What is a good profit margin in wholesale
Good times for DropShipper: How to benefit from trading in large and bulky products
A trend is more than evident in online retail: the larger and bulky an item, the smaller the competition. A look on the Internet immediately confirms this impression. While there are countless suppliers who deal with cell phone accessories, electrical goods, sound carriers or other, rather small products, you already have to find a dealer for prefabricated garages, forklifts, carports, garden pavilions, whirlpools, saunas, fitness equipment, fireplaces and stoves or ride-on mowers research a little more thoroughly.
Reason enough for ambitious online retailers to take a closer look at these product areas. Those who also combine this product branch with modern drop shipping, i.e. do not buy the goods in advance, do not store them themselves and do not send them themselves, will quickly discover a trade area that has it all.
In the following we would like to introduce you to the advantages of trading large and bulky goods via DropShipping. You will learn how low competitive pressure affects your business, how you can achieve high sales and profits with just a few sales per month, how you can easily find suppliers who offer drop shipping, what advantages over traditional, warehousing trade in terms of the shipping costs exist and how this improves your own market opportunities, how you benefit from low return rates and how trading in large and rather high-priced products means that consumers and end customers place more trust in you.
In addition, we also go into the existing risk potential of this form of trading and explain step by step what you need to consider if you, as a DropShipper, want to trade successfully in large and bulky products.
The bigger the product, the less competition
If you as an online retailer decide to sell large, bulky goods, you have to struggle with problems that the DropShipper does not know. In classic retail, large goods require enormous storage space and thus high rental costs and ancillary costs. In addition, there are investments in suitable shelving systems and other technical facilities that are not needed when dealing with comparatively small products. Even the demands on the staff can be higher here, for example if they have to work with forklifts or other storage devices that require a certain training. If you also have to deal with the transport of large goods yourself, special transporters or trucks are required, the acquisition and maintenance of which are in turn associated with high costs. The effort and expenses related to packaging are also significantly higher than is the case in comparison with smaller and more manageable products.
Large rooms, special equipment and machines, but also particularly large cardboard boxes, oversized foils and large amounts of filling material can quickly devour a fortune. In short: trading in large and bulky products, if not using DropShipping, is associated with great effort, special expertise, enormous costs and considerable investments. Only a few online retailers can represent this in total. Therefore, the competition in the trade with these articles is much lower than in other product categories.
Anyone who is active here with the techniques of drop shipping will not be affected by the disadvantages mentioned. In this case, the supplier is responsible for storage, packaging and shipping. The DropShipping retailer benefits fully from the low level of competition without having to accept the disadvantages of trading in bulky and large goods. The low level of competition has a positive effect in a number of ways.
On the one hand, it is much easier to draw the attention of interested consumers to what is on offer. Only a few market participants are fighting for the highest ranks at Google & Co. and so it is associated with fewer major problems to positively position one's own presence on the web with the search engines than is the case in the highly competitive mass markets.
Mass markets also lead to a pronounced price war between the numerous dealers in the respective segment. It is different with the trade in large and bulky goods: The low competitive pressure here ensures moderate price wars and enables dealers who offer such products via drop shipping to achieve excellent profit margins and margins. In the following sections, we will show you what other advantages are associated with the sale of large and bulky products.
High sales with fewer products
Anyone who trades in common everyday goods has to sell many of them in order to be able to make a living. Imagine trading in products that cost only a few euros. Even with a high profit margin and modest demands on your own profit, thousands of items have to be successfully sold month after month in order to generate the fixed costs and a low profit.
The sale of numerous commercial goods, in turn, means that many buyers have to be found and convinced. Assuming that it takes effort, time and money to win a new customer, it is of course much easier to generate your income with large and therefore usually expensive products.
Sample calculation for the trade in prefabricated garages
For a model that costs the end customer 6,900.00 euros and generates a profit of 15% of the net price, the dealer has a profit of 869.75 euros before taxes for each garage sold. Assuming only four garages sold per month, i.e. one sale per week, this already results in a monthly profit before taxes of 3,479.00 euros.
In addition, this model gives the retailer significantly more time to take care of marketing, customer care and SEO than would be possible for a retailer who would have to process hundreds of weekly orders. When selling the prefabricated garages quoted, neither a large number of employees nor special software or complex processing are required. Even the bookkeeping is easy here, as there are only a few incoming and a few outgoing invoices to be posted. The business model is clear and easy to understand, even for newcomers.
Finding a partner made easy: Bulky goods are delivered directly from most suppliers anyway
One of the greatest difficulties for DropShipping retailers is probably the search for suitable suppliers who actively support this type of shipping. Anyone who deals in small mass-produced products will frequently hear rejection of their inquiries to possible delivery partners. This is not because these wholesalers or manufacturers are fundamentally not interested in a good deal. Rather, it is about the fact that the sale and shipment of just one product can hardly be profitable for such a company.
Think of a company that sells plastic soccer balls. These are usually sold to department store chains, large mail order companies, purchasing cooperatives or even larger online shops. The average sales volume is likely to be in the range of a few hundred balls. The dispatch will probably take place in lattice boxes, at least if the balls are delivered already inflated.
If the same provider were to agree to offer their balls individually via DropShipping, they would have to make a completely different calculation. This would include the increased effort for packing and shipping individual balls, which would have to be sent as a package due to their large volume. Since these costs would have to be borne in any case, the ball would be disproportionately high for the end customer compared to the price in the consumer market, in the catalog or in a large online shop. The result: It is not particularly interesting for manufacturers or wholesalers to offer their products via drop shipping.
The situation is completely different with large and bulky products. Here the manufacturer or wholesaler usually delivers directly to the end customer anyway. For example, imagine a furniture store. Some of the available models are exhibited here, but the exhibition only contains a small part of the program that is actually available. Each available piece is usually available in different sizes, colors, woods or designs.
If an end customer now decides to buy this or that sofa in the color of their choice, it will be made specifically for them and then sent to them. Here, the transport is very often not first to the furniture store but rather directly to the end customer who placed the order. As you can see, the drop shipping principle has existed for a long time with regard to large and bulky products. Online retailers with DropShipping ambitions can benefit from these existing structures and will find it easy to find suitable suppliers.
DropShippers benefit from the high storage and shipping costs of classic retailers
Before we begin to enumerate the other advantages of trading bulky products via DropShipping, let's first take a look at the disadvantages for the sake of balance. Imagine an online retailer who can sell large and bulky goods without the use of drop shipping. He orders the sales goods in advance from his suppliers. If he manages to achieve higher quantities, he will receive a price reduction from the respective supplier that is not available to the dropshipping retailer.
In this example, let's assume that the traditionally working dealer stores a few carports, garden pavilions or home saunas. One thing you have to be clear about is that he will definitely not buy and store 100 or 500 or even 1000 carports. In reality we might be talking about two or four or five products. How much will the price discount be given by the respective manufacturer? We can assume that the additional discount compared to an individual order will not be particularly high and will remain well below the 10% mark.
Now for the cons. The classic retailer buys the products before reselling them. So he not only has to pay for it, but also have it transported to him and stored. For this he needs capital, suitable premises and personnel. In addition, he bears the risk of not being able to sell the purchased products as desired. A new manufacturer with attractive prices, a new technical development or an economic crisis and the expensive goods quickly turn out to be unsaleable or have to be thrown on the market at the lowest prices.
In addition, the multiple dispatch of the goods harbors the risk of damage and small defects to the goods. This can then often only be offered as B-goods at lower prices. The classic trader has to include this risk potential in his price calculation in order to be able to survive economically. The DropShipping retailer is not aware of the costs and risks mentioned and only bears a surcharge of a few percent when shopping. As a result, he will be able to offer his goods significantly cheaper on the market and also achieve a higher profit margin. The advantages of mail order via DropShipping are obvious: no capital requirement, no risk of goods, less workload and higher profit margins speak for themselves.
Low or no shipping costs significantly improve market opportunities
Manufacturers and wholesalers who deal in bulky and large products have tried and tested transport systems at their disposal. For these companies, the organization of problematic transports is not the exception, but is part of their daily duties. Either the transport takes place here with our own vehicle fleet or there are long-term contracts with transport companies and forwarding agents. In any case, it can be assumed that the transport will be optimized again and again by the corresponding supplier companies from an economic point of view.
The DropShipping retailer also benefits greatly from this. For example, if the shipment is made via the manufacturer's or wholesaler's own transport network, the shipping costs for the dropshipping retailer are either very low or even completely eliminated. For the supplier, delivery to the end customer is no exception. There is therefore no reason for him to charge high extra costs or surcharges for this.
This fact enables the DropShipping retailer to offer their customers the possibility of shipping the goods either at a very low price or even free of charge. Practice in online trading shows that consumers clearly prefer offers for which no shipping costs are charged. This creates a clear market advantage for the DropShipping retailer compared to the “stocking” competitors.
In practice, large products lead to low return rates
A high return rate is a significant problem for every online retailer. The law stipulates that every product ordered via the Internet can be returned within 14 days without giving a reason and in this case the purchase price must be reimbursed. It is up to the retailer to restore the returned goods to their original condition. Even if this must not be damaged by trial use by the consumer, it is still important to replace small outer packaging, iron items of clothing or put multi-part products back exactly in their packaging.
In practice, it is hardly possible to bring a product back to its original condition completely. The only thing left here is selling at a reduced price or auctioning on eBay. In both cases, the dealer no longer earns his full margin here and also has an increased workload.
In practice, the consumer-friendly right of return often leads to consumer behavior that is an economic and time burden for the retailer. Product areas such as electrical goods or clothing in particular have extremely high return rates. In the clothing sector, sending products back is now standard practice for customers. A certain item of clothing is ordered directly in two sizes so that you can try out which one fits better at home.
The return is already determined when you place your order. Some consumers even use the right of return to order clothing, shoes and jewelry for a festive occasion and then send these products back. Even if the right of return is understandable, fair and comprehensible from the consumer's point of view, it is often not thought that the burden of this right must be borne by the online retailers.
It is in the nature of things that certain products and categories of goods are associated with certain return rates. As already mentioned, these are particularly high for clothing, electronics and other small and rather low-priced products. Here the customer does not think twice before completing the order. Careless purchases that will be regretted the next day are inevitable here. One can imagine that a consumer thinks for a while about his purchase plans before ordering a carport, a hot tub, a fountain system for the garden or a fireplace and only places the order when he is sure that he will actually buy the product want.
Both the effort involved in shipping and packaging and the rather high price clearly discourage consumers from only ordering a product on a trial basis and already planning the return shipment. DropShipping retailers who specialize in trading large, bulky products benefit from the comparatively low return rates, which save both time and money.
Specializing in large products promotes basic consumer confidence
Anyone who deals in large products is assumed by the consumer on the market to have a high level of competence and a certain company size. Nobody can imagine that trading in prefabricated garages, ride-on mowers, hot tubs, or any other large, bulky product might just be done by one person who works part-time from home. This approach leads to a leap of faith on the part of the buyer, which can lead to a higher sales quota than is the case with trading in products that are considered to be mass-produced or that have a rather dubious reputation anyway.
The dedicated DropShipping retailer has a number of options to support and reinforce this positive assessment by the consumer. It has proven useful to be able to demonstrate a specialization within a certain niche. For example, anyone who trades in free-standing, heated outdoor hot tubs can increase trust levels by trading not just one, but instead 10 or 20 different models. The more documentation the retailer offers its customers, the more professional its external image. If there is an offer to request brochures, product videos can be seen, customer reviews are published and the retailer provides a lot of background information about the product area represented, then the customer's trust increases enormously. This in turn leads to a significantly higher sales rate.
As for any other online retailer, the same applies to the dropshipping retailer: Don't disappoint the trust that your potential customers place in you before they shop. Strive for impeccable customer service and prove to your buyers that you deserve the trust they have placed in you. This is how you build up an excellent reputation and the recommendation of your services by your customers is the most valuable advertising that you can get for your company.
Large and bulky products via DropShipping: You should pay particular attention to this
If, as an online retailer, you are interested in selling bulky and large goods via DropShipping, then you are conceptually well on the way. So far, we have brought you closer to the decisive advantages of this form of trading and have shown you that you can develop a clear lead over retailers who store yourself. Before you start to design and implement a corresponding business model, we would like to briefly name some essential aspects that you should pay particular attention to in this form of trading.
As a DropShipping retailer, you should always clearly agree with your suppliers on how to proceed in the case of returns, revocations and warranty or guarantee cases. What already makes a lot of sense when trading in smaller products becomes the indispensable basis of your business when selling large, bulky and therefore expensive goods. In any case, you should only work with suppliers who take back the goods without objection in all of the cases mentioned and who are also responsible for collecting the goods in question from the end customer. You should also agree with your supplier that he is responsible for damage during transport and that there is suitable transport insurance.
On the other hand, you should clearly clarify with your end customers during the order process whether delivery is even possible with regard to the structural conditions. Not every pool table can be transported to every attic apartment. Not every driveway is big enough for a truck and not every garden path is wide enough to carry an outdoor hot tub. In the product description, clearly state the requirements that arise from the transport and oblige the purchaser to check and take responsibility for these requirements. In addition, secure the delivery date twice. In contrast to delivery by parcel service, with these deliveries it is not possible without additional costs that a customer is approached several times if he is initially unavailable.
If you take these critical aspects into account and incorporate them into your individual trading concept, then the sale of large and bulky products via DropShipping offers you excellent prospects for good sales and high profit margins.
The benefits of trading large and bulky products are really impressive. But did you know that DropShipping can also score points in the B2B area? We provide you 5 proven strategies for committed traders and show you in concrete terms how well B2B concepts and DropShipping work together.
About the author Sebastian Huke
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