What is the difference between Drop Shipping & Cross Shipping?

New business models are the wave of the future and understanding how to work with these new types of retailers will help you maximize those relationships and, of course, make more money!

Here is what you need to know.

 Drop-Shipping

 What it is: The online retailers sells your product on their platform. Once the customer places the order with the retailer, they contact you and you ship it to the customer. The retailer pays you the cost price plus shipping.

Pro’s:

1. If you are just starting out and you don’t have a lot of distribution working with drop-shipping companies will allow you to add stockists to your list.

2. Drop-shipping sites are usually early stage businesses, this gives you the advantage to ask for more. Things you can ask for: social media blasts, newsletter features, homepage features.

3. Testing out products and price points. If you aren’t ready to launch your own ecommerce and want to test market your products, this is a great way to do so.

4. Better payment terms & margins. You have the upper hand in negotiations on wholesale price. I suggest a 60/40 split in your favor and 14 day or 30 day payment terms.

5. Packaging is a great way to take that customer all for yourself. Make sure you add postcards or special content that will drive that customer back to your site. Though you may need to use the retailers packaging, definitely double-check.

Con’s:

1. You have to hold the inventory. If you don’t have products already in stock you will need to get the inventory.

2. You have to do the shipping. If you don’t have a local USPS, or aren’t  set up with UPS or FEDEX, whichever is preferred by the retailer, you will need to do so.

3. Sales will be tough to get. Especially on newer ecommerce sites that use drop shipping. They are spending their time marketing and getting traffic to the site, but its tough to say what will be the best sellers and if your products will work. Don’t go into drop-shipping thinking you will get business right away. It will take time.

Cross-Shipping 

What it is: Similar to drop-shipping, the online retailer sells your product on their site. Once the order gets processed the retailer contacts you and you ship to the retailer. Then the retailer re-packages the product and sends to the customer.

Now why would the retailer want to do this? Branding. Its better for the retailer to have the outgoing packages be branded from them even if they are not holding the inventory. This also costs more for them. They pay for shipping to them and shipping from them to the customer.

Pro’s and Con’s are similar to that of drop-shipping. Though under this scenario you wouldn’t be able to take advantage of adding in your branded assets to the package that gets sent to the customer.

These two forms of online business models are more common than you think. New startups will often implement them to test market their brand before moving into a wholesale model. These models aren’t good or bad but need to be factored into a global sales strategy for your band. If you are interested in learning more about new business models sign up for our Selling Webinar: How to Sell to Barneys & Boutiques. If you want more in-depth strategy and guidance contact us at hello@scalingretail.com

Here is to your success!