What is Economy of scale?

In a production or manufacturing environment, Economy of scale is a simple concept that tells us that the larger the production run, the lower the per unit cost will be.

Think of it this way:

If I purchase component parts for 1000 units I pay my parts supplier x dollars per unit. If I purchase component parts for 10,000 units I might pay x- 10% dollars per unit.

The higher volume should mean lower handling costs per unit for your supplier, and also lower handling costs per unit for your receiving department and warehouse staff.

It costs me the same amount to issue a purchase order and pay my suppliers invoice if I order 1000 pieces or 10,000 pieces, so again, lower per unit cost.

Actual manufacturing production line set up costs are a major cost of production. It takes time to modify each production work station, set up tools and testing equipment, and assign workers to specific tasks. It may take several hours to set up a production line for a specific product. If I want to produce 1000 pieces I may keep my production line busy for 1 day to produce 1,000 pieces. Then I have to retool for the next new item on the production line. If I start a production run for 10,000 pieces I may not have to retool the production line for 10 days. That amounts to a significant cost savings.

When you add up all of the cost savings from a larger production run vs a smaller run, the savings might be significant. The manufacturer may elect to pass some of those cost savings along to their customer resulting in a lower product price.

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How Soon Can You Expect To Make A Profit With A New Drop Shipping Business?

You could start to make a profit from drop shipping in your first month, or you could work forever and always lose money. It’s all up to you, the choices you make, and how hard you want to work.

  • You need to choose unique products that are not facing huge competition in the e-commerce world.
  • You need to choose products with a high enough selling price to maximize your chances to make a profit.
  • You need to negotiate the best prices possible from your suppliers.
  • You need to find suppliers that will give you rapid order processing and shipping service so customer satisfaction is outstanding.
  • You need to answer customer questions and handle customer service issues rapidly.
  • You need to target your marketing to the correct demographics to most efficiently use your marketing dollars.
  • You need to vigorously control your business expenses to try and maximize potential profits.

If you are successful in handling the issues above and choose the right products, you may have a chance of being profitable.

How do you find a mentor?

Someone asked me the other day how he could find a mentor to help him build his business.

You don’t find mentors, mentors find you. They see you at school or work and become impressed with your intelligence, work ethic, specific areas of knowledge, your natural curiosity to learn, and your passion for doing a good job and getting the job done.

Think about it for a while. A mentor gives his time and advice to someone. If he paid attention to everyone that needed a mentor or asked him to mentor them, he would have no time left for his job and life. So go out there and get an education, get a job, join groups and organizations and meet people. Impress them with what you can do and how you go about doing it.

You don’t just go out and find a mentor to help you for free. If you want someone to help you build your business, go out and hire a business consultant or find an employee to hire that has the skills you need.

What strategies exist to identify profitable dropshipping products?

Research, then more research, then a lot more research.

To find a profitable product you need to know the potential competition, what they are currently selling, and what they are selling the product for.

You need to know what areas have problems with no current solutions.

You need to know what products people are looking for and what they are willing to pay.

You need to be an expert so you can identify products that are currently being sold that may be marketed incorrectly. These are the kinds of products you can create an effective advertising campaign to reach the right customers in the right markets.

Take a walk thru your local mass merchant. What do you see? If you just see a big mess of assorted products, you need to look more closely. In a big brick and mortar store, every product in the store is placed there for a reason. Each store is organized by departments, and each department has an employee or staff at the corporate level that is in charge of each department. These are called buyers, category managers, product managers, merchandisers, or some other descriptive term. These are the “experts” that have done their research and determined what should be in the product mix or what should be offered for sale.

You need to develop your research so you become the expert with regards to your chosen product. Research and product knowledge are your strategies.

If drop shipping is so easy and profitable, Why aren’t more people doing it?

Drop shipping is only profitable if you have a unique product or brand name that makes you different from all of the competition.

  • If you are trying to sell by drop shipping the exact same item from the same supplier that many other sellers are buying from you will have trouble being competitively priced. You will be faced with razor thin profit margins. Remember, drop ship suppliers do charge you for their service and they really don’t care which one of their customers makes the final sale. They make the same profit no matter who sends them the order.
  • Also, you need to develop some unique and creative ways to convince the customer to buy from you instead of all of the other sellers offering the same product. If you try and compete on price alone, you have already lost the sales game. Someone else will always be willing to cut their price to compete, and if you are drop shipping and someone else is importing direct and fulfilling orders from their own warehouse, I guarantee, they are paying a lower price than you.

So here are the facts about drop shipping, good and bad:

Pros– Drop shipping makes it easy for you to enter the market. No big investment in inventory, no need for a warehouse of storage space, no need to pack and ship customer orders.

Cons– The same easy entry into the market means that it is easy for ANYONE to start a drop ship business. That means lots of competition on items.

Pros– You don’t have to pack and ship orders.

Cons- You have no control over how fast a drop ship supplier will process and ship your order for you. If a bigger customer comes along with more orders he may go to the head of the line, then maybe your orders gets pushed back and are not shipped for a day or 2.

Cons– Customer service by the drop ship supplier is not controlled. Maybe Gladys in the drop shippers customer service office takes a few sick days. Her job is to send you tracking numbers when the order is shipped. You have advertised to your customers next day shipping. All of a sudden you start to get a lot of customer calls and emails asking for tracking numbers. Your workload just when thru the roof. OOPS.

Cons– Returns. If a customer wants to return a defective product or just doesn’t like what he received how do you handle the return process. Do you accept the return back to your address? Or, do you have it returned back to the supplier and hope the supplier handles it properly. Remember, if you are selling on Amazon or eBay your account can be suspended because of poor service or lots of customer complaints. That would be a big price for you to pay for the convenience of drop shipping since it is extremely difficult to get your account reinstated.

Cons– Passive income. Many people advertise drop shipping as an easy way to make passive income. Let me assure you, drop shipping is not a passive business, no matter how much automation you can introduce in your order handling process. There are still many, many tasks that must be checked and verified. You must make sure your supplier does not run out of inventory. You must make sure your supplier hasn’t raised his price. You must make sure your supplier has actually shipped your orders on time and correctly, and then notify your customer of the ship date and tracking number. You must offer customer service to answer any questions or handle any problems.

As you can see from the list, there are a lot more cons than there are pros, and this is just a simple list. So why don’t more people drop ship? because it is not as easy as many people advertise it to be.

Can a small business outsource their marketing manager?

The question is can a small business outsource their marketing manager?  But just as important is the question, Should a small business outsource their marketing manager?Yes, as a small company you can, and many companies do outsource their marketing services.

Yes, as a small company you can, and many companies do outsource their marketing services. You outsource to get access to marketing skills you could not otherwise afford.  You outsource to access part-time “experts” to form and deliver your message.

Just make sure you can clearly communicate your company image and marketing goals to your outsourced manager so you can work towards a consistent company brand, image, and presentation. It was your idea, dedication, and hard work that started the company in the first place and you should have the best input about the direction you want for your company.  Try and maintain a working relationship with one marketing manager and don’t jump from marketing company to marketing company unless you are not getting the results you desire.

One of the most important messages a marketing program can project is consistency and a standardized image in all stages of the company presentation. You want customers to see you as a valued, professional company and a unified look on your website and marketing materials helps to build trust with your customers.

Why you should try and sell higher priced items when you have a Niche.

Welcome to the world of retail. You will always have to remember that you have costs associated with any order. Then remember that it costs the same to process a $15.00 order as it does to process a $50.00 order.

When you have a niche, hopefully, you have chosen one that is unique that will allow you to sell higher priced items and make higher profits. If your product isn’t really unique or low competition, you really don’t have a “ Niche”.

You will pay someone to process an order, review it, make sure the payment has cleared, print a label and send it to your shipping department. They then must pick the merchandise from your inventory, choose the right sized box, package the merchandise securely, and ship it out. You then have to pay your customer service staff to notify the customer with a tracking number and to handle any customer service issues that might come up. You must also factor in the cost of potential returns.

Even if you are a solo operation and do all of these things yourself, you pay with your time and effort, because after all, time and your effort are valuable.

Here is a basic example. The numbers are just guesstimated to use as an example. I will assume you use Amazon to sell your merchandise.If you don’t use Amazon replace that selling fee with your sales, advertising, and marketing costs per order.

Item # 1 Sells for $15.00. The cost of goods, $7.50. Amazon selling fees ( estimated 15%), $2.25, order processing costs $3.00. carton costs, $1.00. Gross profit before fixed overhead and taxes= $1.25. That’s a lot of work to make $1.25.

Item # 2 sells for $50.00. The cost of goods, $25.00, Amazon selling fees, $7.50, order processing costs, $3.00, carton, $1.00. Gross profit before fixed overhead and taxes= $13.50. Decide for yourself. Which priced item would you rather sell?

You have to sell over 10 pieces of that $15.00 item to make the same gross profit as selling one $50.00 item. That is 10 times the effort and order handling.

Some people will say, “Let’s sell the low priced item and make it up on bigger sales volume”. It can be done but why work that hard?

You are young, you have a head full of ideas, but no money. How do you proceed?

Your young, your mind is filled with ideas but you have no money. Why not continue to work at your 9 to 5 job, use the time to learn about how a business is run and gain experience to help you when you are ready to execute some of your ideas? Take the time to live below your means and save as much as you can so you have some money to fund your ideas when you are ready. Everybody has to start somewhere and seldom do people have the skills to start at the top. Take your 9 to 5 job seriously, be curious and learn all you can, and you will find that you might even earn the respect of someone who can eventually be your mentor to help you succeed. Remember, you don’t find mentors, mentors find you based on what they see from your performance and dedication.

While you are developing your skills, take the time to firm up some of your ideas. Start making a plan or even a simple outline to determine what you want to do, what skills you will need to execute your idea, and how much it will take in terms of investment or time. Taking the time to commit your ideas to paper gives you something to build on, something to turn into an executable business. If you only keep your business ideas in your head they will never be more than simple ideas.

What should you do when you get a drop ship order?

When you use the drop shipping model for e-commerce here are some things you should always do.

  1. When you process payment send your customer a receipt of the transaction by email. If you are using a sales platforms like Amazon or eBay/ PayPal they will do this for you.

2. Process a purchase order to send to your supplier with customer shipping info so supplier can ship item. Do not include your selling price on this purchase order.

3. Make sure your drop ship supplier uses your company name as the shipper on the mailing label. This is really important. You are the seller. You want your customer to remember your company and come back to you for future business.

4. Once your supplier has shipped, send your customer the tracking number and a nice message like “we appreciate your business” or “thank you for your order”. Ask your customer if they would like to receive your news letter by email. Keep in touch with your customers regularly. Make sure you include your website link and maybe a discount promotion to encourage your customer to take a look at your website for possible new orders, new items, etc. This type of marketing is the cheapest advertising you can ever get.

5. If you can, try and make arrangements with your supplier to include some promotional literature or brochures featuring your company, website, products, and promotions. Good drop ship suppliers will do this for you. Most will not want to be bothered with this extra work.

Use every opportunity you can to keep in touch with your customers. Build an email mailing list. Send them regular mailings featuring special promotions, new items, customer testimonials, pictures of satisfied customers using their new item, etc.

How you can keep up with your competition.

Being a retail entrepreneur, whether you choose e-commerce or brick and mortar, is not a passive business. Especially since the internet makes it so easy for potential customers to shop and compare.

To stay ahead of your competition you must continually study, research, and learn about your market, your chosen product categories, the market trends, and your competition. It is not an easy task.

Every major retailer like Walmart, Target, or Amazon, among all the others, have hundreds of employees whose job is to monitor their assigned product categories for new products, market trends,pricing, promotions, and competition so they can stay competitive. These employees go by many different names depending on the company. They could be called buyers, merchandisers, category managers, product managers, etc.

I suggest you limit your product offerings to a few categories to make it easier for you to keep up with what is going on with your industry. Just about every product category has a trade association. These trade associations sponsor trade fairs or shows to allow their members to exhibit their merchandise and give potential customers the opportunity to view many companies all in one place. The trade associations also produce newsletters to keep their members up to date. It is a great idea to subscribe to them for the latest industry news. Also, make regular shopping trips to major retailers to review what they are offering in your chosen product category. It’s ok to take advantage of their expertise.

Often, the first piece of advice given to new retailers is to sell products you already have knowledge about. Having an interest or prior knowledge about a product category makes your learning curve so much easier.