Drop Shipping is an industry that has been around for a while; despite what some people may tell you. The difference now is that more and more people are purchasing products online, so purchasing inventory for a regular retail store may not be the best business investment anymore. (Take that comment with a grain of salt please 🙂
What is Drop Shipping? It’s a process where you sell products, either online or by telephone, and you only have to purchase the product once someone has placed on order with you. For example, I have a supplier who will drop ship iPods; and he gives me each one for $80.00 USD, doesn’t matter on the quantity. What I do is list his iPods on eBay for $120.00 USD. When someone bids or makes a purchase on eBay, I get the supplier to ship the iPod straight to the customer, and I get to pocket $40.00 USD.
It is a simple concept, but a lot of people overlook a lot of the risk involved, especially when listing on eBay. You have to remember eBay charges a lot of fees before you are paid that $120.00 USD. Using the example above, I will tell you how much in fees you would have had to pay (assuming the customer paid with PayPal)
- Listing Fee: $2.40 (you may have to list several times before you make a sale!)
- Final Value Fee: $4.16 ($1.31 %2B $2.85 )
- PayPal Fee: $3.78 ($3.48 %2B $0.30 Transaction Fee)
So as you can see, you will have to payout $10.34 to PayPal and eBay, which is just over 25% of your profit. (And all assuming your item sold on the first shot, which is rare)
Be sure to factor these fees in before you markup your product. Failing to do so will result in a major loss.