This is the time of year that a lot of people decide to begin their own online business. New year, new resolutions, new chance for a fresh start.
With the current economy and high unemployment, many people NEED to start an online business, because they need an extra source of income to get by. That’s why, this month, I want to focus on one of the easiest ways to get started selling online – drop shipping.
Drop shipping, for anyone who doesn’t know, refers to purchasing products from wholesale suppliers, one-at-a-time, and having them shipped directly from your wholesaler’s warehouse to your customers’ homes.
Not every wholesaler will drop ship their products for you. The reason for this is that wholesalers operate on very thin margins and make their money by selling in large volumes. In many cases, wholesalers simply can’t afford to drop ship products and still make a profit. That doesn’t mean, however, that you can’t find dropship wholesalers who will work with you.
The first thing you need to know is that, in order to set up accounts with them, you will need to make your online business legal. Regardless of whether or not they drop ship, real wholesalers will require your business name and tax ID in order to sell products to you at wholesale prices. (There are legal reasons why they do this.) You can find out how to get a sales tax ID for your state inside our Resource Center.
*On a side note:* If a supplier tells you that you don’t need to be a legal business to work with them – run as far and fast as you can. No matter how much they may claim to be a wholesaler, a supplier who sells directly to the general public (a.k.a. anyone who is NOT a legal business) is called a ‘retailer’. And since YOU are the retailer in this scenario, you don’t want to be buying from another retailer. This will only raise your product costs and lower your profit margins.
To make sure we’re all on the same page, let’s look at an example of how drop shipping works:
You decide to get started online and take advantage of the 2 months of waived ‘Selling on Amazon‘ fees that you receive as a bonus with your membership to ‘The Whole Sale‘. Inside the Worldwide Brands’ Members’ Product Sourcing tool, you find a dropship wholesaler of bread and cake pans, and you put up a number of their products on Amazon.
When Amazon notifies you that you have sold a set of pans, you immediately pass that order, along with your buyer’s information, to your drop shipper, who then sends the pans to your buyer’s address.
Your buyer pays you; you pay your supplier. The difference between your retail price and the total cost of listing and selling those pans is your profit.
That is the basic outline of the drop ship process.
There are several things about drop shipping that I want to cover with you, but there’s no way to touch on them all this week. So over the next couple weeks, we’ll talk about:
- the drop ship fee
- drop shipping best practices
- drop shipping profit margins
- drop ship suppliers
- drop shipping logistics
But today, we’re going to start out by explaining WHY drop shipping is such a great product sourcing method for you when you’re a new online seller. There are several key reasons:
- Lack of start-up costs. One of the biggest reasons people are starting to sell online is that they need extra money. They don’t HAVE a start-up budget. Drop shipping is the only wholesale product sourcing technique that doesn’t require any sort of investment in inventory. In many cases, your buyers pay you before you even have to pay your supplier. This makes drop shipping an ideal arrangement for anyone looking for a low-cost way to start a home business.
- No risk required. Because there is no inventory investment, you don’t have to worry about spending money on products that might not sell. You don’t have any funds tied up; so you don’t stand to lose anything if a product doesn’t move.
- Ability to offer a deep selection. Since you don’t have any carrying costs, you can easily offer a deep selection within your product niche (which is a great way to ‘add value’ to your online store). You can become the go-to retailer for your particular niche market.
- Ease of test-marketing. There’s no cost to test market seasonal products, special holiday items, and new ‘trendy’ items. That’s not to suggest you shouldn’t do your market research; but if you make a mistake and pick a ‘dud’, you don’t have to eat your losses.
- No storage issues. With stockless retail (as drop shipping is sometimes called), you don’t have to turn your guest room, basement, or garage into a storage facility. And as your e-business grows, you don’t have to rent warehouse space or deal with warehouse staffing, handle inventory management and tracking, or worry about reordering products before you run out.
- No shipping issues. You don’t need to buy special packing materials or boxes; pull the right products to fill every order; or wrap, pack and address every order. And you never have to set up an account with a shipping courier, schedule package pick-ups, or take your packages to a shipping center.
- Recovered time. Tracking inventory and shipping orders can eat up a BIG chunk of time for online sellers. The time that you gain back by NOT having to repeat these tasks, day after day, is time that you can now spend finding new products to sell online and marketing your online business to the world.
As you can see, there are some very compelling reasons why drop shipping is a great way for you to get started selling products online. It affords you an opportunity to start a home business even if you lack the money to get one going. Online success is never an ‘easy’ thing, but drop shipping is about as easy an entry point into ecommerce as you can ask for.
Next week, we’ll cover the limitations of drop shipping and how to overcome them.