E-commerce drop shipping is a tough way to make a living. At best, all is OK if everything works perfectly. But that pursuit of a consistently “perfect order” is illusive and hard to achieve. There always seems to be exceptions. In fact, most businesses, where only 20% of their revenue is in drop shipping, spend close to 80% of their resource hours in managing this small piece of their business. That’s why some companies avoid this line of business altogether.
This last part is incredibly important. The labor associated with managing all of the moving parts associated with drop shipping, plus the cost of EDI document set-up, translation and transmission seriously impacts the profitability on shipping just one or two items. If the price per item is reasonably high it’s not so bad, but low cost items often lose money and need to be made up from the sale of higher priced items.
Below is an example of one real company in exactly this situation. Here were the steps they went through to ship an $8.95 order from Amazon (fortunately, they were making up the difference on other products):
- Log in to amazon.
- Click on each order and print out the web page.
- Manually enter that data from the printout into SAGE order entry.
- Print a picking ticket. (say $0.05/page)
- Put products into USPS packaging. (“free”)
- Log into USPS website and re-enter that name and address – AGAIN – and print out the label on expensive Avery labels ($0.48/each).
- Go back into the ERP “Shipping data entry” and create an invoice.
- Manually type in the tracking number from the postal web site into the ERP.
- Print out an invoice / packing list for shipment (say $0.05 / page)
- Go back to the Amazon web site and re-enter the tracking number – AGAIN – (or they don’t get paid).
All of this took about 10 minutes per order. Here’s the cost they computed:
- 10 minutes per order @ about $22/hr. (with benefits) came out to $3.67 in labor.
- $8.95 Order total
- – $1.57 Cost of item
- = $7.38 Gross profit
– $1.34 Amazon 15% commission
– $0.10 paper for picking sheet and packing list
– $0.48 expensive Avery label
– $3.67 for labor to process order
- = $1.79 profit to cover overhead
When subtracting all of the other overhead costs, they calculated that they were losing $3.00 per order on this $8.95 item. As they said: “We lose money on each order, but we make up for it in volume!”
Using an approach that adapts to each individual company’s process and financial requirements, OPAL enabled this company to have an adequate margin – even on this item – by truly automating the entire order process, eliminating the $3.67 labor cost per order, providing EDI communication with Amazon at no cost, communicating with their shipping carriers and processing each order in less than 8 seconds 24 hours a day, including invoicing within their ERP.
See what OPAL can do to help YOU make more money on a drop ship order.