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Fulfillment for Dropshippers

January 11, 2023

Hold inventory for dropshipping clients

The Background

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And listen — I'm not a big fan of it. But, whether or not I like it, there are tens of thousands of people doing it. And they all face the same problems. So there are opportunities in this space.

For those of you who aren't familiar — dropshipping is where you sell something you don't own or produce. Let's say a watch.

You make a nice online store, buy ads, and sell watches.

Except you don't own any watches. So, when someone buys one, you go on Aliexpress (or some other Chinese factory website) and buy a watch. And instead of your own address, you put in your customer's.

But there's a fundamental flaw that plagues dropshippers.

Fulfillment times.

Unless you're buying from a US factory, your customers are going to have to deal with weeks of waiting before receiving their product. This leads to high rates of return, chargebacks, poor reviews, and low repeat purchase rates. 

Currently, there are only 2 solutions:

  1. Buy from a US factory -- this isn't the win-win that it sounds like. Products from US factories are significantly more expensive. Sometimes they have even worse fulfillment times than Chinese factories. Sometimes they're lying and aren't actually US based. And there are way fewer products available.
  2. Hold inventory -- this is no longer dropshipping. Sure, buying 20k units and fulfilling yourself is great. But the whole idea with dropshipping is that you only incur product costs once the item has actually been sold.

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The Idea

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So here's the idea.

Basically hold inventory for these businesses.

There are only about 500 products that all dropshippers choose from. Sometimes new ones emerge, but it's not like there are millions of different options.

So, if you get enough funding, you can solve the fundamental problem of dropshipping fairly easily.

Here's how it would work.

You function as a 3PL. You have a large warehouse.

Let's say a new product (for example, a watch) starts selling on lots of stores (you can measure this by talking with factories in China or through customer requests).

You would talk with factories in China and buy 1,000 units (or whatever). You'd get a hefty volume discount.

Then, your clients can put this product on their site. Any time they sell one, rather than going directly through the factory, they contact you. And you take one from your inventory, bill their account, and ship it out.

This would cost the client almost nothing — by buying and shipping in bulk, your landed item cost is significantly less than it would be for them buying one at a time. So you can just charge them the same price that they would normally pay the factory.

But, they get tons of benefits.

  1. Their fulfillment times would be top-notch. You'd be shipping their products from a US warehouse, so the customer would get their purchase in just a few days.
  2. They would get all of their products from the same source. There would be no variability in quality, shipping times, or customer service. Just one point of contact.
  3. Quality oversight -- you'd be able to ensure higher quality of products because you're seeing each one before the end customer gets it.
  4. Integrations -- you'd be able to create shopify / Wordpress integrations that would automatically fulfill their orders without them needing to contact you manually.
  5. Custom packaging -- Chinese products often are shipped with foreign labels and packing slips. It's pretty clear that they are coming from China. Yours would have US labels. Plus you can fulfill orders from your clients with their custom packaging, increasing their perceived brand value.
  6. All of the other benefits of a regular 3PL.