Dropshipping Insurance

Dropshipping Insurance

May 21st, 2013

worldwidebrands.com safety linkinNo, you can’t get an actual insurance policy against drop shipping issues, but there IS a way you can insure that you won’t get caught empty-handed by a backorder!

Sometimes it’s hard to see the forest for the trees. Here at Worldwide Brands, we spend so much time dealing with drop shipping and light bulk wholesaling and verifying and certifying legitimate wholesale suppliers that some of the simplest things about this business get taken for granted, and we assume everyone realizes them. As a result, sometimes there are simple little tips and tricks in the business that we don’t mention often enough to our site visitors and customers, assuming that you already know these things.

Well, when you’re just getting started in ECommerce, there are a LOT of little things to learn, and we have to remember that nobody is born knowing all these little tips and tricks. So, when we realize that there is a basic fact that will help you, and we haven’t said much about it, we need to get the word out.

Everybody knows that something you need to be careful about when you’re using a drop shipper is that you don’t get stuck with a backordered product, right? Someone comes to your Internet Store or eBay Auction and buys a popular item that’s selling well for you. You order it from your Drop Ship supplier, expecting immediate delivery to your Customer. But, the drop shipper emails you back to say that they are temporarily out of stock on that item, and it will take a few days or maybe a week or two to get the item to your customer.

So, you grit your teeth and screw up your courage, and email your customer to tell them the item is backordered.

When you run an Internet Store, a backorder is usually not such a bad thing. Most customers are understanding about it, and if you stay in touch with them once every few days concerning the status of the order, they’ll wait it out and still be happy with your service. Of course, if the customer needs it right away, you may end up refunding them. On eBay, however, people are used to immediate (or at least fast) order fulfillment. If you tell an eBay customer that you can’t ship the item they bought right away, you do take some risk that the customer might leave you poor Feedback, and possibly go elsewhere. This doesn’t happen often, but there is a way you can prevent it entirely.

What most people don’t think about is the fact that Drop Shippers are ALSO Bulk Wholesalers. Every single one of them. Bulk Wholesaling is the main business of these companies. At least, all the 100% legitimate drop shippers that are listed in our Directories are. :o) Drop shipping is simply something extra they are willing to do for you.

So, here’s the trick. When you have a product, or even a few products that you get from a drop shipper that is/are selling well on your site or Auctions, and you want to be sure you don’t get caught in a backorder, buy a few of them yourself! You don’t need many! Even just two or three will do it. Your drop shipper is a wholesaler, right? You’ll get them at a wholesale price, and you may even get them at a lower price than you’re paying to have them drop shipped, if you place a large enough order. For example, if you have four products that you know sell really well, you could buy three of each of them and have them shipped to you. Not drop shipped; just shipped bulk to your home. As I said, you may get a bulk order price break for doing that.

Why do that? Well, if you have one or two or three of these products stocked in your home, you DON’T get caught in a backorder! If your drop shipper backorders you, you can simply ship out one of your Reserve Stock products directly from your home to the customer, and then immediately suspend further sales of that product on your site or Auctions until you know the item is back in stock at your drop shipper’s warehouse.

Simple, right? A perfect little insurance policy against ending up with an unhappy customer.

Why buy two or three? Well, remember that you do this only with products you know are selling well. It’s possible that you might sell two or three in the same day before you find out that the item is backordered. If so, you’re covered, and you can quickly suspend further sales until you know the drop shipper has them again.

You can scale this little trick to fit your sales, too. If you sell five of a certain product every day, you might want to keep five of them in Reserve Stock at your home. And so on, and so on.

Yes, this costs you a little upfront money, but you can do it with profits from your business after things are running well, you don’t HAVE to do this right from the start. Backorders are NOT that serious an issue if you talk to your customers about them immediately, and offer a refund. And remember to be sure you only do it with products that are selling well, so you DON’T have to keep Reserve Stock of everything you sell!

Of course, if you sell wide-screen TVs from a drop shipper, you can’t do this, but the majority of people in online business sell products that this little tip will work well with.

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6 Comments

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    Comment by Brett — October 5, 2013 @ 1:20 pm

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    Comment by barney — October 15, 2013 @ 7:19 am

  3. So – do I need insurance? General liability is what I thought I’d get from Hiscox, but they sent me to Bizinsure and both say they don’t have a ‘category’ for what we do (drop-shipping) I thought for things like if someone gets hurt from misusing the products we get from the manufacturers maybe?
    Interesting read thanks!

    Comment by Carole Gardner — June 8, 2016 @ 11:32 am

  4. Hi Carole,

    Thank you for reading and thanks for your question! The short answer is no.. you don’t need insurance. General Liability is insurance for if a customers comes into your store and trips and falls and tries to sue you. However, you do not have a physical storefront, so that cannot happen. They cannot sue you if they get carpal tunnel from clicking around on your site either! LOL! The products you sell in your store belong to the manufacturer and it is their responsibility to ensure that their products are safe for consumers.

    Let’s do another example.. if you purchase a Sony Television from Wal-Mart, and that TV radiates so much heat that it burns you and then blows up, do you go after Wal-Mart or do you go after Sony? The answer would be Sony. They have manufacture warranties and guarantees that the product is tested & safe for consumers. If they fall short of those guarantees, it is the manufacturers responsibility to make it right & to compensate you for damages. As most products that you purchase from a retailer that contain a guarantee, say to contact the manufacturer with any issues, not the retailer.

    The only kind of insurance that you could possibly get for selling online, is if you decide to open an office location where you manage your online stores. This kind of insurance is already required if you decide to rent a space; ie General Liability. If you work from home and have a home office, your home office is covered by your homeowners insurance.

    Hope that helps!

    Comment by Tisha Hedges — June 8, 2016 @ 12:18 pm

  5. As a dropshipper, I had a supplier that had a clause built into the supply distributor agreement requiring me to have liability insurance for not less than 2 million dollars for a period extending from the time that the agreement began to at least three years from that point. The clause specified that the liability insurance had to include the supplier as an additionally named insured entity. They refused to take out this section in the agreement. I did not understand why their agreement was framed this way since they had dealt with dropshippers before and supposedly understood the business model. It left me with the following options:

    1) I could do what most of the other drop shippers probably did and sign this agreement . This supplier didn’t require any paperwork or proof of insurance other than their agreement . My guess is that the supplier probably dealt with some brick-and-mortar stores or face-to-face salesman so the clause was really intended for those types of sellers.

    2) I could thank the supplier and move on which I really didn’t want to do since they were actually the first supplier I had gotten approval from. It sucked that they had this clause in the agreement and it put me in a position to either sign it knowing that I would not follow it or turn them away.

    3) I could seek out liability insurance . I asked them who they recommended and they didn’t have anyone to recommend which made me wonder what kind of insurance they had. I didn’t find this to be a practical solution anyone but I suppose it would have been the legally correct one.

    I asked my fellow dropshippers if anyone had run into this situation before and none of them had. Anyone out there ever encountered this problem?

    Comment by Chris — May 12, 2017 @ 6:01 pm

  6. Hi Chris,

    Thank you for your message. We have never encountered this with any of our listed suppliers. Generally this type of insurance would not be required for a retailer that is only posting the product for sale and 1. not making the product or 2. not handling the product for shipments. You have no liability if something was to happen to the product or someone using that product, because you are a middleman with dropshipping and haven’t even TOUCHED the product.

    It sounds a little fishy to have them named as part of the insurance. Any supplier, that is offering products for sale, or manufacturing those products, should have their own insurances in place and it would cover them if something was to happen.

    Retailers that use a suppliers dropshipping services are essentially an affiliate, that collects money from consumers, and pays the supplier. So if something was to happen to someone using that product, it would be the supplier/manufacturer that would be liable for any issues that arise.

    Comment by Tisha Hedges — May 15, 2017 @ 4:43 pm

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