Setting Up My Drop-ship Relationship - Part 2

My friend agreed to the situation where it would cost him nothing for me to design and build another website to sell his products. I’ll get a percentage of the products I sell on the website I build and I won’t have to deal directly with customers at all. He ships to them and deals with any returns, damage issues, shipping issues, etc. He communicates directly with the customer and the customers won’t call me, they’ll call him, the drop-shipper, directly. That’s because the phone number on the shipping documents will be his. I made that very clear to him. He likes it because it’s new revenue for him without his having to spend any time or money to find it.

He already had a wholesale price list because he already sells products wholesale to other retail businesses. I’ll just basically be buying from him at his wholesale prices and selling them on my Web site for retail.

One of the issues that come up in any deal like this is how to deal with shipping. Who pays for what percentage of the shipping costs? In my experience, the best thing to do is keep it simple. Instead of dealing with complicated numbers like X% of sales and Y% of shipping, we just agreed that I will get a percent of the gross, including shipping. So if someone makes a purchase on my website of $50 and the shipping cost is $10, that’s a $60 gross sale. I get to keep 30% of that amount and send him a check for the rest. That makes the accounting very simple.

If there are returns, he has to deal with them himself. Once the sale is made, it’s his responsibility to fulfill it. I don’t have the time to deal directly with the customers of the new website, so in this deal that’s his job.

I realize that in setting it up this way, I may be handing all repeat sales over to him because customers may contact him directly. But in this situation, it’s a drawback I’m forced to accept because most of my time has to be occupied with running StoresOnline.

The next thing we needed to do was agree on terms. We both agreed on simple net 30 terms. That means that every 30 days, he’s going to get a check from me for all the products he’s shipped to my customers over the prior 30 days. You may find that terms vary per supplier. I’ve seen situations where suppliers require payment every week. It just depends on their situation.

So those are basics of the agreement we set up. Next, I’ve got to choose a domain name that will help draw traffic to my new site, get my account set up, and start building the Web site.