What is Drop Shipping?
Drop shipping is a business model that involves “stockless” retailing. Just like a retailer, you sell merchandise. The selling is not done in a brick-and-mortar store but online on the Internet. That is, you put up a Web site to sell your merchandise.
And when you receive an order, you just tell the manufacturer or wholesaler to ship it to your customer. You would already have an agreement with the manufacturer or wholesaler, called drop shipper in this case, to ship individual orders. And they do it in your name, so that the customer would think that it was shipped by you.
That is drop shipping business in essence. You enter into a working arrangement with a manufacturer or wholesaler to ship merchandise to your customers, and to bill you at wholesale rates. You bill the customer at retail rates. The difference between the two rates is your profit.
Advantages of Drop Shipping
In conventional brick-and-mortar store, you have to:
- Set up a store with a full range of fittings, in a prime location;
- Buy and stock merchandise in the hope that you would be able to sell them;
- Incur interest on the money blocked up and suffer losses resulting from damaged and shop soiled stocks.
- Bother about shipping the merchandise and handling returns and damages.
You might be able to dispense with the shop in prime location if you opt to sell online, using an e-commerce Web site. In that case, you could stock the merchandise in a warehouse or your garage. However, you would still be incurring expenditure to buy and stock the merchandise, and also to ship them out to your customers. In addition to money, these things also require time and much bother.
In drop shipping, you don’t need a store, or warehouse (and the garage can accommodate your car). You don’t spend money buying great quantities merchandise in advance and then arranging to deliver them to customers. You save money, time and botheration.
So where’s the catch in this super business opportunity, you could be wondering. Why is not everyone a drop ship retailer?
The problems with drop shipping business are mainly:
- Finding a drop shipper. Manufacturers and wholesalers generally prefer bulk shipments, and might not have the setup to ship individual items.
- Doing this business online needs Web experience, often a full-fledged ecommerce Web site. Not everyone have this experience, or the willingness to hire a consultant.
Many advertisers who present themselves as ‘drop shippers’ might be just retailers like you. If you get your supplies from them, you would have to charge an inflated price because your supplier is charging his own markup while supplying to you. That person would also be competing directy with you on the Net, offering the same product at a lower cost. Eliminating such scamsters and finding genuine drop shippers is not easy.
Selling online requires Web experience. You might sell through Web auctions, Internet malls, or an e-commerce Web site of your own. As you would find in the articles under Ecommerce section of this Web site, setting up such a Web site and promoting it need quite some effort. Many small business persons might not be ready to go online. This is an opportunity that you could exploit, provided you could find a real drop shipper.
In this business model, you lose direct control over the quality of the product and customer service. If shipments are delayed, if returns and after-sales service are not handled properly, it would be your business that would suffer. This is all the more reason to find a genuine supplier who cares for quality and service.
Drop Shipping Business
Under this business model, you:
- Select a product you want to sell. Investigate the demand, competition and competitor practices finally selecting it. You would find the Market Research Wizard, described at the end of this article, an invaluable tool for researching demand, competition and selling methods of selected products.
- Find a genuine drop shipper for the product finally selected. You would find another resource for doing this, the Drop Ship Source Directory, also at the end.
- Learn the different ways of selling online – Auctions, Internet Malls and your own Web site – and decide upon the ones you want. The publishers of the Drop Ship Source Directory has also published a detailed guidebook, explaining online selling and other aspects in full detail, which you can download free.
- Contact the drop shipper you have selected, and enter into an agreement with them. You would find detailed guidance on agreements in the free guidebook.
- Start selling using the methods you have selected, and email all orders reveived to your drop shipper for execution.
- Follow up shipping by the drop shipper and payment by the customer. You might have to charge shipping costs, in addition to the item price.
Marketing Through Web Site
If you opt to market your products through auction sites or Internet Malls, you would have a steady stream of visitors to your store. However, you will have to adapt your storefront to meet the standards of the auction site or Internet mall.
If you opt to market through a web site of your own, you would have greater control over your shop. In this case, however, you would have to bring prospective customers to your site through your own efforts. Additionally, you would also have to organize facilities for customers to place orders and pay for these conveniently.
Your drop shipping business would succeed only to the extent that you could bring prospective visitors to your site. Go to the Ecommerce section of this Web site to learn all about e-commerce Web sites.
A reputed Drop Shipping Source Directory is published by WorldWide brands. They focus full time on locating genuine drop shippers and finding out the terms offered by them. For each product brand, the directory lists wholesale source, address, phone numbers, email addresses, web site, contact person, credit terms and how to order. They have also created a Market Research Wizard!, a piece of software to research the online market for any product you want to sell. The Wizard goes out to the Web and finds the Demand, Competition and Advertisements for the product you have selected. Based on the findings, an analysis is prepared indicating how easy it would be to market this product on the Net.