If you’re reading this guide, you likely have some familiarity with dropship and dropship automation. The good news is that it’s become easier than ever to set up a robust dropship program at an affordable price. The bad news? There are plenty of dropship automation platforms out there…and it can get confusing which one you should choose.
Some platforms prioritize automation and make your life easier with their features. Others will make you question why you started dropshipping in the first place; they make it harder for you to trade with your suppliers and satisfy your customers.
In this guide, we’ll break down what you should look out for in a dropship automation platform and how you should evaluate dropship automation tools when you’re in the market for one.
Your inventory, in the cloud
Multi-brand retailers are in the midst of a seismic transformation for their businesses. They’re moving their inventory from a 100% wholesale model to a hybrid of wholesale and dropship with third-party sellers, where they don’t hold the inventory at all.
Moving to a wholesale-dropship hybrid inventory model is a recent phenomenon. In 2021, Macy’s, Nordstrom, and Foot Locker announced plans to invest in dropshipping operations to reduce their dependence on wholesale inventory. In December 2022, CommerceNext shared data that showed 64% of retailers are considering curated assortment expansions through dropship and marketplace this year.
The reason retailers are moving more of their inventory to virtual supply models like dropship is simple: buying and holding inventory is risky and expensive.
Multi-brand retailers experienced this pain firsthand in 2022; supply chain disruptions and misguided consumer demand estimates led retailers like Target, Old Navy, and Bed Bath & Beyond to hold excess inventory on their balance sheet. Retailers have been so affected by poor inventory investments that they’re hesitant to invest in R&D for new products. Research firm Circana shared that there were 13% fewer new general merchandise items in 2022 compared to 2020, with the biggest declines in beauty, footwear, technology, small appliances and toy categories.
The argument against marketplaces
Dropship isn’t the only method by which retailers are moving their inventory to the cloud.
Specialty retailers like Michaels, Paperless Post, and David’s Bridal are launching third-party marketplaces to provide a vast assortment of relevant products to their customers.
Marketplaces and dropshipping might be similar from an operations perspective and lead to similar outcomes for your customers. Marketplaces, however, come with challenges that make them less than ideal when you’re moving your inventory to the cloud:
- Less control over product selection
In a marketplace, suppliers have more control over how products are presented and priced, including product descriptions and images. They’re also responsible for handling customer service and returns.
By having less control over marketplace products, you risk providing a suboptimal experience to your customers, both when they interact with product listings and when they need support for returns.
- No curation
Marketplaces have a vast assortment of products from sellers. They aim for quantity over quality, similar to Amazon, eBay, and Walmart. Marketplace customers frequently need to do their own research to make sure they are purchasing reliable products from reliable sellers.
Marketplaces aren’t curated. If you opt for a marketplace model, you risk overwhelming your customers with more choices than they need. You also miss out on the opportunity to build a relationship with your customers where they rely on your ability to curate products for them.
- Little control over promotions
Suppliers that list their products on marketplaces tend to be less exclusive with where they’re available, which reduces your ability to control promotions for third-party products.
For example, if a supplier is listed across 40+ marketplaces, including Amazon, you’ll be forced to match prices offered by Amazon and larger retailers to stay competitive, which destroys your margins and revenue opportunities with that supplier.
Given these considerations, dropship is the ideal choice for multi-brand retailers looking to increase their product assortment without taking on additional inventory risk. But managing a dropship program can be challenging with the wrong software platform. That’s why it’s important to know what to look for with dropship automation platforms and how to evaluate them.
Dropship automation software: what it is and why you need it
Dropship automation software is a digital tool designed to streamline, optimize, and automate a retailer’s dropship operations. It enables retailers to efficiently manage product sourcing, inventory, order processing, and fulfillment by integrating with third-party brands and suppliers.
By automating repetitive tasks, reducing manual input and technical effort, and enhancing communication between retailers and suppliers, dropship automation software helps retailers save time, minimize errors, and boost their overall efficiency, which ultimately increases their sales and growth.
Benefits of dropship automation software
Dropship automation software offers a range of benefits to retailers looking to optimize their dropship operations:
- Faster supplier onboarding
Retailers can onboard brands to their dropship programs quickly with dropship automation tools. Without these tools, retailers have to build custom integrations to modern and legacy ecommerce platforms, which is time- and resource-intensive.
- Accurate inventory management
Dropship automation tools pull live inventory data from vendors and share it with retailers. This reduces the frequency of stockouts and overselling for dropship products.
- Order, shipping, and returns management
Prior to using dropship automation tools, retailers had to track orders by emailing vendors and getting updates. Now, they can track orders from when a customer places an order on their website to when it gets delivered, or returned, without having to coordinate with vendors over email.
- Streamline supplier invoicing and payouts
Retailers can automate invoicing and payouts for their suppliers with dropship automation tools. This reduces the burden on a retailer’s finance teams to build custom invoices for each supplier and schedule payouts to them on time.
- More efficient merchandising
Dropship automation tools enable merchandising teams to add third-party products to their assortments more efficiently. This process includes validating product metadata, standardizing product taxonomies and tags, and transforming product images to match product listing standards for retailers.
- New brand and product sourcing
Retailers can leverage dropship automation tools and services to find new brands and products they want to add to their assortments. Some tools offer open networks that provide a self-serve experience for retailers to add new brands; other tools offer a closed network where introductions are brokered between retailers and brands.
Signs you need a dropship automation platform (or you need a new one)
Retailers launching a dropship program are often aware that they need a dropship automation platform to get started. Building custom integrations to ecommerce platforms is often a non-starter because it requires precious IT resources that retail teams don’t have access to. Dropship automation tools and their teams also provide institutional knowledge that retailers can leverage to build their dropship programs from scratch.
Retailers with existing dropship programs don’t have the information to evaluate whether their dropship automation software or internal tools are performing at the quality expected of best-in-class tools in this category.
Here are a few signs to decide whether you need a new dropship automation solution:
1. You spend weeks integrating with your suppliers
Whether your suppliers are on modern ecommerce platforms like Shopify and BigCommerce or they’re using legacy technology like EDI, it takes you weeks to get them live in your online assortment. Your dropship automation software should get you live with your suppliers in minutes, not weeks. Look at your average supplier onboarding time from first invite to when their first SKU goes live; if it’s longer than one day, you should consider changing your dropship automation tool.
2. You don’t have accurate inventory counts from suppliers
You often oversell products from your suppliers during sales on your website. You have high cancellation rates for orders from third-party suppliers because your customer support team finds out a product is out of stock only after orders have been placed.
Your dropship automation tool should update inventory counts at a high frequency. Find out how often your tool does so — consider switching tools if your updates happen longer than one hour intervals.
3. Your team is manually managing returns and supplier payouts
When a customer requests a return for a third-party product, your CX team frantically messages your suppliers on Slack channels to get shipping labels and process those returns, instead of having automations where a customer can request a return from your returns management platform and automatically receive a return label generated from your shipping platform.
Your finance team is manually reviewing orders processed through your dropship automation tool, figuring out which orders were returned, and reconciling invoices sent by your suppliers before they process their payouts.
If your dropship automation tool doesn’t have automations for returns and supplier payouts, you should consider switching platforms.
4. Your dropship team has dozens of steps to get third-party products live
Your suppliers are able to integrate with your dropship automation platform, but their products are often not ready to go live on your site.
Every retailer has different requirements for products listed on their website. Some retailers need UPC codes, some need exact product dimensions to be listed on their product pages, others need tags to describe sustainable values that matter to their customers. Collecting all this information take valuable hours away from your dropship team, hours that can be spent negotiating new partnerships.
Your dropship automation tool shouldn’t just provide the technical capabilities to integrate with your partners; it should also help you standardize product information and get the information you need from your suppliers to get your product ecommerce-ready.
Take a look at the number of steps your dropship team currently takes to get a dropship SKU live on your site — anything more than four or five critical steps, and you should evaluate moving to a different dropship automation solution.
Buy, don’t build
Multi-brand retailers launching dropship programs are often tempted to build their own dropship integrations and automation tools so that they can have the most control over the capabilities they’re looking for.
Building your own dropship automation tools is extremely expensive, with additional maintenance costs. Here’s a quick breakdown of what the costs look like for a single ecommerce platform integration:
To be competitive with any dropship automation platform, a retailer would have to build integrations with the top four ecommerce platforms in North America: Shopify, WooCommerce, BigCommerce, and Magento 2. To build and maintain those four integrations, a retailer would have to spend $250,000 in a single year, and this is just the initial engineering effort required to start their dropship operations.
Dropship automation tools cost a fraction of the amount required to build these ecommerce integrations. Some of these tools have additional connection methods using EDI, CSV, and APIs. They also reduce the headcount you need in your dropship team to partner with brands and onboard them because they make the onboarding process easy.
In the next section, we’ll cover how you should evaluate dropship automation software tools in terms of what to expect from their features.
10 key platform considerations every retailer should look for
If you haven’t shopped around for dropship automation tools in the past, you may not know what to look out for in a platform. Regardless of what your dropship program goals are, these are the ten key areas to consider when evaluating dropship automation platforms:
- Seller integration methods
- Inventory synchronization
- Product validation
- Product data transformation
- Invoicing and payouts
- Shipping and returns
- Vendor sourcing
- Platform user experience
- Quality of support
- Pricing models
We’ll share details on what to look out for in each of these areas and why they matter. We’ll also share key questions you should ask platforms during your evaluation process so that you can cut through sales cycles and make a purchase decision faster.
1. Seller integration methods
Dropship automation platforms are designed to enable retailers to offer third-party products to their customers. To do this, they need to provide integration methods to brands and suppliers so that their product and inventory data can be shared with retailers.
Seller integrations are must-have features for a dropship automation platform. Here are four considerations to make in this area:
- Number of integration paths
You want to offer your future partners integration paths that work best for them. Therefore, the more integration paths a dropship automation platform supports, the better.
- Integrations for modern and classic brands
Depending on your dropship assortment goals, you may want to partner with brands on modern platforms like Shopify and WooCommerce, as well as brands on legacy ecommerce platforms that prefer EDI. Your dropship automation platform should accommodate both paths to give you the technical ability to partner with any brand.
- Integration UX quality
Some integrations are truly one-click. For example, if a platform has a Shopify seller integration approved in the Shopify App Store, Shopify brands can install it and integrate with you immediately. Others require a few more steps for an integration to be successful.
As you’re evaluating dropship automation platforms, ask about the UX quality of each seller integration. Find out the number of steps required for sellers using each integration method. The less steps involved in each integration, the better.
- Integrate via public API
Another consideration to make is whether a dropship automation platform allows sellers to connect with you via a public API. If a platform has a public API, it indicates they have robust engineering capabilities and their API has been battle-tested internally and externally. It’s an indicator that their other seller integration paths are robust as well.
- Integration enablement
Integrations don’t adhere by the saying “if you build it, they will come”. Suppliers need resources to integrate with you, either self-serve through knowledge enablement, or through a platform’s support team guiding them through the process. Ask dropship platforms how they enable suppliers to integrate with their platforms? Platforms that offer multiple enablement routes have a better likelihood of success vs. platforms that only offer support docs to suppliers.
2. Inventory synchronization
Inventory synchronization is essential to success with a dropship program. After sellers have integrated their product and inventory data and partnered with you, their inventory needs to be updated frequently so that you know what products to put in front of your customers.
Our data shows that:
- if a seller manually updates inventory, the rate of overselling is about ~10%
- If a seller integrates and inventory updates are automated, even if it's not quite real time (e.g. 15 minute batches), overselling is <1%.
Here are a couple considerations to make with inventory synchronization:
- Level of automation
Some platforms offer supplier integrations, but inventory updates have to be made manually.
Clarify whether a platform is automating the inventory sync process or whether your suppliers will still have to make updates manually. You want to avoid manual inventory updates since it can cause overselling and stockout issues after customers place orders with you.
- Synchronization frequency
How often does a platform update your supplier’s inventory? The more often updates are made, the better. Some platforms update inventory every 24 hours, but if you’re running a sale with third-party products, a 24 hour update period isn’t going to cut it. Other platforms update inventory every hour, which is more convenient.
3. Product validation
One challenge with adding third-party products to your online assortment is that you and your suppliers might use different product data for your listings. For example, you might have different barcode types, or you might need dimension and weight information for all your products if you’re covering shipping on behalf of your suppliers.
Collecting this information for third-party products is painful; it often requires many different email threads with your suppliers. Dropship automation tools use product validation features to simplify this process.
Here are three considerations you should make with product validation:
- Availability of product validation
Product validation is still a new feature for dropship automation tools. Check with platforms you’re evaluating whether they have validation capabilities.
- Flexibility and customization
Product validation should be as flexible and customizable as you need for your product data needs. If you’re forced to add a dozen validation requirements for your suppliers, they might not be able to integrate quickly.
- Validation troubleshooting
If a product doesn’t meet validation requirements, how will you and your suppliers be notified? Will your suppliers be able to resolve validation issues in a self-serve way or will they need support from your platform? You’ll need to clarify how to troubleshoot validation errors during your supplier’s onboarding process.
4. Product data transformation
Multi-brand retail merchandising teams spend hours collecting and transforming product data from their suppliers. With product validation, you’ll save time and effort collecting the right data from your suppliers. Product data transformation enables merchandisers to save even more time by formatting product data to align them to your existing assortment.
Product data transformation includes adding products to the right product category, removing seller tags in their metadata, adding your custom tags, standardizing product titles, formatting product titles for SEO, and more.
Here are a couple of considerations to make with product data transformation:
- Availability of product data transformation
Similar to product validation, this is a capability that is new for dropship automation tools. Check with platforms you’re evaluating whether they have transformation capabilities.
Every retailer’s product data requirements are unique. Find out how customizable a platform’s product data transformations are when you’re evaluating them. The more customizable they are, the more control you’ll have over the transformations you can make.
5. Invoicing and payouts
Retailers perceive invoicing and payouts as a challenging topic when they are evaluating dropship automation platforms. Their finance teams are wary of manually reconciling orders between their system of record and their dropship platform, and the same is true of their suppliers.
Retailers are justified in their concern here — few dropship automation platforms have fully automated invoicing and payouts functionality. This is an area where you should pay close attention to ensure you’re choosing the right platform.
Here are the following considerations to keep in mind with invoicing and payouts in your dropship automation platform:
- Level of automation
How automated is a platform’s invoicing and payouts process? Can fulfilled orders trigger automated invoices and be settled without your team’s intervention? Consider asking these questions to get a sense of each platform’s workflow.
- Invoicing flexibility
Returns are common in a dropship fulfillment context. Your dropship platform should be able to process payouts only for products that haven’t been returned by your customers, otherwise you could put your cash flow at risk.
- Number of payouts paths
Similar to seller integrations, having more payouts paths increases the likelihood that a supplier will partner with you. Examples include Stripe, PayPal, ACH.
- Downstream finance implications
When your system of record is integrated with a dropship automation platform, dropship orders should be recorded similar to your other orders.
6. Shipping and returns
Your suppliers will manage order fulfillments and processing returns, but your dropship automation platform is where order information for shipping and returns will flow between your system and theirs.
On the shipping side, a dropship automation platform should be able to accommodate different permutations of a shipping relationship between you and your suppliers:
Suppliers cover the cost of shipping and blend their average shipping costs in their cost of goods to you.
Your suppliers choose a carrier and service level and share this information with you. You then build it into your ecommerce shipping table for third-party products for your customers. The cost of these labels can be built into the cost of goods by your suppliers or they can invoice you for shipping costs on a monthly basis.
You issue shipping labels depending on what your customer prefers to your suppliers via an integration to your shipping account (EasyPost, ShipStation etc). By doing so, you can also negotiate a higher margin with your suppliers.
On the returns side, a dropship automation platform should automate the process of returning an order from your customer to your supplier. That includes:
- Passing returns requests from your returns management platform to your dropship automation platform and notifying your suppliers that a return has been initiated,
- Creating a return shipping label (if applicable) and sending it to your customers.
- Tracking the returns status of your orders.
Here are a couple of considerations to make for shipping and returns in dropship automation platforms:
- Flexibility in shipping workflows
As we’ve indicated above, you can have multiple different shipping relationships with your suppliers. For example, you might normally ask suppliers to cover the cost of shipping, but if you have a supplier you want to work with that has many low-price items and for whom shipping costs are prohibitive, you might cover the cost of shipping for them.
A dropship automation platform that has flexibility to handle different shipping relationships enables you to work with a broader group of partners for your third-party assortment.
- Level of automation for returns
Several dropship automation platforms say they have returns functionalities, but their levels of automation vary. Ask platforms you’re evaluating to show a diagram workflow of their returns capability.
7. Vendor sourcing
Since dropship automation platforms service many retailers, they have large networks of brands that are integrated with them. A common feature these platforms offer is vendor sourcing i.e. access to these brand networks so that you’re consistently adding new products to your online store and keeping your assortment fresh and differentiated.
Dropship platforms often provide vendor sourcing through open marketplaces where you can search for brands that are in their network and can reach out to partner with them. Open marketplaces are self-serve, but they come with a few downsides to consider:
- Lack of brand exclusivity
Any retailer can reach out to brands on an open marketplace, so you risk adding brands that your competition already has access to.
- Paradox of choice
Open marketplaces feature thousands of brands in every category. It can be challenging to find brands that are a good fit for your assortment.
Vendor sourcing isn’t a must-have feature to succeed with your dropship program. It might seem that way when platforms tout the number of brands available to partner with you, but brand partnerships ultimately succeed when brands are interested in working with you and you’re able to onboard them quickly and merchandise products efficiently on your website. If you’re a curated retailer, you might not even use vendor sourcing features because your brand partnerships team is experienced in finding trending products and brands that fulfill your customer promise.
8. Platform user experience
Software companies are known for claiming their interfaces are extremely intuitive. While marketing can make any platform look pretty, the devil is in the details. If your dropship automation platform isn’t easy to use, your suppliers won’t use it and your brand partnerships will suffer.
Here are a few considerations to keep in mind with user experiences:
- Does it optimize for efficiency?
Software that optimizes user experience should help their users accomplish tasks in the fewest possible steps. Evaluate platforms on these terms.
- Does it have a steep learning curve?
If you need a course to understand how to use a piece of software, it isn’t intuitive.
- Ease of self-serve troubleshooting
If a user runs into challenges in the platform, how easy is it to troubleshoot those challenges? Users should be directed by the tool to solve their challenges or with the help of documentation.
9. Quality of support
A stellar customer success (CS) team is essential to make your dropship automation platform a success with your suppliers. CS teams partner with your dropship team to onboard your suppliers to the dropship platform. Some teams also provide strategic guidance towards the long-term health of your dropship program.
A dropship platform can have great technology, but it’s useless without a strong CS team to support it. Here are a few considerations to keep in mind with support quality:
- Customer success and support team location
Choose platforms with customer success and support teams located where your suppliers and customers are primarily based. This prevents timezone delays in resolving issues for your suppliers and your team.
- Third-party review sites
Review platforms like G2 and Capterra are a great source of customer reviews, especially related to quality of support. Sort through a platform’s G2 reviews by searching for “support” or “customer success” and see if current customers have good things to say.
10. Pricing models
Dropship automation tools offer a range of pricing models to retailers, including a mix of monthly software-as-a-service (SaaS) fees, percentage rakes on gross merchandise volume (GMV) from transactions with your suppliers, and more.
Here are a few considerations to keep in mind when you’re evaluating pricing for these platforms:
- Transparency of monthly costs
Some dropship platforms make it hard to evaluate how much their fees will be each month because they have different pricing tiers based on how many SKUs are active in your account. As you receive commercials from platforms in the evaluation process, keep an eye out for this pricing strategy because you can quickly find your account upgraded to more expensive tiers when you partner with more sellers.
We recommend partnering with tools where pricing is more transparent for you. This includes models where you have a fixed monthly SaaS fee.
- Platform incentives
When a platform is incentivized to see you grow, it will go the extra mile to get you there. Some platforms build an incentive into their pricing model by charging a percentage of revenue generated by transactions between you and your suppliers.
A GMV percentage pricing model ensures the platform’s success is tied to your own. As you plan for your dropship sales growth, you’ll be able to clearly estimate your platform costs.
- Supplier charges
Some dropship automation platforms pull double duty by charging both retailers and suppliers. This pricing model can be a barrier for suppliers to partner with you because every margin point counts. Make sure to ask platforms whether they charge suppliers as part of their pricing structure.
Set your dropship program up for success with the right dropship automation software
Choosing a platform to run your dropship program can be daunting, but we hope this guide makes the journey less intimidating. As you navigate this process, remember this: you’re making an investment to make it easier for suppliers to trade with you, easier for team members to list third-party products, and faster for you to grow revenue with a dropship program. Take it from Indigo who 3xed their product assortment year-over-year, Scandiborn who transitioned 95% of their inventory from wholesale to dropship, and Harry Rosen who onboarded 40 brands in 60 days.
Every retailer is moving most of their inventory to the cloud and keeping their bestsellers in warehouses. However you choose to leverage dropship, it’s not a supply model that can be ignored anymore. If you’re just getting started with a dropship program, or if you have an existing one but are struggling with your existing tools, this guide can help you find the right dropship automation software for your needs.
Convictional is the leading dropship automation platform that helps retailers source, onboard, and transact with any supplier, including our network of over 5000 curated vendors. Our customers onboard brands in less than one day via integrations with Shopify, Magento 2, BigCommerce, WooCommerce, as well as CSV uploads and support for EDI.
For qualifying retailers, we’ll work with your team to identify brands and categories your customers will love, while ensuring they meet your curation standards and business requirements.
If you’d like to learn more about what Convictional can do for your dropship program, schedule a demo and we’ll show you what we can do.
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