So I am considering adding a number of drop shipped items to complement my site's current product offerings, and I am trying to determine what I should pay the vendors.
I am not in the consumer electronics space, but as an example Best Buy sold $30.8bn in goods last year and their COGS was $23.1bn. So based on this their gross margin was 25%; is it reasonable to expect to split the difference and sell drop-shipped items with a margin of 12.5%?
I will not be sourcing from a major corporation, but rather a number of smaller companies with at most $25mm in annual sales. I would love to hear what you folks think.
Margins don't tell the whole story since a margin of 12.5% margin on $1 million is different than 12.5% margin on $10,000. Commodity items, especially electronics, is a very competitive space. Regardless of your margins, drop shipping is the way to go. You never have to deal with the risk of obsolescence. Return rates are also important to consider since they will add to your expenses. I would have you consider padding your margin some more if the item has a return rate higher than 3-4%.
The only problem with Drop-Ship model is finding reliable Drop Shippers that sell good products (good brands mostly). I work with some Drop-shippers that have built their business on Supplying traditional stores. They are dabbling in Drop Shipping and often don't have what I just sold in stock. It's a pain. Even my Best Drop Shippers aren't completely Efficient.
I want API's and I want to be able to Lock a product during the checkout process. Part of me wants to become the drop-ship company I wish I worked with. Has anyone has similar experiences or thought about this?
Yes, to be honest, a lot of drop shippers are shoddy, poorly run outfits that really do not recognize the value of their clients (who are the one shelling out for PPC and numerous other ecommerce expenses) to sell their goods. Find a good partner who appreciates this and you are lucky.
The worst are those who have no idea how important inventory control, communication and timely shipping are to your customers. For these outfits, a 30 to 50% margin is essential, just to break even on their incompetence most of the time...