what drop shipping is.

If you are like most online retailers – you will love the idea of drop shipping! In this video, we will take a look at some of the benefits and drawbacks. Let’s begin by quickly covering what drop shipping is.
Wholesale drop shipping is a very popular form of sourcing products because it allows you to pay only for the items that you sell.
It works like this: You find a supplier offering drop shipping services (you may need to email them to find out) and set up an account. Different drop shippers have different setups but usually you can choose to credit your account, or, you can simply leave it empty and pay for each item as you sell it. Once you've created an account, all you need to do is grab the drop shipper's provided photos and product descriptions for the items you wish to sell and list them on eBay or your website.
After you make a sale and receive payment, log into your supplier's site, select the product you have just sold and take it through the checkout and pay for it. Enter the buyer's address details, and the supplier will package it up and ship it!
The Benefits of drop shipping are:

• Drop ship suppliers really take all the responsibility of handling and managing stock, saving you a heck of a lot of time!
• You don't have to store stock on site,
• All packaging and postage is taken care of
• You only pay for the stock you sell, so you remove the risk of holding stock and being stuck with it if an item doesn’t sell
• No minimum order - you don't need to have a lot of cash to get started
• For new sellers the main advantage of drop shipping is the lack of risk. But for more advanced sellers, I believe that the greatest benefit drop shipping holds is the ability to offer more choice.

You may have heard the phrase 'long-tail', it’s a bit of a marketing buzz-word. In a nutshell, the 'long-tail' means targeting the far corners of niche markets that are normally untapped by selling a lot of low-demand products. Experts have worked out that when added together, sales of low-demand products actually exceed those of single products with very high demand!
Drop shipping enables you to take advantage of that strategy very easily. For example, a DVD seller using a drop shipping supplier could promote 400,000 different DVDs! They are able to make money by selling a lot of low-demand products without any risk or storage inconvenience. This gives the DVD seller a massive advantage over regular DVD stores.
Moving on to The Drawbacks…

• Probably one of the most common problems sellers have with drop shippers is sudden stock shortages. A sudden rush for a particular product might cause the drop shipper to sell out, leaving you in a bit of a sticky situation if you've got orders to fill!
• When you drop ship items, you will be paying $2-$5 dollars more per item compared to sellers who purchase in bulk. This can make it difficult to compete on marketplaces like eBay, especially if you are selling popular items like iPods or laptops. Selling deep niche or unique items suits the drop shipping model better.
• Having no control over your inventory means that if buyers ask you for a unique photo of the item, you are unable to meet their request.
• Drop shippers aren't perfect, but if they stuff up, you get the blame and you might get bad feedback placed on your account, if you are selling on a marketplace. If the supplier packages the item poorly, causes delays in shipping, or makes a mistake with the order, then you are held responsible, even when there is very little you can do about it.

Let’s quickly recap on what we have covered in this lesson:

• Drop shipping allows you to sell products before you purchase them from a wholesaler.
• The benefits of drop shipping are: There is very little risk for you because you don’t have to invest money, you don’t have to store stock or ship items, and you can offer your buyers a wide range of items, without having to front up a lot of cash.
• The drawbacks are that sometimes stock shortages occur and you have to refund your buyer because your supplier is out of stock. Sometimes when you drop ship, it will be difficult to compete on marketplaces such as eBay because you will pay more for the same item that other sellers are buying in bulk, and therefore getting a bulk discount on. Also, lack of control can be a problem and if your drop shipper slacks off, you will be held responsible by the buyer.

All and all, drop shipping is a fantastic way to sell items online – you just need to make sure that the prices you can source products from suppliers for, actually match up on eBay or another marketplace and allow you to make a profit.

Advantages and Disadvantages of Dropshipping

     

Should you choose a drop shipper?
How to choose a drop shipper?
It’s a pretty serious question that faces retailers of wholesale's wholesale clothing these days. ‘Do I dropship, and act as a middleman, or do I stock the inventory myself?’ There are arguments on both sides of this issue, because while there are attractive advantages to dropshipping products, there are also disadvantages involved. To help explain the issue, we’ve put together a little primer for you.
What is Dropshipping, exactly? In a nutshell, it’s selling through a third party. Company A, who holds the actual inventory offers Dropshipping. Company B is, for instance, a women’s clothing retailer, wants to sell company A’s products to their customers. The Customer then orders the items through company B, who sends the order on to company A. Company A sends the items directly to the customer. It can be a little confusing, but in reality, it’s a fairly simple process.
What are the advantages of Dropshipping? The advantages are fairly clear cut. A company who uses another party to dropship does not have to buy inventory of their own. They can start a business much more cheaply because they do not have to pay the cost of start up. They don’t have to store items, nor are they ever left with spare inventory.
What are the disadvantages of Dropshipping? There are always negatives to every positive. With dropshipping, retailers hold far less physical merchandise, if any. As a result, their customers have no way of seeing the physical items before they purchase. This can be problematic, as it can lead to a high percentage of returns. Another disadvantage is the time involved in handling customer service. If a customer is dissatisfied, they will contact you, rather than the company who shipped their product. You will have to contact the shipper, delaying customer service time, which may anger the customer. Also, by relying on a third party shipper, you will be responsible for any mistakes they make. If they delay shipping, or have a problem with the order, it will be you who is held accountable. A customer may avoid buying from you because of a mistake on the part of your shipper. Competition is also a large factor. Dropshippers sell indiscriminately to anyone, meaning that there will be a lot of places offering the same products you are selling. You may not be able to afford to compete with their prices

Advantages of Drop Shipping

Advantages of Drop Shipping

First, let’s look at the advantages of drop shipping.

1. Upfront Costs. As an online retailer you have a virtual store, so why not have a virtual inventory as well? Drop shipping can reduce your upfront costs and commitments. You have no inventory-carrying costs. You don’t have to buy products in case lots or meet minimum purchase requirements to order or restock. You have no warehouse to maintain with no pick-pack-ship staff that you have to pay regardless of whether or not they’re working.

2. Bulky Items. Certain product types lend themselves to drop shipping, especially big and bulky items. These items are expensive to receive, store, and ship back out, so it makes a lot of sense to drop ship them from the manufacturer.

3. Location. The location of certain suppliers can also provide a geographic shipping advantage. For example, while our company is centrally located in the US, we have a very reliable West Coast company who is an excellent shipper. Since they are a lot closer to our customers than we are, drop shipping makes a lot of sense.

Problems with Drop Shipping

But there can be problems associated with drop shipping.

1. Drop shipping can increase your COGS (cost of goods sold). Usually a stocking retailer is paying less — and sometimes much less — than a drop-shipping retailer selling the exact same SKU. Stocking retailers typically get better pricing, additional bonuses, marketing incentives (such as co-op advertising), insider knowledge about the product line, access to deals, and many other advantages of having a direct relationship with the manufacturer of what they sell.
2. Drop shipping can limit product selection. When you limit your store’s merchandise to drop-ship only manufacturers and distributors, you limit your customers’ options. For example, with Gun Dog Supply we have over 100 vendors,  most of whom don’t drop ship. Thus most of those products aren’t available from secondary distributors or drop shipping companies.
3. Drop shipping can have higher fulfillment costs. When you drop ship, you not only pay the real cost of stocking, picking, packing, and shipping, you also pay a hefty mark-up which means drop shipping costs scale as your sales grow.
When you stock merchandise yourself, you have a lot more control over these costs. For example, my warehouse rent has been the same for the past three years. My cost to ship a  box goes down each month as our sales grow and as we get more and more efficient at shipping packages.
4. Drop shipping can increase customer service headaches. Drop shipping entails at least twice as much customer service work on every order, and problems with orders are more difficult to sort out.
For our company, dropping shipping adds two extra steps: placing the order with the drop shipper and posting the shipped order within our Order Management System. Many times this can be automated, but for smaller retailers it’s problematic. Some manufacturers’ and wholesalers’ internal systems are horrible.

Also, several of our suppliers use shippers that we don’t use. When UPS gives us trouble about a box, because we have a shipping account and ship a lot of volume, we have a pretty good idea about their policies, delivery times, and have someone on speed dial to call when there’s a problem — even when it’s not our account shipping the box. But our customer service representatives don’t know the ins and outs of FEDEX or DHL.

Different Types of Drop Shipping for Different Types of Retailers

Though drop shipping has its downsides, there are situations where drop shipping can be a real advantage.

Drop Shipping as Business Model. One of my former clients has an eight-figure a year business and all he does is drop ship. He consolidates the catalogs of 50 to 75 different manufacturers on his Yahoo! Store and literally has no inventory. The industry he is in typically has longer delivery cycles than most online retailers, so he’s at no disadvantage with an extra day or two of order processing.

Drop Shipping as a Research Tool

I once had a small business client who ordered $25,000 worth of inventory and had it stored in his basement before he even built his Yahoo! Store. He ordered one of each SKU made by several companies because that’s what he thought he needed to do to get started selling online. He would have been better off spending that money on creating content and marketing his new business, to get some cash flow going through his business before committing to a large inventory of products. Even with 20 years of experience, this happens to us as we get into new product lines. “Uh, why do we have $10,000 of white dog collars?”

Drop Shipping as a Secondary Source of Supply. Some retailers use drop-shipping as a back-up source for when snafus happen with traditional sources. For example, the manufacturer of one of our most popular dog training collars changed the box design, so shipments were delayed for several weeks. This is a product that we should never sell out of, but we did, and fortunately the two or three days we were sold out, we had multiple other drop-shippers to use to make up for our mistake. We made less money, and did more work, but our customers were happy.

Drop Shipping for Bulky Items. We also use drop shipping for specific items when it makes more business sense than stocking the item. For example, some of our dog houses are big and bulky. It makes no sense to ship them more than once.

The benefits and disadvantages of ‘drop shipping’

  

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An e-commerce business has many things to take into account when setting up, like delivery arrangements and concerns, where the stock will be stored and what is the most cost effective and least time consuming way for the company to arrange its items. This is how drop shipping has become one of the most preferred choices for e-commerce sites today.
‘Drop shipping’ is effectively taking out the process of having deliveries from suppliers to your company and simply getting them to deliver the item straight to the customer. It cuts out the unnecessary task of taking a delivery to simply send it out again. This saves money for both companies on postage and eliminates the need to worry about storage space for smaller e-commerce sites. Whilst it has its advantages, drop shipping isn’t ideal for everyone and as always there are down sides to its benefits.
Benefits of drop shipping:
The start-up costs are smaller
In order to set up an online business, a good chunk of capital is usually required to buy your inventory of products that you wish to sell from your shop. This is most commonly guess work, there’s no saying how much stock you’ll sell for that month/year so this eliminates having to risk your money in unsold stock.
You can offer items almost instantly
Usually when a retailer wants to start selling a product, they’ll have to wait until all of their stock has been shipped in order to being advertising them on their website. (What’s the point in offering an item for sale when you can’t actually sell it?) Using drop shipping means that when you decide you want a product on your site, you can start advertising almost immediately.
You can offer a wider range of products
Having the ability to offer a wider range of products is always something a company can aspire to and with drop shipping, it’s possible. You don’t have to worry about different colours or sizes and where they’re all going to be stored, you simply list them on your site and you supplier can deal with the rest.
Testing new products without a risk
When adding new products to your range, the risk of not selling is always an underlying risk. Having to guess what your customers want to buy is a tricky feat for anyone, so being able to test the water without making any true investment is always an advantage for your site.
Time saving is key
Organising your stock and preparing it for delivery can often be a time-consuming nightmare. Using a third party to ship items saves handling, labelling, packing, shipping etc, leaving you time to focus on growing your business in different areas.
Disadvantages of drop shipping:
Processing your orders can become difficult
Many companies that use drop shipping as a sales strategy work with multiple wholesalers, each of who will come with different requirements for order processing, billing and shipping which can make things very complicated. This time gap between selling a product and then getting it shipped can also take longer as there are many conversations and actions that will take place before it gets sent off.
Not having all of the product information is problematic
As you never actually handle the products that you are selling, you have no realistic idea of what they are like. Given the manufacturer doesn’t give enough product description that’s of adequate level, you can’t answer general customer enquiries about the products dimensions, weight, ease of use etc. without constantly forwarding their questions to the supplier. Lack of information will leave noticeable gaps on your website and this isn’t good for any company – empty information may put a customer off.
You also never know about the availability of a product until a customer purchases it and you find out that it’s out of stock. This can be immensely frustrating for customers who are under the impression that they had purchased a product to find out that they actually didn’t. In order to eliminate this chance an automated system which updates stock availability regularly throughout the day is preferable or you can also request an email/phone call off the supplier if stock has run out; this is a little flawed as you may miss the said attempt of contact from the supplier.
Customer service issues
Drop shipping removes the responsibility of shipping but it also removes a large part of the customer experience from your control. There’s no way to ensure that a product has arrived on time or as described. When a customer calls to either complain or enquire, the process of resolution is slowed as you often don’t have the necessary information at hand and the query or complaint will have to go through a third party (supplier) before it can be solved. Time consuming can frustrate you, the customer and the supplier.
A vast amount of competition is everywhere
Finding great drop shipping products mean they generally will come with competition from other retailers in your sector. The margins of drop shipping products can be quite low as many manufacturers charge for the fulfilment service so you have little amount of room the manoeuvre with prices in order to beat your competitors.
As you can see from the benefits and potential problems, choosing drop shipping is an option that shouldn’t be chosen without major consideration. The problems that arise can often be solved just by careful planning and implementation of contact between the seller and the supplier, so with enough thought the disadvantages can be avoided.

Drop Shipping: The Easiest Way to Sell Online

    Drop Shipping: The Easiest Way to Sell Online

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Bonus Guide: Check out our Ultimate Guide to Dropshipping - a free comprehensive guide that covers everything you need to know about building and running a successful dropshipping business. Download your copy now.

By Andrew Youderian, ecommerce store owner, eCommercefuel.com

Many people shy away from starting an online store because of the startup costs and fulfillment hassles. But imagine if someone offered to pay your up-front inventory costs on thousands of items and manage your fulfillment operations. It'd be much easier to get started, and you could run your business from anywhere in the world. Sound too good to be true? It's not, if you know about drop shipping. 

In this article, I'm going to teach you all about drop shipping. I'll go over a simple definition, list the benefits, show you how to find drop shipping wholesalers, and give solutions to some common problems associated with drop shipping. 

What Is Drop Shipping? 

Drop shipping is a retail method in which you don't keep products in stock. Instead, you partner with a wholesale supplier that stocks its own inventory - you transfer customer orders and shipment details to them, and they ship the goods directly to the customer. The biggest benefit of drop shipping is you don't have to worry about fulfillment or inventory issues.
Also, most customers don't know you're drop shipping, since "private label shipping" lets you ship from the wholesaler with a return address and invoice customized to your ecommerce store.

The Benefits of Drop Shipping 

There are a number of reasons you should consider drop shipping:
1. You Don't Need Buckets of Money: Drop shipping makes it amazingly easy to get started selling online. You don't need to invest heavily in inventory, yet you can still offer thousands of items to your customers.
2. Convenience & Efficiency: Successfully launching and growing an ecommerce business takes a lot of work, especially if you have limited resources. Not having to worry about fulfillment is incredibly convenient and frees up your time to concentrate on marketing, customer service, and operations
3. Mobility: With all the physical fulfillment issues handled, you're free to operate your business anywhere you can get an internet connection.
4. It's a Trusted Model: You might be thinking that this sounds like some sketchy, fly-by-night model – but it's not. Plenty of Shopify online stores, even major retailers like Sears, use drop shipping to offer a wider selection of products to their customers without having to deal with increased inventory hassles.

How Do I Find Drop Shipping Wholesalers? 

Before contacting suppliers, you'll want to make sure your legal ducks are in a row. In the United States, most suppliers will ask for your business EIN number and a copy of your state sales tax and/or resale certificate. Once you're properly established, you can start contacting drop shipping suppliers.

There are various ways to find drop shipping wholesalers, and the video below outlines your options:

 

If you already know what products you'd like to drop ship, contacting the original manufacturer is the easiest way to find qualified distributors. Not all distributors will be willing to drop ship, but it will give you a list to follow up with. Unfortunately, the market is littered with scams and low-quality information. If you do decide to invest in a directory, I can recommend the paid directory World Wide Brands as a reputable source of drop shipping wholesalers - but it's still very important to exercise caution.
Google can also be an effective tool for finding drop shippers, but you need to keep a few things in mind.

3 Ways to Use Google to Find Wholesalers 

1. Search Extensively: Wholesalers and drop shippers are notoriously bad at SEO and marketing, and usually aren't going to pop up on the first page of Google for a term like “handbag wholesaler.” Instead, you'll need to dig deep into the search results, often going through 10 or 20 pages of listings.
2. Don't Judge by the Cover: Suppliers also tend to have outdated, late ‘90s-era websites. So don't be scared away by abysmal design and layout. While a sleek, modern site could signal a great supplier, a low-quality one doesn't necessarily indicate a bad one.
3. Use Lots of Modifiers: As you hunt for suppliers, don’t stop with a search for “wholesale” - make sure to use other modifier terms, including “distributor” , “reseller” , “bulk” , “warehouse” and “supplier.”

4 Common Problems With Drop Shipping 

Despite my glowing recommendation, drop shipping isn't ecommerce nirvana. Like all models, it has its weaknesses and downsides. With some planning and awareness, these issues can be managed and need not prevent you from running a successful drop shipping business.

 

1. There will be loads of competition and awful margins.

Solution: It's true. Products that can be drop shipped will spawn a lot of competition. Usually this will lead to cutthroat pricing and diminishing profit margins, making it hard to build a viable business.

To be successful, you typically can't compete on price. Instead, you'll need to offer value in a different way, usually through top-notch product education, service or selection. For more information on how to pick a profitable niche and add value, see these posts on finding a product to sell andthe anatomy of a profitable niche.

2. Syncing inventory is difficult & leads to out-of-stock items.

Solution: The best way to mitigate this problem is to work with multiple suppliers with overlapping product lines. It's inherently dangerous to rely on a single supplier. Having two suppliers doubles the likelihood that an item will be in stock and available for shipment.

Many sophisticated suppliers offer a real-time product feed, and you can use a service like eCommHub to easily sync your Shopify website with the warehouse.
Eventually, you’ll sell a customer an out-of-stock item. Instead of canceling the order, give the customer an upgraded product for free! You might not make much – if any – money on the order, but you'll likely build a loyal brand advocate.

3. It's hard to sell products that you never see.

Solution: In today's world, it's possible to become an expert in just about everything through information online. Selling products from manufacturers with detailed websites will allow you to become intimately familiar with a product line without ever having touched a physical item. And when you do need to answer specific question about a product, a quick call to your supplier or manufacturer will give you the answer you need.
You can also buy your most popular items to get acquainted with them, and then resell them as “used” or “refurbished,” often recouping most of your investment.

4. Involving a third party will result in more fulfillment errors, mistakes, and logistical problems.  

Solution: Even the best drop shippers make occasional mistakes, and mediocre ones make a lot of them. Suppliers are fairly good about paying to remedy problems, but when they're not, you need to be willing to spend what's necessary to resolve the issue for your customer.
If you try to blame your supplier for a fulfillment problem, you're going to come off as amateurish and unprofessional. Similarly, if you're unwilling to ship out a cheap replacement part to a customer because your supplier won't cover the cost, your reputation is going to suffer.
One of the costs of drop shipping convenience is the expense of remedying logistical problems. If you accept it as cost of doing business – and always make sure to put your customer first – it shouldn't be a long-term issue.

The Final Word on Drop Shipping 

Is drop shipping the path to overnight ecommerce success? Of course not. As with any successful online store, you'll need to invest over time in a quality website, marketing, and customer service.

But drop shipping does provide an easy way to get started and the ability to leverage other people's capital without having to invest thousands of your own. When managed correctly, it can form the foundation of your own successful online store.