Dropships Drop My OTB

I’m selling so many bird kites as dropships this summer that my open-to-buy (OTB) is freaking out. For those who are just joining us, a “dropship” is not a cool planetary assault vehicle like the one pictured above, but the far more prosaic practice of having a vendor ship an order directly to my customer instead of to me.

A proper OTB calculation is a fiddly fussy formula that’s way more complicated than my low-budget one-man operation needs. My OTB simply tallies up the average cost of merchandise as I sell it and subtracts what I spend on orders. If I sell $100 worth of stuff in a day and my average cost is 50.4%, then that increases my OTB by $50.40. 

My little formula includes the inbound freight charges that I pay to vendors, but not the amount collected and spent on outbound shipping to customers because those don’t affect the cost of replacing my inventory. But dropships are different. I still collect a shipping charge from the customer, but instead of paying it out as a postage line-item that offsets shipping income, I pay the vendor to ship the kite to the customer. That reduces my nominal shipping expenses while increasing the cost of the merchandise.  

Things go out of whack when dropships become a substantial part of my sales. Everything’s fine if $100 worth of kites actually costs the average $50.40. But if I pay the vendor $50.40 for the merchandise plus $15 to ship it to the customer, my OTB gets reduced by $65.40. The more I dropship, the more my OTB falls. A lot of dropships in May and June drove today’s OTB to negative $293. 

Now, this is just a bookkeeping problem; I did collect $15.60 from the customer to ship the kite. But that $15.60 gets added to my shipping income without a corresponding hit to my shipping expenses. Over the same six-week period in May/June I took in $914 in shipping fees and paid out $634 in postage, yielding a $280 surplus…which very nearly cancels the OTB shortfall. Zero isn’t exactly what I’m striving for here, but it’s better than negative.

After pondering lots of possible fixes, I decided that only adding a new column (“Dropship shipping”) directly into my OTB is going to work -- a disappointingly obvious solution, perhaps, but it’s a big deal to me. Every time I tweak my Accounting spreadsheet, year-over-year comparisons are compromised.  

10k

Right now Quickbooks is on transaction number 9999. I'm going to roll 10,000 at any moment now. That includes some noise, such as replacement shipments that went out for free – but it is close enough to the actual number of shipments to be an official milestone. A lot closer than Sunshop’s 10,270 tally, anyway.

It took nearly eight years (from November 21, 2005) to hit 10,000. Amazon undoubtedly does that many sales on a slow day -- hell, for all I know they make 10,000 sales in an hour. But I processed and shipped every single one of those sales myself, so that’s cause for celebration. Won't you join me?

Yay! Whee! Oboy!

OK, celebration’s over. Back to work.

We Built This City On Corn 'n' Taters

Back in March I wrote that the Corn-n-Tater microwave cooking bag was a potential game-changer because its creator wanted to funnel his online sales to Curio City. That led nowhere; in fact, I didn’t even get my stock until the middle of April and the supporting graphics came even later. Yesterday, even though I’d only sold nine out of my original 24 bags, I decided to replenish the one design that had sold and bring in a couple of new styles. My cellar is crammed with products that never sold nine pieces, and I still think the Corn-n-Tater bag promises to become a steady seller.

“Promise” is the right word. Yesterday I spent an hour on the phone working out the first steps toward becoming the manufacturer’s exclusive online retailer. I ordered 24 more bags outright and he’s sending 24 of his choosing on consignment. After tweaking some details of my presentation, he will redirect his “Buy Online” button to my product page, and I’ll welcome the eight to 12 retail orders that he receives on a typical day -- a nuisance to him that could conceivably double my annual sales (this week I had all of 16 sales with just one on Wednesday, two on Thursday, and none yet today). 

In August 25 million QVC shopping channel viewers and 85 million Rachel Ray viewers are going to see the Corn-n-Tater bag. If a big TV-driven surge joins with the Christmas frenzy that usually ramps up in October I might even have to transform the way I do business in ways that I can’t even imagine right now. That would be an interesting and unexpected problem to have. After bumping along in low gear for nearly eight years, I’ve resigned myself to Curio City staying in its rut forever. Being jolted into the fast lane overnight frightens me; I’m not afraid of success, but of sudden success. I have always assumed that I’d get there gradually, if at all. 

OTOH, with Panther Vision caps still in the doldrums, bird kites being seasonal, and annual sales down by double digits, this could be my lifeline. Ten sales a day would be easy enough to handle; the Corn-n-Tater bag is easy to ship. Anything over 20 would start to become a strain.

Of course, all that’s happened so far is selling nine out of 24 bags. My history is full of promises that didn’t pan out and nobody’s ever accused me of irrational exuberance.

It’s funny that this started at the Boston Gift Show, which regular readers know as the Cavalcade of Crap. It’s even funnier that the Corn-n-Tater guy considered the Boston show a waste of time and doesn’t plan to go back.

Baby Steps

I’ve dropshipped a lot of bird kites since I made poles an optional add-on (a move that has so far generated $639 in poles and probably landed a few sales that would’ve otherwise gone someplace else). 

“Dropship” means that the customer orders from me, then I have my vendor ship the product to them directly. It's great, in theory. I don’t have to pay for the stock until it sells, and it doesn’t take up any space. Sending the order to Jackite is less work than is shipping it myself. What could possibly go wrong? 

More than you might think. I’m at the mercy of another company whose shipping department isn’t always as prompt or diligent as I am. If a customer pays for Priority Mail shipping, I can put that instruction on the vendor’s order form…but they usually default to UPS Ground anyway. I’m not privy to Jackite’s stock status; I only found out that they ran out of 16’ poles after I had to upgrade a customer to the 20’ version at a loss of $10. If a customer is unhappy for any reason, they come to me. I sometimes have to accept returns on merchandise that I didn’t actually provide. And invoicing errors inevitably crop up – at the moment I’ve got one order from March that was invoiced but never charged, one from April that was double-charged, one from last week that gave me a tracking number with no invoice, and one from yesterday that hasn’t been acknowledged yet at all. So far I haven’t had any fulfillment errors, but I’m sure that’s just a matter of time.

Increased sales make up for a lot of these sins, but the step that I took today is still a leap of faith. I have always limited sales to the inventory that I actually have on hand. I never keep more than two or three expensive American Bald Eagle kites in stock, and when I sell out (as I did a few minutes ago) I can’t sell any more until I replenish my inventory.  

Today, for the first time, I changed the on-hand quantity of a sold-out kite from “0” to “999.” Yes, I have removed my inventory limit and placed myself completely in the vendor’s hands until my reorder arrives (whereupon I’ll return the on-hand quantity to its actual value). 

Thinking really big, I could remove all on-hand inventory limits from all of the kites. That would inevitably lead to more errors…but the occasional bulk sale might make it worthwhile. Ultimately, I could stop stocking these kites entirely and go 100% dropship. They are the largest, bulkiest product that I carry and the most time-consuming to ship. Most home-based retail sites are primarily or exclusively dropshippers, so expanding that aspect of my business is hardly a radical idea.

Giving up control and relying on outsiders always makes me anxious. Let’s start with baby steps. Right now, I’m nervous enough about having 999 assembled Eagle kites for sale when I actually have none in the cellar.