Question

Explain white labeling and drop shipping along with the challenges

Answer 1

Once you’ve decided to offer dropshipping service for your wholesale vendors, there are seven things that you need to know about white-label dropshipping.

What You Need To Know About Whitelabel Dropshipping

1. Partner with a Reliable Wholesale Vendor

Whitelabel Dropshipping has a lot of advantages such as having an expanded market and more customers. For those who have just started their online business, you will struggle on getting more customers and marketing your products in the early stages. Once you have a reliable wholesale vendor, they will be the ones to sell the products to their customers resulting in more sales.

Your job will mainly focus on manufacturing, supplying and shipping the product to the vendor’s customers. On the other hand, the merchant will be displaying, promoting and selling your products to their customers.

2. You will remain anonymous in the business transaction

By offering white-label dropshipping, you will be shipping the packages directly to the customers who ordered from the vendor. In that sense, the customer will not know about your company. You will be the anonymous third party in the transaction between the wholesale vendor and the customer.

3. You will have to carry the wholesale vendor’s brand in the product label or packaging design

White labeling means that your products will be sold and shipped as a product or brand of the wholesale vendor.

You need to ask the vendor for their brand design that you will utilize for the packaging and product design. You will also be including company details in the design such as company name and logo. In the packing slip, you need to include the company address, phone number, and email along with the company name and logo as the header.

Finalize the product labels or packaging design with the wholesale vendor.

4. You will have to maintain constant communication with the wholesale vendor

You will need to remain in constant communication with the merchant in order to avoid delays and issues. The merchant will basically give you a heads up when customers place an order for your product. That’s why you need to have a dedicated line, email or live chat with these wholesale vendors so that you can timely ship the products to the customers.

5. Partner with an International Shipping Carrier

As you may partner with several wholesale vendors, it would be wise to find and partner with a reliable shipping carrier who ships internationally. We made a post on 9 Things Dropshippers need to know about international shipping.

Choose a shipping carrier that fits your requirements and has wide coverage, fast turnaround time, insurance, and tracking tools. Check out their policies so that you can see which carrier is more responsive and reliable in case of returns, shipping delays, cancellations, and exchanges. Make sure that the shipping carrier offers outstanding customer service that can offer timely and quality assistance in cases problems come up as inevitably there would.

6. Furnish a Sales or Contract Agreement with the Vendor

Make sure that you have terms and conditions, and policies in place before doing any business with wholesale merchants. You need to have several meetings with the wholesale vendor so that you will meet on the same business grounds. Make sure that both of you agree to the terms and conditions.

Check out this sample sales and purchase contract: China Purchase and Sales Contract/ Agreement. Depending on your business needs, this sample contract serves as a guide only. It’s better to meet with your lawyer, accountant and business consultant to draft and polish the contract.

7. Arrange for Payment

As you will be transacting with the wholesale vendor, it should be clear how and when the vendor will send payment for every received order. Both you and the merchant must agree with the payment methods.

In the terms and conditions, you need to be able to specify when you expect to get paid, and the payment methods for every order.

Shipping Speed

Dropshipped goods are most commonly ordered from Chinese factories using sites like Alibaba. An order coming from China could take about 3-4 weeks to arrive, which is not something most Americans are used to – especially if they aren't aware the order is shipping from another country.

Packaging

Since you have no control over the way the shipment is packaged, you're at a bit of a disadvantage when it comes to marketing tools that increase repeat business. Brands are built on customer experience, and typically, the customer experience in dropshipping is a small yellow envelope.

Quality Control

There isn't any on your end. Depending on the products you dropship, this may or may not be a problem. Keep in mind that if there is a quality issue, customers will reach out and you'll need a pre-planned solution.

Competition

Dropshipping is relatively easy to set up and not a new concept, so competition is high. Popular products can be incredibly competitive so the name of the game is marketing – but finding a way to cut through the noise and get eyes on your store can also be very difficult.

"My advice to anyone considering it would be to understand that this is one of the most popular methods out in the online space right now. Because of this, it is EXTREMELY competitive, revolving around people copying each other's products. Five or so years ago, you could have simply placed any product on a Facebook ad and sold it easily but this is not the case anymore." – Giovanni Prieto, The Science of Ads

Long-Term Potential

Since you're not in control of the product customers receive and have no control over the experience they have, dropshipping can lead to customer complaints which can lead to a short-term business model. Without the ability to quality control, you may end up with few repeat customers and a business you find difficult to grow over time.

"The main dropshipping strategy revolves around short term profit made on large margins due to low-quality products. While this can be effective in the short term it also means it's basically a very limited business that usually peaks very early and eventually fizzles out quite quickly." – Giovanni Prieto, The Science of Ads

Another key downside to dropshipping, which everyone should keep in mind, is how your supplier could theoretically take your business. They supply the product and shipping already, so if they see your store is doing well and how you market their products, they can easily get rid of you as a middle-man and take control of their products and the method of sales.