Dropshipping is a very useful service if provided by the right person in the right way. But just like it has the ability to make a retailer, it also has the ability to break an existing one. They generally do so with the help of their fee structure and hence it becomes important for us to understand their fee structure and be prepared to differentiate the wheat from the chaff. Here are some tips to do the same.
Enrolment Fees: A lot of dropshippers ask for enrollment fees. They talk about the administrative costs that your enrolment will have on their business. But Dropshipping has always been a competitive business and genuine dropshippers will never charge an enrolment fee. So, this enrolment fee is either an outright scam or an attempt to eat into your margins.
Annual Fees: Annual fees are another way by which a dropshipper can dig into your margin. Imagine paying fees to sell their products! It sounds ridiculous, isn't it? There are many versions of this fee like, weekly, monthly, quarterly, etc. But the basic point is, not only are you going to sell their stuff, you will also pay them to do the marketing!
Cancellation Fees: Make sure that the cancellation time and fee schedule that you have provided your dropshipper, matches with what you have provided to your customer. Otherwise, there is a possibility that the customer may cancel an order and you may lose some money in the cancellation fee. Ideally, a reputed dropshipper will not charge a cancellation fee because they have many alternative buyers, if your customer does not buy, someone else will. They are generally more concerned with stock-outs than with unsold inventory.
Minimum Orders: This is another subtly dressed fee churning mechanism. Dropshippers will tell you that there are zero fees but you need to confirm whether this is subject to a minimum sale or any suchcondition. Because if it is, then it may not be worth it!
Shipping Fees: This can be the most dangerous of all. A lot of retailers charge a shipping fee if they change a faulty product. You must be careful to see that the dropshipper does not benefit out of this. Otherwise, there is a conflict of interest and the dropshipper is incentivized to ship faulty items to shore up revenues while your brand name takes a beating. So, look at the shipping fees carefully.
Liasons: As a retailer, you should be afraid of liaisons. Every member in the supply chain ought to add value to the product proportionate to what he or she obtains from it. But these liaisons more often than not, do nothing but eat up your profits. Most of the malpractices mentioned are propagated by these liaisons. They are the modern day predators and your profit is their prey; so beware.
As a retailer it is essential that you estimate your possible outflows in every scenario, carefully. Dropshipping is profitable, but not for everyone.