Season 1, Episode 77
The Right Way to Dropship
[00:00:07] Chris: Hey everybody, this is Chris McCabe. Welcome back to Seller Performance Solutions, I’m here once again with Leah McHugh of eCommerceChris, Leah, how you doing?
[00:00:16] Leah: Good, thanks. How are you, Chris?
[00:00:18] Chris: Doing okay. We’ll see how we are after this discussion because we are getting inundated, this is kind of part two of our drop shipper suspension discussion, we’re getting inundated by contacts, sellers who are doing dropshipping the wrong way. They’ve either been busted for dropshipping policy violations, or they don’t have invoices for products that they list. They think that they can just produce an invoice once there’s an order. Once they source the product, then they’ll have an invoice.
They don’t understand that Amazon loves to suspend people based on the ASINs they’re listing and demanding to see an invoice in advance of an order, which undercuts the entire business model. So you finished that episode with a comment that there’s a right way to do dropshipping, and that’s what I hope we could dig into today.
And hopefully we’ll get the right kinds of questions at the end of it. But if there is any confusion, hopefully we can clear it up.
[00:01:16] Leah: Yeah, definitely. So I think what most sellers are getting into trouble with is a version of dropshipping, which I think of as dropshipping arbitrage, where they’re essentially purchasing items from another retailer and then sending it directly to Amazon’s customer, which similar to arbitrage, they’re purchasing it from a retailer without that retailer’s knowledge that that item is being resold to another third party and then putting that through Amazon. And so those people tend to get into trouble because the packaging will have the original retailer’s information or the packing slip will have the original retailers’ information.
That’s often what is flagging these drop shipping violations, but that is not the proper form of dropshipping. So dropshipping is entered into usually with all parties knowledge. So the person that is, sometimes it’s a manufacturer, whoever’s shipping the items to the end customer knows that you are acting as a middle man.
They will dropship that product to you. That’s actually how many big box retailers manage their websites. They aren’t holding all of those thousands of different skews of inventory. They have dropshipping agreements with the manufacturers, with the brands. Those brands get the order sent to them from the big box retailer, they fulfill the order with the big box retailer’s information on it, and it goes to the end consumer. Everybody involved knows what’s happening. There’s documentation, there’s invoices. It’s all very clear, and that is how you should be dropshipping if you are going to continue dropshipping on the Amazon platform.
No more arbitrageand calling it dropshipping.
[00:03:02] Chris: Well, no more sellers doing obvious avoidance of the being the seller of record as well. That’s the main policy violation is amazon doesn’t want to be flooded with buyers talking about why is the price different. I got a Home Depot receipt in here. I looked on the Home Depot website. It’s only $13.99. In that website, I paid $29. They don’t want these conversations. They don’t want these messages. It’s a lousy buyer experience, and I think that’s what a lot of these dropshipping courses, classes, video watchers don’t understand in terms of why this isn’t a business model is because if you’re confusing buyers, at least on Amazon, we’re not talking about all these other wonderful marketplaces out there.
We don’t know what they care about, what they don’t care about. What Amazon cares about is not having a crappy buyer experience and not confusing buyers.
[00:03:56] Leah: Right. Which is why what I just said is the right way to do dropshipping on Amazon because you don’t have those problems.
[00:04:03] Chris: Right. Well, I mean, and, and I’m just adding to that in terms of not only the big box retailer is okay with it and the brand getting the order is okay with it. It’s not even just the supply chain side. It’s also buyers will get better information inside the box.
[00:04:21] Leah: Yes, because everybody involved is aware of what’s happening.
[00:04:26] Chris: There’s no confusion on the seller side or buyer side.
[00:04:29] Leah: Additionally, you have invoices, so if there’s any question in authenticity, you’re not showing retail receipts in somebody else’s name.
I mean, if you’re dropshipping and you’re having a retailer send the items to an end consumer. The receipt isn’t necessarily even going to match your information. It’s matching the customer’s information. Not to mention it’s a receipt, not an invoice. Whereas dropshipping, you have invoices, you have contractual agreements that show that everybody is correctly represented.
It is a much safer way of dropshipping if you want to continue with the dropshipping model. I mean, there’s nothing wrong with the drop shipping model. I mean, certainly for big box retailers, it’s been a very easy way for them to scale their online catalog without having to hold all of that inventory and without having to scale their own shipping and logistics operations. So there’s no reason that Amazon would have an issue with documentation from that type of model.
[00:05:31] Chris: But playing devil’s advocate here, a lot of the dropshippers would say that involves a lot more investment, a lot more time. You gotta get agreements in place. What about the running lean model?
[00:05:42] Leah: You’re still running lean. You’re not holding inventory. You’re not paying for anything until it sells. It takes a little bit longer to set up, but it’s not actually that much more difficult. It just takes you actually finding real suppliers and not just buying stuff online.
And honestly, the amount of time people are spending, like scanning items in stores and looking at prices online and then matching it against Amazon, it’s probably the same amount of time. It’s just using it differently and using it more widely.
[00:06:12] Chris: Right. Interesting parallel, I just had a long conversation with somebody about, if you took all the time sellers spent on Facebook, in the forums, on groups looking for a generic template for an appeal they could have just sat down and written a better appeal themselves.
[00:06:28] Leah: Right.
[00:06:28] Chris: Instead of posting on a Facebook group, like, I need this, Can you post one in here that I can just copy and paste? Like if you spent all that time messaging, private messaging people on a Facebook group about what plan of action did you use for this ? You could have like written your own and it would’ve been better in that same time.
Same with sourcing. I guess the answer to my own question is the courses, the YouTube gurus, whoever they are, need to make it sound as easy as set it and forget it. And as passive income as possible. And so they don’t want to have to explain what you just explained in terms of, you need some agreements in place, you need time to set it up.
[00:07:09] Leah: How is constantly searching for the best deal online and then comparing to what’s available on Amazon, set it and forget it, or passive income?
[00:07:19] Chris: They probably hire low cost VAs to do that for them.
[00:07:22] Leah: Why can’t they hire a low cost VA to find them a supplier.
[00:07:27] Chris: That’s a good question. Well, then the question to you is why don’t these courses and classes and video threads that saw–
[00:07:35] Leah: Because many of those people that are teaching them have no background in retail and probably don’t even know the difference between the models.
[00:07:43] Chris: It’s a really good answer. Thank you. I was expecting you to say it’s easier to present the kind of low barrier to entry model.
[00:07:54] Leah: Saying you can just like look at stores that you already buy from to make money. Sure. Yeah. That does sound good. But it doesn’t mention the like many hours of time you’ll be spending doing that and going to have to continue to do that.
Like I would actually argue that what I am saying for dropshipping is actually less work in the long term because you’re not constantly having to like search for websites to dropship from to Amazon.
[00:08:16] Chris: I agree. And every time that, getting back to what you said about Arbitrage models. I was always sort of baffled that people would hire these armies or shoppers to go into stores to look for the product.
Presumably they have to get in long lines with other people in the store. Like that seemed like such a time suck to me and I guess this was kind of supposed to, Well, you’re sourcing things like online arbitrage. Well, you’re finding things online. You don’t have to take the time to sit in traffic and drive to a store and buy things at retail outlets.
So I guess I thought the online arbitrage people thought that that would be a godsend because that would save them time, but now they just spend the time online instead of walking around the store.
[00:09:00] Leah: I think it’s just, rather than time spent, it’s perceived learning curve, you know? It’s very easy for anybody to walk into a store, scan a few products, find one that’s selling for more on Amazon.
It sounds a lot more difficult to find a supplier who’s willing to drop ship products to Amazon customers for you, it sounds like there’s more involved in doing it.
[00:09:27] Chris: That’s what I think the answer is. I think that’s, for whatever reason, overwhelming to people. Who maybe don’t understand it or haven’t looked into it, and they’re probably already in a course that they spent five, ten grand on.
That’s teaching them something that’s more like easier to explain, lower hanging fruit. People understand how easy it is to walk into a store more than they do how to form a dropshipping arrangement. So, I don’t know. I have recently looked at some of these videos myself on TikTok.
There was a woman just going hopping from, this is what it’s like with Home Depot. This is what Walgreens is like, this is what Target is like in terms of sourcing. And it seemed like they were talking about coupons a lot. And so I got the impression well, Maybe they’re trying to massage this as like clipping coupons in a smart way format.
And that’s the angle they’re playing. Like, we understand the coupon system better than other people.
[00:10:24] Leah: Well, you’re trying to find underpriced retail items that are either underpriced in the store or overpriced on Amazon, or I guess ideally underpriced in the store and overpriced on Amazon.
Trying to find those sorts of deals. Which again, I can see how that can be perceived as being easier than, you know, making long term listings with suppliers that you have a relationship with.
[00:10:48] Chris: Yeah. And these models have been, we’ve been talking about this on the podcast, in articles for years.
I mean, arbitrage has been kind of on the wane for a while, and now it’s at the point where Amazon’s just rejecting retail receipts like crazy with no explanation and then the dropshippers that don’t have any invoices or receipts, those appeals are getting rejected. I think a lot of the dropshippers appeal saying Well, we’re not gonna do drop shipping anymore.
There’s so much negative buzz out there. Even the word dropshipping has become so toxic, right? They lead their appeal with, Well, we’re not drop shipping anymore, so we’re gonna FBA. That’s an appeal. That should be acceptable and those are getting rejected.
And then in terms of us and the contacts we get every day, then they double back on I already appealed it a few times. And I said I wasn’t gonna dropship anymore. I said I’m gonna have invoices going forward, and that gets rejected. And that’s the second wave.
[00:11:43] Leah: Well, because in order for that to even work, you have to already show your new and better suppliers, which requires invoices, which requires an investment, and it’s a high risk investment, I guess it’s perceived as a high risk investment because at that point, their account is suspended and they may not even be able to sell those products on Amazon anyway.
[00:12:03] Chris: It is more risky. I mean, I don’t know, high risk because they could get reinstated. But yeah, so any confusion about that, especially the second piece about how do you appeal this sort of thing.
Long story short, you demonstrate your complete divorce from dropshipping of that model. You’re either appealing, mentioning the model that Leah just discussed. Or coming back with a proven track record or new invoices or letters of authorization from new brands that you’re going to sell or that you source from authorized distributors, if not from the brands.
So can’t wait to see the kinds of questions we get after this one. , any last thoughts
[00:12:46] Leah: And no, I don’t have any recommendations for where you can find these suppliers. Not my area of expertise, sorry.
[00:12:52] Chris: We don’t rebuild. We, we had to answer some people who came in asking for appeals help, but they wanted us to rebuild their whole company, their whole sourcing and business model.
That’s not what we do. We’re reinstatement experts. We’re appeals people.
[00:13:04] Leah: We just tell you what have to do. We don’t tell you how you do that part.
[00:13:09] Chris: Yeah, we don’t rebuild it for you. I mean, that’s more like somebody who’s managing their own business. All right. Thanks a lot Leah, for making that clarification.
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