Dropshipping, Damages and Service Income (ep 137)Jul 10, 2023
During this episode, we're talking about a few complex topics that may be a part of your business model. Take a closer look at dropshipping, damages and services and how to best handle each topic.
What most inventory based business owners don't realize is that when it comes to dropshipping most often the margins will be much smaller on the dropshipped product. This is because the shipper is assuming the risk.
As retailers bring in dropshipped product and it takes a volume in sales, margins might begin to dip. This is okay, as long as you've planned for it.
Here's how to do dropshipping correctly: track sales from inventory you own and from inventory you drop ship on two different lines. Look at revenue and margin on each separately. As you evaluate these numbers, you'll be able to tweak the formula so that the you can still create an overall net margin and profit on what you're dropshipping.
We all have customers who make returns. And we all have vendors who often send damaged items. For many product based business owners, damages go in the back room or the garbage. Don't do this!
Damaged items are part of your inventory. You've paid for them and they need to be removed from your inventory on a consistent basis to ensure the loss is recorded.
If you give a customer a refund, you need to have a process to track these refunds. Damage these out in your system, and give them to your accountant or bookkeeper. They'll be sure to include them on your profit and loss statement.
I firmly believe the best companion to inventory is service. While margin caps at a certain point in inventory, service can create margin rich sales that compliment your inventory and ultimately can grow your net profit.
Think about a service-based component you could add to your business. Could you teach a course? Could you add a design service? Could you add a membership component to your business? There are many ways we can add service to our business. While it might seem complex, it can add profitability to our businesses.
Here's a glance at the episode:
[2:30] Ciara talks about dropshipping and how she worked through the topic with one client.
[6:55] What to do with damages?
[11:35] Adding service to your inventory based business
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