Drop Shipping – The Easy Way to Get Started
One of the biggest challenges of selling products online is finding a cheap way to purchase the items you plan to sell. If you already have a retail store, and are looking to establish an online outlet, then this is really not a problem for you. Home-based businesses, however, have much more difficulty purchasing goods for resale. That’s because distributors and manufacturers will not sell directly to a home-based business.
Even if you are able to purchase goods from a distributor, minimum order sizes are generally large enough that a significant investment is required to get your initial inventories. In short, a home-based business intending to sell products online can easily spend thousands of dollars purchasing items that may be very difficult to sell online for a variety of reasons.
That said, there is a certain class of distributors that will allow a home-based business to sell products on their websites, and then drop ship them from the distributor’s location. There is no need to purchase pallets of goods, and no need to worry over warehousing and fulfilling orders. You sign up for an account with the distributor, list their products on your website, and when you get an order, they ship it to the customer. No inventories, no muss, no fuss.
You can market the products on your website, via online auction sites like eBay, or through prefabricated online stores like Yahoo! Shopping. Basically, anywhere you can find to promote the products is generally ok, however all the providers I’ve seen have very strict rules against spam e-mail.
Purchasing products from drop shippers is generally quite a bit less expensive than purchasing the same items retail. That said, you will not be able to buy items for the same “wholesale prices” that traditional retail outlets are able to purchase them for. That’s because you are not purchasing in the same quantities as more established firms, and most of the drop shippers charge a “Drop Ship Fee” which is tagged on to the cost of every order and can easily increase the cost of items you are selling by a significant percentage.
As an example of how this works, let’s assume you are selling music CDs on your website. Let’s further assume that the average retail price of a CD is $15.99. Because you have an account with a drop-shipping company that specializes in CDs, you are able to purchase CDs for an average price of $9.99. When someone orders a CD from you, you charge your customer $15.99. You then pass the order to your drop shipper who charges you $9.99 plus a Drop Ship Fee of $2.00 for a total of $11.99. Your net profit of $3.00 may not seem like a lot, but since you don’t have any overhead beyond whatever it costs for your web server space, you really do make out pretty well.
The example above using music CDs is a simple way of explaining the concept of drop shipping, however practically speaking you will probably find that CDs are not the best product to sell online. That’s because you will be in competition against companies like Columbia House that can afford to sell 10 CDs for a penny. They make their money back in the end, but only because they are able to purchase the CDs at an extreme discount. Whereas you are buying the CDs for $9.99, they might be paying only $2 per copy.
The same limitation applies to other “commodity” items like electronics, video games, and software. There are lots of competitors out there that can purchase the same items for less money, so you should try to think of niche products or value-added services that differentiate your website from the others.
There are quite a few dubious organizations out there that claim to have lists of Wholesalers that will sell to the home-based market. Unfortunately most of them are not legitimate. Worldwidebrands.com has an eBook that covers most of what you need to know about drop shipping called, "Starting Your Internet Business RIGHT" and it can be downloaded for free Here.
In conclusion, drop shipping should probably be considered as a start-up activity. Your goal is to test different marketing programs against each other, get your website ranked on the search engines, and build your business volume up. Once you get your site established and have a healthy volume of traffic flowing through your site, you should be able to gauge the profitability of establishing an account with a full-blown distribution company. After all, the drop-shipping alternative is an inexpensive way to get started in your business, but it is not the most profitable way to purchase goods once you have a full-volume business developed.
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ABOUT THE AUTHOR
Mr. Coers specializes in helping entrepreneurs build effective web businesses. His website, www.profitchoice.com contains useful articles and "how-to" guides to help organizations build their brands and sell more effectively.