If you are considering an e-commerce business selling products, having to stock inventory can be an expensive proposition. One option to avoid having to stock your own inventory is drop shipping.
Drop shipping can be a very cost effective way to make money without spending a lot of money. The way this works is: the drop shipper/manufacturer does not sell directly to the public, they use resellers (which would be you). You use the promotional materials from the manufacturer to promote the products on your e-commerce site. When a sale comes through from your site, you collect the funds from the customers, pay the wholesale price to the manufacturer and the manufacturer sends the product directly to the customer, normally under your label. The customer does not know that your company doesn’t stock the product.
The best thing about drop shipping is relatively low initial cost to start up. The basic items you need are a computer, website and phone contact information and of course, the drop shipper. Since you won’t spend any time purchasing stock, taking inventory, packaging and shipping, you can devote the majority of your time promoting your e-commerce business. You also will not have any excess inventory left over, which would cost you money in holding costs.
When looking for a drop shipper, there are several things to keep in mind. First, what is the cost of doing business with them? Some drop shippers only charge you the wholesale cost, plus a set fee for shipping. This is obviously the best deal for you, as you know what your costs are up front. Other drop shippers will require you to pay a fee to become a reseller for them on top of the other costs. You need to ask what kind of product response they have. If it is a very high conversion rate for sales, then the extra fee might be worth it.
Once you have taken into account all the fees, then you can set the price you want for the item, but also keep in mind what your competition is charging for the same items. With very popular items, some resellers will cut their prices so much that you can’t even compete with them.
Are there disadvantages to drop shipping? Of course! The biggest problem is that once the order is placed by you to the drop shipper, you have no control at that point over how fast it will get to your customer. Remember that the customer thinks you are delivering the product. If the drop shipper happens to be slow, or out of stock on an item, it could take a very long time for the customer to receive their order. And you are the one who has to handle the complaint call. You need to check with the Better Business Bureau about your drop shipper to see what kind of complaints have been received. It will also help to keep in good contact with the drop shipper, especially during peak order times, to make sure you know of product availability.
So, depending on the type of products you want to sell, or how much you want to invest in an e-commerce business, drop shipping could be a good option for you. Just do your homework and don’t sign any contracts until you have researched the company thoroughly.