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Stockless Retailing for Tough Economic Times |
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Drop Shipping in Canada
From the Canadian Perspective
Drop shipping is a well-established marketing strategy in the United States. Many companies provide this service, and state
laws generally facilitate such trade. In Canada, however, things can be somewhat more complicated.
The wholesale drop shipping model is easy to understand.
- Your customer purchases product from you at retail cost;
- You order the product from your wholesale supplier, to whom you provide the customer's shipping information.
- The supplier drop ships the product directly to your customer.
This business model is also called stockless retailing, because you are are selling product without having to stock any inventory, mess around with packaging, or hassle with shipping.
You pocket the difference between the retail and wholesale costs. (For a more detailed essay on how drop shipping works, see here.)
Some resellers prefer to work only with Canadian suppliers and target only the Canadian market, but, until recently, few options
were available to them (see Find Drop Ship Suppliers in Canada > Directories for options).
Canadian businesses are not generally geared toward wholesale drop ship arrangements with independent resellers; instead, many market
directly to retail stores. An increasing number of businesses now have wholesale drop ship programs in place, however, and more
are becoming available all the time. Sometimes the best approach is to contact a local manufacturer or distributor and negotiate
a wholesale drop ship arrangement directly. |
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Finding Vetted Suppliers in Canada...
Worldwide Brands lists fully vetted suppliers in Canada (meaning: no cross-border hassles for Canadian customers)
and other countries, in addition to 8,000+ listed in the United States. New suppliers are continuously added, and there are many in Canada.
See Wholesale Sourcing or Find Drop Ship Supplier in Canada for more details about the Worldwide Brands package. Members can search suppliers by country. | |
Setting Up Your Business
Get Legal...
It's best to set up your business as a legal entity. There are many reasons for this, including the fact that you'll want to keep your personal and business finances separate,
but the most important reason to get legal is that reputable wholesale suppliers prefer to work with a "real business". To set up an account with a legitimate wholesaler, you should have
a Business Number (Canada) or Sales Tax ID (U.S.) — see the homepage and Wholesale Sourcing, for videos and links
pursuant to the this. It is also useful to incorporate. If you're in Canada, talk with the people at
CorporationCentre.ca. In the States, check out the services provided by
MyCorporation.com.
Learn the Ropes...
Once you've got the legal issues in hand, depending on your objectives, there are many additional issues to consider. You have
to find product, for example, and product sourcing can be problematic, given the number of middlemen and bogus operations out
there. We strongly encourage you to check out Worldwide Brands for free videos, articles,
eBooks and tutorials. CEO Chris Malta has developed a comprehensive resource that sets the industry standard, and
the wholesale product information is rock-solid, fully verified and reliable. You'll also benefit from an understanding of how
wholesalers and drop shippers work, how to handle taxes, brokerage fees, backorders and product returns, and so on.
Beyond that, and any other legal requirements you must meet (if, for example, you decide to import goods into Canada,
it's fairly straightforward to get going. Salehoo.ca provides a good general guide, entitled
Tax basics for Canadian eBay Sellers and Business Owners. We provide
detailed references below, and relevant links at upper right.
Finding Suppliers
As already indicated, we believe Worldwide Brands is the best product sourcing solution, but there are several approaches you might take to locate
wholesale suppliers. We discuss some of these below, and explore several more at Reviews & Recommendations,
and Find a Drop Shipper in Canada).
Finding the Right Products To Sell
Selling what people are buying is the only way to make money.
And selling those products in the right places is equally important.
One of the best ways to find the answers to both questions is the Market Research Wizard.
Market to U.S. residents via U.S. drop ship suppliers and service providers
It may prove much easier to arrange a wholesale drop ship solution in which you sell products only to residents of the continental
U.S., thus entirely avoiding cross-border hassles, GST/HST and RST. Indeed, many Canadian entrepreneurs have elected to market only
in the U.S. They still have to pay Canadian taxes on their profits from these U.S.-based transactions, but they avoid cross-border
hassles and shipping issues. Armand Melanson, for example, a successful online entrepreneur in Nova Scotia, advises that "[t]he
consumer/industrial base in the US has made it the mecca for selling online using the dropship method. Most people selling
successfully online (even those from outside the USA) are selling to US buyers using US suppliers."
- Doba®
Doba drop shipping cycle...
Drop shipping is the shipping of merchandise from a supplier directly to a retailer's customer. This means that
the retailer can ship to their customers directly from the suppliers' warehouses. This process minimizes risk
because the retailer does not need to buy the product until it has sold. Suppliers take care of the warehousing,
packaging, and shipping of products, saving you a great deal of money.
The product selling process:
- Find products to sell from the Doba Product Catalog.
- List those products on a web site or auction (use the descriptions and images on the Doba site).
- After the product sells, collect the money from the buyer.
- Place the product order through Doba after receiving payment from the buyer.
- The product is shipped directly to the customer.
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Doba® has been an eBay Certified Service Provider since 2004 and is regarded by many as the most trusted drop ship solution in the industry.
Their innovative business model enables the user to source product from 203 wholesale distributors, manufacturers and craftsmen (they add about 5/week),
all through a single account. They create relationships with U.S. suppliers and manufacturers who agree to drop ship products for Doba® members. The
monthly membership fee affords access to all of these wholesalers, some of the biggest in the nation, enabling small and home-based businesses to secure
product. You even have access to them during your 14-day Free Trial .
Their Order Life Cycle fulfillment engine manages an order from the time a member places the order until the customer receives the product; you can track the order and update your customers as to order status,
so the hassles of returns, refunds, and reconciliations are minimized. Doba® doesn't require a business license or credit references to setup your membership, and, with the exception of their new Advanced package, neither do they
require a Tax ID. Most suppliers, wholesalers, and manufacturers in the aggregated group charge a small drop ship fee for pulling, packaging and shipping a single product from the
shelf - a product they usually sell in bulk - and you do have to pay that fee when you order. Doba® makes all such fees transparent
to the member, however, when he or she selects an item for purchase. Upfront and itemized, you see precisely what your costs will be.
Doba® does not take a cut of your profits - they finance their operating expenses entirely through subscription costs. More than 30,000 members.
NOTE: We recommend this service for Canadians who market to the United States. Most suppliers do not ship to Canada.
- DropShipAccess
Located in Monroe, Michigan, this BBB-accredited business provides access to multiple suppliers without
taking a cut of your profits - the service is paid for through the monthly fee. Depending on the product, wholesale prices are generally 30-70% below MSRP. Shipping cost is listed with each product, and
the website states that most items can be shipped internationally — to Canada, the UK, and Australia (you still need to factor in duty and other hassles, such as product returns, but one rarely sees
an offer to ship internationally in this context). There are three plans: Basic ($39.95/month), Advanced ($59.95/month), and Enterprise ($79.95/month) — and there's a
7-day free trial. DropShipAccess is a member of the eBay Developer's Program,
and their Advanced package includes an eBay listing service that enables instant product loading to your eBay store. Other turnkey storefront solutions are also available. |
What if your US supplier won't ship to Canada?
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Better Business Bureau — Accredited Business A+
Incorporated in 1997 and active since 1997, Access USA, Inc. (MyUS.com) provides international package forwarding
through their warehouses in Bradenton, Florida; they serve more than 30,000 customers annually, and receive approximately 2,000 packages daily on behalf of their customers. Since stores
and suppliers in the US typically do not ship overseas, this service enables people living in any of more than 225 countries to enjoy the same services as US citizens. Each customer
chooses whether they are interested in package forwarding, postal mail forwarding or both. Three plans — Standard, Premium, and Premium + Mail — each with a small setup fee. Premium
plan is best for drop shipping — setup fee + monthly or discounted annual fee. | |
Duty under NAFTA
Let's say you're in Toronto, you have an online business that sells products for personal use, and you rely on a U.S. supplier
who drop ships items made in the U.S. to your customer, say, in northern Alberta. With respect to duty:
Your goods qualify for the U.S. duty-free rate under NAFTA if the following applies:
- the goods are for your personal use; and
- the goods are marked as made in the United States, Canada or Mexico,
or
- the goods are not marked or labelled to indicate that they were made
anywhere other than in the United States, Canada or Mexico.
If you would like more information on goods eligible under NAFTA, refer to Memorandum D11-4-13,
Rules of Origin for Casual Goods Regulations, which
is available on the CBSA's Web site at www.cbsa.gc.ca under “Publications and
forms,” or you can call BIS at one of the telephone numbers listed in the
section called “Additional information.”
Importing - Duties and Taxes
Now, the goods are not for your personal use, in this instance, but for your customer's personal use. They are considered "casual"
as opposed to "commercial" purchases, because your customer isn't buying one or two power tools, for example, not a pallet of 50.
In technical terms, your customer is the "importer", not you - you've simply facilitated the acquisition of product - and the customer
isn't responsible for any import-related paperwork. Duty does not apply under NATFA, but sales tax does. The relevant facts can be
found in Importing Non-Commercial Goods by Mail:
Notes on Taxes
- You do not need to register for a GST/HST number if your annual sales
are <= $30,000 CAD, but, should your total sales equal
or exceed that amount at any point in the year, you must call the office and register.
You must charge GST/HST on all sales thereafter. And,
"[i]f your total revenues from taxable supplies are over $30,000 ($50,000 for public service bodies) in a single calendar quarter or over four consecutive calendar quarters,
you are no longer a small supplier".
Further reading and useful contacts:
- The Ontario Retail Sales Tax (RST) has largely been replaced, but continues to apply to (1) taxable insurance premiums, and
(2) private sales of specified vehicles from a person who is not a GST/HST registrant.
On July 1, 2010, the Retail Sales Tax (RST) was replaced by the Harmonized Sales Tax (HST). The provincial
portion of the HST is eight per cent and the federal portion is five per cent, for a combined HST rate of
13 per cent.
The Canada Revenue Agency administers the HST. Visit their website at www.cra.gc.ca/harmonization or
call 1 800 959-5525 for more information.
- For other provinces, see above, or here.
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What mail items are duty- and/or tax-free?
You don’t have to pay duties and taxes if your mail item is:
■ a gift worth $60 or less; or
■ an item worth $20 or less.
[...]
What duties and taxes do you have to pay?
Duties
The CBSA calculates any duties owing based on the value of the goods in Canadian funds. The duty rates vary according to the type of goods you are
importing and the country from which they came or were made in. Depending on the goods or their value, some other taxes may apply, such as excise
duty or excise tax on luxury items like jewellery.
Under the North American Free Trade Agreement (NAFTA), duties on various goods imported from the United States and Mexico have been eliminated.
The NAFTA rates apply when the goods you are importing are made in the United States or Mexico.
Goods and services tax (GST)
You have to pay the GST on most goods you import into Canada. This is to make sure the imported goods are taxed in the same way as those sold or provided
in Canada. The CBSA calculates the GST on the mail item’s duty-paid value. This is the total value converted to Canadian funds, plus any duties that apply.
Harmonized sales tax (HST)
The Government of Canada has entered into agreements with certain provinces to collect the HST at a rate of 13 percent. If you live in a
participating province, you will have to pay the HST instead of the GST. The CBSA calculates the HST the same way as the GST. The tax you pay is
based on the mail item’s duty-paid value.
You do not have to pay the provincial part of the HST (i.e. 8 percent) on books at the time you import them. However, you will have to pay the remaining tax
(i.e. 5 percent) if the publisher has not already collected it from you.
Provincial sales tax (PST) and tobacco tax
The CBSA collects the PST on behalf of the provinces of Ontario and Saskatchewan, and both the PST and provincial tobacco taxes on behalf of the provinces of
British Columbia, Manitoba and Quebec. The CBSA collects tobacco taxes on behalf of Alberta and New Brunswick.
In British Columbia, Ontario and Saskatchewan, the PST is collected on most taxable non-commercial goods. Examples of PST-exempt goods in Ontario
and Saskatchewan include books, children’s clothing and children’s footwear. In Ontario, examples of PSTexempt goods include books, children’s clothing and
footwear valued under $30.
On behalf of Manitoba, the CBSA collects the PST on all imported non-commercial goods except footwear, clothing and books. In Quebec, only books are
PST-exempt.
The PST and tobacco tax rates vary from province to province. To obtain a listing of the rates currently in place, please refer to Appendix A of Memorandum
D2-3-6, Non-commercial Provincial Tax Collection Programs, which is available on the CBSA’s Web site at www.cbsa.gc.ca. [...]
Become an Importer of Record
If, on the other hand, you are bringing product into Canada for commercial purposes, such that you intend to stock and ship that
product to your Canadian customers, then you are the importer. In that case, read SME Centre: A Step-by-Step Guide to Importing
and Guide to Importing Commercial Goods, Canada Border Services Agency. Everything starts with obtaining a Business Number:
The business number
You must obtain a business number (BN) from the Canada Revenue Agency (CRA) for your import/export account.
There are three ways you can register for a BN or add an import/export account to an existing BN:
- call the CRA’s Business Window at 1-800-959-5525;
- visit the CRA’s Business Registration online site at www.businessregistration.gc.ca; or
- submit a completed Form RC1, Request for a Business Number (BN), to the nearest CRA office.
You can obtain a copy of Form RC1 from any CRA office or from the "Registering your business" page on the
CBSA’s Web site at www.cbsa.gc.ca. CRA offices are listed in the government section of your telephone book.
The BN has 15 characters: nine digits to identify the business followed by two letters to identify the account and four digits for the specific account
reference. Different letters are used to identify different types of accounts. The four major accounts are as follows:
- RT — goods and services tax/harmonized sales tax (GST/HST)
- RP — payroll deductions
- RC — corporate income tax
- RM — import/export
The import/export account is identified by an "RM" extension. For example, your import/export account will look like this: 123456789RM0001
If you do not use your import/export (RM) account it will expire after two years. You can reactivate it by
contacting the CRA’s Business Window (the CRA will make the referral to the CBSA). If there is any change in
your status (e.g. name or address change), you must report these changes to the CRA’s Business Window as
soon as possible. [...] [Read More]
Example: Online supplier of power tools and more, Scott White is an importer of record who stocks product in US warehouses. See Dropshipped Canada.
References — Canada and U.S. links and documents
More
SaleHoo.ca
I have been a member of SaleHoo for several years. The Canadian site offers many useful tips and strategies
for Canadian entrepreneurs. With regard to legitimate and declarable expenses, it is wise to check with an accountant.
The Basics
To make sure you meet all your legal and tax requirements it is a very wise idea to:
- Keep your business transactions separate from your personal by opening a business bank account.
- Use Excel or Quicken to keep records of your sales transactions. Both are easy to merge with eBay.
Paying Tax
Sole proprietors pay tax simply by filling in a personal income tax form at the end of the year.
GST [/HST]
You need to register for GST [/HST] ... if your worldwide taxable revenues are more than $30,000.
Tax Deductions
Tax deductions are one of the big bonuses of working from home. You can deduct any reasonable business expense from your income, reducing the amount of tax you have to pay right down.
Important: You must have receipts or other vouchers to support your expenses or claims. If there is no evidence available, the tax department may reduce the expenses of claims you have made.
What You Can Claim:
- Rent/mortgage payments
- Start up costs
- Advertising
- Computer leasing
- Delivery & freight
- Insurance
- Legal & accounting costs
- Telephone & utilities
- Fuel costs and travel expenses
- Business Use of Home (Rent, utility bills etc)
- You can deduct a proportion of your rent/mortgage repayments, utility bills and so on as long as you can prove your home is your principal place of business or you use the space only to earn your
business income and you use it on a regular and ongoing basis.
To decide how much rent/mortgage you can deduct, you need to measure the number of square feet you use for business and divide that by the overall square feet or your home. This area needs to be dedicated
solely to business use, so if possible, a spare bedroom or office is ideal but a portion of another room is still acceptable. This will give you a percentage of your home that you use for business and the
percentage of rent/mortgage you can deduct as a business expense.
Other expenses you may deduct include part of your maintenance costs such as heating, home insurance, electricity, and cleaning materials. You can also deduct a part of your property taxes, mortgage interest,
and capital cost allowance. It’s a good idea to consider getting a second phone line to make it easier to claim phone and internet bills for your business. [...]
Record Keeping
Your business success is dependent on your records. You also have a legal obligation to keep records for a minimum of 6 years from the date of filing your return.
Many new businesses make the mistake of not bothering to keep accurate records and end up not knowing where they stand. They don’t know where money is being wasted, when their profits are higher, and when
they are lower. This is a big mistake. You can’t hope to improve your business, to truly make it profitable if you don’t know what’s actually happening. And don’t forget that good records are also absolutely
essential in case of an audit and will protect you from penalties and potential problems.
You must record:
- Salaries and wages
- Operating expenses such as rent and advertising, and capital expenditures
- Miscellaneous items, such as charitable donations
Your records must allow you to determine how much tax you owe, or the tax, duties, or other amounts to be collected, withheld, deducted, or any refund or rebate you may claim.
You must have receipts or other vouchers to support your expenses or claims. If there is no evidence available, the tax department may reduce the expenses of claims you have made. [...]
Importing Records
If you import goods into Canada, your records must indicate the price you paid for imported goods, and list their origin and description. They must also include any documentation about the reporting,
release, and accounting of the goods, as well as the payment of duties and taxes. [...] |
Finding the Right Solution
The wholesale drop ship directory or service solution that works best for you will depend on the market you wish to target. Again, many Canadian
entrepreneurs prefer to market to the United States, because this strategy enables them to avoid cross-border hassles
and brokerage fees.
Some resellers prefer to work only with Canadian suppliers and target only the Canadian market, but Canadian businesses are not
generally geared toward wholesale drop ship arrangements with independent resellers — many market directly to retail stores,
with which they have drop ship arrangements. An increasing number of businesses now have wholesale drop ship programs in place,
available to legitimate resellers, and more are becoming available all the time. We listed several resources you can use to locate
these suppliers. Some service solutions don't require business references or credentials, but it remains your responsibility, as a
reseller, to meet the local, provincial and federal requirements for your business. The service provider simply requires that you
keep your account in good order.
If you do not use a service provider such as Doba® or Shopster, we strongly recommend that you get legal, get your Business Number (Canada) or TaxID (US).
When you approach a drop ship wholesale supplier independently, be aware that many do not want to work with a small-time online reseller whose orders
may be erratic and low-volume. Be professional and straightforward in setting up your account, but reveal your situation only
if asked directly. Sometimes the best approach is to contact a local manufacturer or distributor and negotiate a wholesale drop ship
arrangement directly. Some merchants, even those unfamiliar with drop shipping, will be willing to work with you once they understand
thhat working with you will prove mutually beneficial.
You need to know your objective. If you're interested in high-end sales on eBay, for example, you'll need to source product differently
than if you're selling unique niche items. If you haven't done so already, read Chris Malta's Free eBooks.
Be creative. Solutions are all around you.
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Dealing with High-Cost Shipping on Low-Priced Products
Clark Winegar, Doba's Director of Retention
You've probably noticed several items on Doba that cost more to ship than they cost to buy. Batteries are a perfect
example. With an MSRP of $1.48, shipping cost of $7.49, and a drop ship fee of $2.00. Who in his right mind would try
to sell a set of four AA batteries from a Doba supplier?
In this article, we explore the high cost of shipping low-priced items and reveal various ways you can include these
items in your business model to improve sales and even make a profit selling them.
Why are the shipping costs so high?
Why is the shipping cost so astronomically high? The answer lies in how the product is shipped. At Doba, we require
all our suppliers to provide us with tracking numbers for all shipments that can be tracked online. For drop shipping
we feel this is essential. Since our members never see or touch the majority of the products they sell, we have to be
able to provide them with the added visibility of online tracking. This means that all of our suppliers ship UPS, FedEx,
or DHL (mostly UPS and FedEx). These are premium shipping services that not only allow you to track packages online,
but also insure the packages and have certain minimum shipping fees regardless of size and weight.
You could ship the products for a lower cost yourself, but if you were to use the same premium shipping services, you would
end up paying about the same (in many cases even more) than what our suppliers charge for shipping.
Getting creative
Do high shipping costs prohibit you from selling these low-priced products? Certainly not. You just have to sell them
a little differently. The following list describes your options:
- Sell in bundles or sets. As long as you sell from the same supplier, bundling products together or selling a higher
quantity of the same product can be a great way to spread the shipping costs out over multiple items. One of our
suppliers, for example, offers card stock for $0.26 per sheet with a shipping cost of $5.43. If you add 150 sheets
of paper to your cart, you can sell the bundle for $39, and the shipping cost only increases from $5.43 to $7.49
(costing you less than five cents per sheet). Perhaps you could combine several different colors of cardstock into
a set or sell the paper with an album. Apply the same principle to other products. If you were selling a tiny digital
camera battery, you could combine it with new memory card and camera lens cleaners or other camera maintenance items.
Be creative.
- Absorb the cost into your profit margin. You see specials on the web for free shipping, $0.99 shipping, or other
low shipping offers all the time. How do they do it? Online retailers know that there's no such thing as "free shipping."
Carriers always take their cut. Companies that run specials like this have to absorb the shipping cost by making lower
profit margins. At first, lower profit margins may look less attractive, but sometimes a lower profit margin can make
the difference between getting a sale and losing a potential customer. Lower profits are better than no profits.
- Carry an inventory. One of the great advantages of drop shipping is that you don't have to manage inventory, but sometimes
carrying an inventory makes sense. If you find a product that seems to sell great but the shipping fees are cost prohibitive,
consider ordering a large quantity and having them shipped to you. You can then ship them out on your own using a lower
priced shipping alternative like the post office. This is extra work for you, but it could also mean more profit.
- Offer freebies or bonuses. Offer small, inexpensive items as promotional perks. A small bonus can make a huge difference
to a customer. Auto dealers give away stuff like new DVD or MP3 players, ski tickets and golf passes. Compared to the total
price of a $20,000 or $30,000 car, these bonuses are miniscule, but customers love them.
- Offer less expensive items only as an upsell. The idea here is to not offer inexpensive items as part of your regular product
catalog. Instead, have the item appear as an upsell only after an item has been added to the shopping cart. You can do this
with a universally upsellable product, such as glow sticks or flashlights if you specialize in camping equipment, or program
your cart to offer items according to the type of product that is added to the shopping cart (for example, offer tent pegs if a
tent is added or propane if a lantern is added).
You can use one of these methods, or combine several of them in order to be successful. Just remember, there is no such thing
as "free shipping." Someone always has to pay and most of the time it's the retailer, so get creative and learn to make money anyway.
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Copyright © Richard Dagan 2000-2012. All Rights Reserved.
Copyright resides with the original author or current holder of copyright for excerpted material on this site.
All excerpts are fully cited and presented in accord with fair use.
Logos and trademarks presented on this site remain the property of their respective owners.
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