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What is Drop Shipping?

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drop shipping - Drop Shipping Pros and Cons - the Cost of Convenience

by Chris Malta

Many online sellers tout drop shipping for its ease; others dismiss it, arguing it leaves no room for profit. Like every other product sourcing method, drop shipping brings its own unique set of advantages and drawbacks to your E-Biz:

The Basics
Drop shipping is service some wholesale distributors provide that enables you to sell items on your web site without physically stocking them. The wholesaler warehouses large quantities of product, which you list in your web store. Your retail customers place their orders with you, and you pass them on to the drop shipper. The drop shipper sends the product directly to your customers, but remains invisible to them. The end result is that your small business appears much larger than it really is.

The Upside
According to Jason Sanchez, CEO of One Net Enterprises (OneInc.com), drop shipping presents your business with numerous benefits:

  • Lower Overhead
    Says Sanchez, "The costs that go into warehousing and shipping individual items can be tremendous. It doesn't become efficient to do so, until you do it on a large enough scale."


  • No Inventory Investments
    You don't pay the wholesaler for an order until your customer pays you. And you can test new products without purchasing inventory that may not sell.


  • Recovered Time
    The time you spent receiving and organizing inventory, printing labels, and packing and shipping orders is time you can now spend promoting your web site and providing faster customer service.


  • No Order Minimums
    Your wholesale orders are based on your customers' orders. You can order as many or few items as you need — even down to individual products.


  • Broader Product Selection
    You can carry items in your product line-up that would be difficult to physically stock. You're also able to offer large items, such as furniture, without the hassle of trying to ship each piece.

The Downside
Of course, drop shipping has limitations, as well — two in particular:

  • Thinner Profit Margins
    Wholesale is a volume business — the more you buy, the better your price-per-piece. Explains Sanchez, "Although your drop ship prices are true wholesale prices, they are wholesale prices on one item." You're not receiving additional discounts for buying bulk, so your per-item-costs are naturally higher.

    You're also paying a drop ship fee, either per container or per unique shipping location, to cover the extra labor and material costs the drop shipper incurs.



  • Occasional Delivery Issues
    If your drop shipper is slow filling your orders, or does a poor job packaging them, it reflects badly on you and costs you repeat business. When using a new supplier, it's always a good idea to test them out first and get an idea of what your customers will experience. Place an order with them yourself, and see how quickly and competently they handle it. If you order a few of your most popular items, you'll also have them on hand in case your drop shipper ever runs short.
The Bottom Line
Particularly when you're getting started, drop shipping is an easy, cost-effective tool for your E-Biz. That doesn't mean you should limit yourself to using only drop shipping — the most successful retailers use multiple product sourcing techniques. Drop shipping provides a great complement to your other product sourcing methods, and should be one part of your overall product sourcing strategy.
 
Archive List

ARTICLE ARCHIVE LIST

 

What is Drop Shipping?

Sell what Sells, NOT what's Cool

The Wholesale Misconception

Don't Get Taken by a Fake Suppli...

Wolves in Wholesale Suppliers' C...

Working Within the Process

Is Santa's Sleigh Big Enough for...

Beware of Drop Shipping 'Agents'...

Direct From The Factory?

4 Strategies for Seasonal Sellin...

3 Tools for Product Sourcing on ...

Tradeshows the Right Way - How t...

Tradeshow Sourcing - When the Sh...

Preparing for the Holiday Season...

What a Wholesale Supplier Expect...

Product Sourcing Using Trade Pub...

Tips for Finding and Getting Goo...

Storage Units Auctions - Buying ...

Starting an Antiques and Collect...

How EBay PowerSellers Source Pro...

How to Build Your Online Consign...

Dangerous Mindsets - Changing th...

Sourcing Customer Returns - Buyi...

Product Sourcing Strategies - Ne...

6 Common Product Sourcing Questi...

Increasing Your Profits through ...

Importing Basics - What You Need...

Selecting and Changing Your Prod...

The Inside Scoop on Trade Shows ...

How to Make Product Liquidation ...

Shopping with Uncle Sam - A Brea...

One Man's Trash... Could Be Your...

Our Town - Sourcing Products Loc...

An Intro to Closeouts - A Produc...

How to Find Authentic Suppliers ...

Beyond Borders - Sourcing Overse...

Heads or Tails? - How to Find Yo...

Five Holiday Trends - What Every...

Seeing the Whole Picture - A Who...

Drop Shipping Pros and Cons - th...

Far From Home - 4 Keys to Succes...

Product Sourcing Strategies for ...

The Ins and Outs of Importing - ...

How to Choose Your Product Lineu...

The Fine Art of Product Sourcing...

Sourcing The Secondary Market - ...

Local Sourcing Techniques - Prod...

Global Sourcing - Importing for ...

A Foreign Affair - Preparing to ...

Choose Wisely - How to a Pick Pr...

Made in China - Importing Option...

The Color of Money - How Color T...

The Nuts and Bolts of Liquidatio...

How to Break Into Importing - An...

Trend or Fad? What to Ask Before...

What Your Country Can Do for You...

Opportunities Abroad - China Sou...

Trade Shows Year-Round - What Pe...

5 Product Trends for 2008 that E...

Successfully Negotiating with Yo...

5 Strategies for Safely Sourcing...

Informed Compliance for e-Tailer...

Locate Qualified Drop Shippers f...

What is Product Sourcing? The So...

Where Do I Find Products to Sell...

Tips for Finding and Working wit...

A Beginner's Guide to Buying Dir...