if the retailer had to stock everything. Imagine a small yoga studio that also sells apparel and equipment. The studio may have limited space for storing inventory, allowing them to sell a smaller number of items. But online, if the retailer has drop-shipping arrangements with various fitness apparel and equipment wholesalers, they have the ability to offer a wider variety of products.

Lower Profit Margins
Many people turn to drop shipping with the misconception that they will receive the same wholesale pricing as everyone else. Wholesale distributors purchase merchandise in bulk crating from manufacturers, who in turn sell to retailers.

It is more cost-effective for wholesale distributors to sell inventory via the stock and ship method opposed to individually as the cost of shipping is significantly lower. From the wholesaler's perspective, it is more economical to sell twenty items on a single pallet versus physically opening a pallet, piecing together smaller orders and shipping them separately.

Higher Shipping Fees
Depending on your target market and niche, you will most likely work with several wholesale distributors to offer your customers the most diverse selection of goods. It is important to keep in mind that each distributor will charge a shipping fee for fulfilling an order. You will need to charge higher shipping costs in order to break even.

Did You Know
A 2011 survey found that forty-four percent of Web shoppers said they were less likely to complete online transactions because shipping and handling costs were too high. More customers opt for the cheapest shipping option instead.

Logistics Are Out of Your Hands
Although this may sound advantageous, it can also wreak havoc on customer experience. All distributors have different shipping times and ship from different locations. If your customer purchases two separate items from wholesalers A (based in New York) and B (based in Los Angeles), they will most likely receive two separate packages at differing times.

Furthermore, what happens if an order doesn't arrive on time, or if an order doesn't arrive at all? You are the one who has to answer all of the questions and take the blame for the drop shipper's mistakes.

When deciding whether you should purchase in bulk or dropship, you'll need to consider the amount of risk you're willing to take paired with the amount of money you're willing to spend. Purchasing in bulk has its risks; however, it affords the opportunity to increase profit margins while maintaining control over warehousing and logistics. Conversely, drop shipping provides business owners with lower upfront costs and eliminates the risks associated with purchasing in bulk.

Resources:
Advantages & Disadvantages of Buying Bulk to Save on Unit Pricing
Smarter Strategies for Free Shipping
Finding and Working With Wholesale Suppliers

Need Advice? Ask us Anything!

*Information required. Your personal information is only used to contact you. MyLLC will never sell or share your information.

Disclaimer: This information is made available by MyLLC.com, Inc. (the "Company"), and is intended for educational purposes only, and it is not legal or tax advice. No action should be taken in reliance on any information in or on this site without verification with legal or tax counsel, after review of the facts and current law, that the action to be taken is appropriate under the circumstance. Except as expressly provided to the contrary in writing by the Company, the materials contained on this site are provided on an "as-is" basis without warranties of any kind, either express or implied. Company disclaims all other warranties, express or implied, including, without limitation, implied warranties of merchantability, fitness for a particular purpose, title and non-infringement as to the information, content and materials on and in the site. Company does not represent or warrant that materials on and in the site are accurate, complete, reliable, current or error-free.
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Nevada's Tax Laws have changed
Effective July 1st, 2015:
Be aware that if you are currently incorporated in the state of Nevada, or are considering becoming incorporated in Nevada, 2015 changes to the tax laws may directly affect and increase the costs to your business!

What is your first step? Simply choose which of the following two options applies to your business:

ALREADY INCORPORATED in the state of Nevada? 2015/08/15 - Your annual fees increased from $325 to $650, and that’s not including the Commerce Tax if it applies to your business! Further, you will now be required to file your tax return with the NV Department of Taxation with June 30th as the fiscal year, not the calendar year! Review these changes with your tax advisor immediately! If you choose to re-domicile your corporation in another state, MyLLC will file the re-domestication paperwork for you!

TRYING TO DECIDE WHICH STATE is best to incorporate your new business? MyLLC strives to provide you with up-to-date information and exceptional customer service. Contact your tax advisor to review your options and then talk to MyLLC's Incorporation Professionals to assist you in filing your articles of incorporation as well as provide you with Registered Agent services!

MyLLC is committed to assisting you in this process but you must contact us today!

Call us toll free at 888.88.MYLLC or fill out the contact form so one of our experts can help you.
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