It seems that everyone today has discovered a way to earn good money online or even a full-time living that would make the big business men of the outside world jealous. So, you’ve decided that it’s to time to catch up in the race and take your big slice of the pie too. (Why not? Even eighteen year old teenagers are doing it.) Determined to find your path of online success you scoured the net and bumped into a rather attractive term called “Drop Shipping”; an easy way to start selling products on eBay or an online store without worrying about stocking or shipping, and now you’re itching to try it out. But let me stop you here. Before you make the leap and start drop shipping with the first company you found on Google, you should take a minutes time to learn who this drop shipper really is. Of course you know by now what a drop shipper is, but the question you need answered is who the drop shipper is. Is he a manufacturer? Is he a wholesaler? Or is he a middle man? To understand who your drop shipper is, you need to know how the Supply Chain works.
The Supply Chain starts with a Manufacturer – the person who produces the merchandise from raw materials. Let’s imagine there is a demand for hiking boots in a city called Hikers Top. A Manufacturer will notice that demand and begin manufacturing a large bulk of hiking boots from raw materials like leather, cloth, rubber etc. Now, since the Manufacturer is so caught up in finding raw material supplies for production and busy running his factory, he doesn’t have enough time or money to put up a store in Hikers Top and sell his boots directly to the public himself. So he looks for a Wholesaler who will purchase his hiking boots in large volume bulk for, let’s assume, $50 a case (one case=12 pairs of boots). This price is the Manufacturer’s Wholesale Price.
However, this Wholesaler will not sell the hiking boots directly to Hiker Top’s public either. He is a Distributor who will distribute the hiking boots to numerous Retailers. He is the person who links the Retailer with Manufacture. This Distributor does business with one or many Retailers who have shoe stores in Hikers Top city. A shoe store Retailer will buy truck loads of hiking boot cases from the Distributor (Wholesaler) for, let’s assume again, $100 a case. The Distributor makes a profit of $50 per case.
Now the shoe store staff will unpack each pair of hiking boots from the cases and display each pair to sell for the price of $20 a pair. The Retailer sells thousands of hiking boots to Hiker Top’s public because it was just what they were looking for and they love the boots. The Retailer makes a nice profit of $140 per case bought from the Distributor ($20 x 12 boots in a case = $240, minus $100 which he paid for every case). The hiking boots reach the end-customer and everyone in the supply chain gets what they were looking for.
These are the basic components of a typical supply chain. (There may be more people in the real world that come in between, but you get the picture). Anyone of these “links” in the chain can be your drop shipper, but how do you know which is which? Typically, there are two types of drop shippers:
2.Manufacturers and distributors
As someone wanting to sell on eBay or an online store, YOU are the Retailer – the third link in the supply chain who sells products to the end-customer. Obviously, you will supply your products from either the wholesaler or directly from the manufacturer. You may realize from the above example that manufactures and wholesalers by nature sell merchandise in bulk, but, since the development of e-commerce many manufacturers and wholesalers have begun to offer drop shipping services to small businesses.
Alas, these kind of REAL drop shippers are tough to find. That is why a new “link” found its way in the supply chain, that is, the aggregators. Aggregators put up sites and show hundreds of thousands of products you can pick from through their virtual inventory. I say “virtual” because they don’t actually have those products stocked in their physical warehouse. They merely find a bunch of real wholesalers offering drop shipping and make an arrangement with them. They are in effect the middle man. As a retailer looking for products to get drop shipped you can come to the aggregator’s site, choose any number of products you want to display in your e-store, and sell them to your customers. You then buy the product from the aggregator and it takes care of the shipping and handling. These aggregators are not scammers; they just make the tough job of getting hold of real drop ship wholesalers easy for you and charge you for the service, while also offering some added value.
Now that you know that a drop shipper may either be an aggregator (middle man) or a real manufacturer or wholesaler, the question is which type of drop shipper to choose? Up till now it may seem clear that if you source your products from an aggregator you know that he is NOT the real wholesaler, but rather a middle man, so he will naturally mark up the price for the merchandise. But if you are lucky enough to find a real wholesaler who is willing to drop ship for you, or moreover, a drop shipping manufacturer, you will get a more competitive price for your particular merchandise. You will acquire a price that is closer to the wholesale price (of course, there are other constraints in drop shipping that makes it nearly impossible to get a true wholesale price even from a real wholesaler.)
I think now you will be asking yourself: Why would anyone drop ship his products from an aggregator (middle man) when you can find a better price from real wholesalers? The answer, as I said before, is that it is significantly hard to find a manufacturer or real wholesaler who will drop ship for a small home business. That doesn’t mean there are only a small amount of true drop shipping companies. There are plenty manufacturers and wholesalers that do drop shipping, but they are hard to find in simple free Google searches because they normally don’t advertise their drop shipping service like aggregators do. That is why you need the help of “product sourcing sites” like World Wide Brands or SaleHoo that help you connect with real drop shipping companies. If you wish to pass over the aggregator and get a more competitive drop shipping price by directly connecting with the real wholesaler, then taking assistance from sites like SaleHoo and World Wide Brands is a smart way to do it.