How Does Dropshipping Work?

Question submitted by Leanne: I was under the impression that I set-up my web page with stores online give them the drop-shipper's information so they can incorporate them into the website and then I thought that when the customer ordered that the money was processed and transferred to the drop shipper account. I wasn't really clear on how I get my cut ..., so exactly how do that part work? Once they place an order on our sites and pay for the products were do the payment actually go? How do we transfer the money to the drop shippers and how do the drop shipper know where to send the products to?

Answer: Each relationship is different. Even the StoresOnline (SOL) provided dropshippers may differ among them. That is why SOL states that you have a relationship with the dropshippers separate from SOL.

Each dropshipper/supplier will have their own rules. Those that give you credit allow a Net 30 or Net 15. That means they will bill you for orders shipped with those bills being due in 30 or 15 days, respectively. Others will require you to have a card on file so that they can charge you before they ship the order.

With your SOL package, you should have received a very discounted setup of a merchant account. You probably get multiple merchant accounts. As a rule of thumb, they like you to have one merchant account for each website that you have. This also means more overhead because there are monthly fees associated with each account. If the products on multiple websites are similar, you can get away with using one merchant account for all of those sites. I currently use one account and when I applied for the account I told them that I sold general merchandise. Using the word "general" doesn't pigeonhole me into one type of product. I'm not saying that this is the right thing to do, but so far its been working for me. If I ever get audited, somebody may tell me different. This is my method of keeping overhead down until I'm told otherwise. At any rate, the merchant account is tied to your bank account. So any customer placing an order with their credit card will have their funds eventually deposited into your bank account. So all the money goes to you. There is a settlement/batching process that you need to get familiar with, but in the end the money goes to your account, minus some transaction fees.

How you submit to your suppliers may differ as well. Most allow email submission, all allow fax submission. Some may even take submission over the phone, but that is time consuming for both parties. Some may require you to place your order via web. Some will ask for an Invoice, Sales Receipt, or Packing Slip to include in the box with the order. Any one of these will list the items to be shipped, who/where the items are to be shipped to and the shipping method (UPS, FedEx, Ground, 2nd Day, etc). The Invoice and Sales Receipt typically has the order itemized order totals in terms of what the customer paid. The Packing Slip may or may not have order totals, but typically does not. Other suppliers may ask for one of those, plus a Purchase Order, to them. This form generally has all the same information plus the supplier information except that the order totals are in terms of what you pay the supplier. Some suppliers my be fine with you forwarding the emails you get from your system. The latest version of the SOL tool does have a Supplier Notification feature. I haven't played with this yet but I reckon it does some emailing for you. Also, how you send things to your supplier may be based on how you keep your books. I, personally, use Microsoft Small Business Accounting. Every order that I receive gets keyed into that program. The program can generate any of those forms I mentioned before. Also, its a life saver at the end of the year for federal tax time and every quarter for sales and use tax time. Other programs like Quicken can do the same for you. Since I have to key in the orders anyway, I'm not sure that the Supplier Notification feature will help me any. Hence me not having tried it, LOL!