What Is Dropshipping

Drop Shipping, the Cheap Way to Get Inventory and Build a Home Business

A drop shipping home business can be a very profitable venture is done right. Success is down to a finding a reliable dropshipper, with a top-notch service and a profit margins big enough to make it worthwhile.

If you’ve been browsing the internet searching for a business opportunity, the chances are you’ve come across drop shipping. In the retail industry, this is becoming something of a growing trend in order to help cut costs and keep things local, but what is dropshipping and how does it work?

What is drop shipping?

Dropshipping is where you, the retailer sells a product to a customer without actually holding stock. This stock is held by the wholesaler who “dropships” the goods directly to the customer with, or without your own branding and documentation.

A typical scenario would be: You advertise a product which you can obtain from a wholesaler (dropshipper) on your own website possibly using a shopping cart system, ebid or eBay for example. When someone clicks to buy the product, notice is sent to both you and the wholesaler. The wholesaler then ships the product to the customer using your labels, logos and documentation. You keep the profit from the sale and pay the wholesaler their commission. This way you don’t have to physically stock any inventory.

Drop shipping is really beneficial for smaller retailers, online sales, auctioneers, those working from home and those who primarily use sales catalogues.

Benefits of the Drop Shipping System

Many manufacturers embrace the idea of drop shipping, because the retailer essentially becomes an additional salesman and delivering large orders or bulky items to a central wholesaler is simpler and less expensive compared to delivering to many small retailers. Also, wholesalers generally provide secured warehouse space so products remain safe until ordered without any additional cost to you, the retailer.

Although there are downsides to everything, dropshipping generally solves more problems than it creates for the small retailer, especially those working from home.

The main benefits of drop shipping are:

• No upfront inventory to purchase.
• A positive cash flow cycle.
• Shipping is done by professionals.
• Reduced shipping costs.
• Fast delivery times.
• No inventory to track.
• No storage costs.
• No security costs.
• No insurance costs.

Drawbacks of Dropshipping

Dropshipping is not all roses, as in any business some risks are involved.

• Problems may occur when a product is not available, if not handled correctly this could reflect badly on the retailer (You).
  The wholesaler should keep the retailers updated, but it is the retailers job to be aware of the quantities the wholesaler has available. Ideally automatic updates should be enabled on your website.
• Some manufacturers do not support drop shipping and only deal in bulk orders to larger retailers.
• The customer may have to assume an additional cost for shipping on top of the sale price. This addition could be detrimental.

Dropshipping Scams

Unfortunately, our planet is awash with scam artists who play on the unwary and dropshipping is on their hit list. Victims who buys into their scam will be sold a list of businesses from which drop-shipment orders can be placed. These businesses usually act as middlemen between the retailer and wholesaler, with no product of their own to sell. These scam artists often charge prices that leave little profit margin for the victim and require a regular fee for their services.

To prevent being scammed:

• Calculate your profit margins accurately prior to entering into contract.
• Avoid wholesales who require a regular “participation” fee (some wholesalers charge a one-off setup fee).

Questions to Ask When Looking for a Dropshipper

Shipping – Is the drop shipper using a reputable shipping company to deliver the goods? Where will they ship to? How much do they charge?

Accounts – Will the drop shipping company automatically require payment on each order you submit or can you get monthly payment terms?

Support, Returns, Refunds – the last thing you’ll want is to be caught up in a nasty situation where you have a number of returns and have to foot the bill. Ask

What is the drop shipping companies returns policy? What support can they offer for their products? What guarantees are associated with their products. What is their return and refunds policy? These details should be in the terms and conditions, read it carefully.

Integrity – How long has the drop shipper been trading? Do they respond to your requests for information rapidly and professionally? Wholesalers and dropship companies have the habit of going bust. Be very, very careful in your choices.

How do You Become a Drop Shipper?

• Set up shop. This could be through your own website, or an auction site such as ebit or eBay.
• Find a wholesale supplier with drop shipping capabilities in your chosen niche. Open an account.
• Build your shopping site using content and images provided by the drop shipper or produced by yourself.
• When an order is made your site should alert you and take payment. You may need to set up a PayPal account to take online payments.
• Pass the order details to the drop shipper.
• The drop shipper should confirm the order and bill you at the price agreed. The drop shipper will then full-fill the order using labels referring to your business or web site and not the drop shippers.

Find Your Dropshipping Niche

When starting out, try to match your niche to as few wholesalers as possible. Having too broad a product range can prove counterproductive as you may find yourself working with multiple wholesalers because of the range of merchandise you are proposing to sell. This can be a real headache.

I recommend starting small, offering just a couple of dozen items whilst learning about the business. Only when you’re ready should you start expanding your company.

How to Find Reputable Drop Shippers?

As with everything, finding a reputable drop shipper is a case of doing your own research, but you can start by reading my Recommended Drop shippers article.

Remember to read the contract terms carefully. Be sure to satisfy yourself with the terms and conditions offered by these and any other companies before you proceed.