Drop Shipping: A Low Risk Way to Launch Your New E-Commerce Business

Starting an e-commerce business can be expensive as well as time consuming.

First, you need a professional website, a domain name, and a hosting solution.  Then there’s the substantial investment that needs to be made not only in inventory, but also in packaging materials and perhaps even a storage facility. Lastly, there’s the time you must dedicate to process and ship orders every day.

The good news is there’s a solution that can reduce your financial exposure while simultaneously saving you time, and its called drop shipping.

What is drop shipping?

Drop shipping is a business model which involves shipping products to consumers directly from the manufacturer (or distributor) while physically bypassing the actual seller.  The margin for the seller is the difference between what the customer paid for the products, and the cost charged by the manufacturer.

For example, when an order is placed on an e-commerce site, the seller receives the order as well as the payment from the customer.  The seller then places an order with the manufacturer, who ships the product directly to the customer.  The package received by the customer usually has the company name and address of the seller, not of the manufacturer.  The actual seller is not part of the fulfillment or shipping process.

With drop shipping you can sell thousands of different items yet carry absolutely no inventory.  Processing the orders takes a couple of hours per day and you can concentrate your efforts on sales and marketing instead of fulfillment and shipping.

Drop shipping is not only a great solution if you want to start an e-commerce business on a part time basis; it’s also a good way to test a market with very little up-front investment.  Of course drop shipping is not a perfect solution; it has drawbacks as well as benefits that should be examined closely.  Let’s take a look at the major ones:

Benefits

  • Easy to get started.
  • Most manufacturers do not even require a credit application, simply a valid credit card.
  • There are thousands of products to choose from; you can even set up multiple websites.
  • No inventory to purchase in advance.
  • No fulfillment or shipment issues.
  • Business can be run from anywhere in the world with an internet connection.

Drawbacks

  • No control over inventory.  You may occasionally sell a product then find out it’s out of stock.
  • No control over fulfillment.  Orders may occasionally be delayed or even lost.
  • You never get to see or use the actual product.  You must rely on manufacturer’s descriptions, specifications and photos.
  • Customer returns can be tricky.  Typically you need to get an authorization from the manufacturer before the customer can send back the defective or unwanted product.
  • Competition can be high – There may be hundreds of other businesses selling the same product with the same price.  Margins will probably be tight.

How to Find a Reputable Drop Shipper

While finding drop shippers is relatively easy, finding reputable ones is a bit tougher.

Reputable Drop Shippers:

  • Are real manufacturers or distributors, not middlemen.
  • Ship orders within 24 to 48 hours.
  • Have tracking systems in place to trace shipment status.
  • Offer a satisfaction guarantee.
  • Accept defective merchandise and ship a replacement quickly.

There are a couple of different ways of finding drop shippers.

You can search for them on-line yourself or you can pay a fee to companies that specialize in finding drop shippers, such as Salehoo, World Wide Brands, Doba or the like. Then there are other methods, like those advocated in Drop Ship Lifestyle, where you find manufacturers that are not pushing their products in a drop ship business opportunity and you open new channels for them and negotiate the relationship.

Either way, try to get referrals for any company you are considering using.

In the case of businesses such as Salehoo and World Wide Brands, user reviews are provided to help you make a decision.

After Drop Shipping

While drop shipping is a great way to jump start a business, you are still paying extra for all those additional services.

Once you determine that you want to continue with your e-commerce venture you may want to consider transitioning into a more profitable business model.

For example, you may want to consider purchasing inventory in bulk from your drop shipper then shipping it yourself.

By purchasing in bulk you get better pricing, which makes you more competitive in your niche. 

Start slowly by purchasing only your best selling models and continue to use drop shipping for the rest of the inventory.

Drop shipping is not the panacea of the e-commerce world.

It has benefits and drawbacks, but it does allow you to start an e-commerce business with very little up-front investment.

Due to its low risk factor, drop shipping is also a good way to determine if a particular niche market is viable before investing in inventory and infrastructure.

Best of all, it can be run and managed from just about anywhere in the world.  Drop shipping may indeed turn out to be the perfect business model to get your new e-commerce venture off the ground.

 

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  • November 22, 2016