Updated: Aug 24, 2022
Looking to set up a dropshipping facility for your company? You’re not alone, and there are plenty of benefits to doing so. But there’s more than meets the eye when it comes to ecommerce fulfillment, and many overlook important points when getting started. As leaders in the fulfillment industry, we’ve narrowed down a few key factors you should consider before moving forward.
1. Is it worth it?
While we’re obviously advocates of starting dropshipping businesses, we would be remiss not to mention that it isn’t for everyone. By reviewing the financials of your products and the volume expectations, you can properly determine if a facility makes sense, and if so, the type and size of facility needed and properly account for the operating costs. If the financials associated with selling your product net out to be greater than the cost of running a fulfillment center, then you are ready to proceed. If they don’t just means you have to be creative in how you offer your products for sale online versus in-store. Strategies like Vvrtual bundling and quantity minimums are ways to increase gross margin that can assist with creating a profitable dropship business segment.
2. What do you need to start?
Many have visions of robots and humans running around a massive warehouse in perfect synchronization, processing tens of thousands of orders a day. As glorious as these facilities are, not everyone has the $100 million in startup costs or the demand to justify building them.
One of the biggest mistakes people make is going too big too fast. There is a balance to be achieved between initially acquiring enough space that allows you to properly operate and allows for growth, but isn’t so large that you go many months, even years, paying for empty space. The key is understanding exactly what you need to get package number one out for delivery and then build from there.
3. What will operations look like?
You’ll also need to think through how your product will move around the facility. Is it conveyable? Will it require a forklift? Does it have to be moved one unit at a time, or can multiple units be moved simultaneously? This is key to understanding the engineering layout of your facility, equipment requirements, and your processing workflow.
4. How will you manage operations?
Will you need to hire an additional manager? Do you need a Warehouse Management System (WMS)? If so, do you need it immediately at launch or can you save some of that cost initially and survive with an Excel spreadsheet until volume begins to ramp up? What shipping software is appropriate for your business?
While this might seem like an overwhelming list, there are a number of resources available to guide you in making the best decisions for your company, including Peak Velocity Consulting, where our mission is always “Shipping Your Business Forward.”