According to Wikipedia, dropshipping is a supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to wholesalers, who then ship the goods directly to the customer. The retailers make their profit on the difference between the wholesale and retail price.
In a nutshell, you market and sell a product online at a price you choose. Then, after your customer purchases the item, and you receive payment for it, you place an order for the product you just sold with a "drop-shipper." The drop shipper charges you a wholesale price and ships the product directly to your customer. You pocket the difference between the wholesale (or near wholesale) and retail prices. The best part is that you have no inventory to hold or finance, and no shipping hassles.
One of the biggest problems drop shipping addresses for retailers is inventory control. In a traditional retail store setting, products are ordered in bulk from the manufacturer and must be stored in a secure area until displayed. This means maintaining a proper storage area, hiring employees to handle the stock and investing in security measures to prevent theft. With drop shipping, the retailer does not keep a large inventory on the premises. More space can be devoted to displays, and fewer employees need to be hired to handle shipping, receiving, inventory and security.
Many manufacturers also embrace the idea of drop shipping, because the retailer essentially becomes an additional salesman. Delivering large orders or bulky items to a retailer costs money in handling and fuel.
With drop shipping, the manufacturer can use inexpensive shipping methods (UPS, FedEx, local delivery companies) to get the ordered product to the customer directly. Manufacturers also own much more secured warehouse space than most retailers, so their products remain safe until ordered.
When drop shipping is available, many retailers and internet-only stores discover it solves many more problems than it creates. Shipping is left up to professionals, there is virtually no inventory to track and more retail space is available. Smaller shops can offer exotic or over sized products without worrying about importation costs or expensive storage.
Manufacturers also benefit from reduced shipping costs and more sales exposure of their products.
Use Drop Shipping to Expand into New Marketsby Stuart Lisonbee, Doba Education Specialist
For retail businesses, expanding into a new market can be a risky proposition. Aside from additional marketing costs, there are also the costs of storing new inventory that may or may not sell.
This is just one more situation where drop shipping can help save you time, money, and a lot of unwanted stress. Just like drop shipping is a low risk way to break into the retail business, it can also help your existing business get its feet wet in new markets.
Let's take a look at an imaginary online retailer that sells camping equipment. For years, this retailer has focused on specializing in tents and sleeping bags only. Now, to increase sales and profits, he wants to expand into more camping accessories such as cookware, backpacks, propane, emergency equipment, and so forth. The problem is, he's worried that he won't be able to overcome his reputation as a "tents and sleeping bags only" store, and he'll be stuck with a lot of inventory he can't sell.
In comes the drop shipper. Now the tents-and-bags-only retailer can start offering an expanded offering on his website without risking an investment in inventory.
One of four scenarios could possibly occur:- He is unable to sell any items from his expanded catalog, and goes back to selling just tents and bags. He only loses a little time from the effort.
- He sells some items, but not enough to justify bulk purchases of the additional items. He sticks with drop shipping the new items to keep his new customers happy and coming back for more. Hopefully, sales continue to increase and his expanded selection becomes a major part of his business.
- The expanded selection is a huge hit, so he starts purchasing inventory to save money by purchasing in bulk.
- He finds that he loves the time he saves from drop shipping so much, he expands his drop shipping operation to include his tents and sleeping bags!
Whatever you're thinking about expanding into, drop shipping could be the solution for your business. Using a drop shipper will allow you to run your tests without the risk of losing money on inventory.
When looking for a drop shipper, the usual rules apply: make sure they provide real-time inventory reports to minimize the risk of backorders, make sure they use a reliable shipping provider that also provides tracking information, and make sure they process orders in a timely fashion so you don't end up with angry customers.
Product Sourcing the Drop Shipping WayBy Jeremy Hanks, President of Doba
Many retail merchants looking for products to sell without the high costs of inventory and the hassles of packing and shipping products have discovered the perfect solutionâ€"drop shipping. With drop shipping, you list and sell a product at whatever retail price you set, collect your money, and then order the product from a drop-ship wholesale supplier.
The supplier packs and ships the product directly to your customer.
Drop shipping is the ideal low-risk solution for starting a retail business, particularly for online merchants. You don't need a great deal of startup capital to launch your business. With a drop ship supplier and an eBay account or your own webstore, you can immediately start selling products online. You order the product only after you receive payment from your customer, so if the product doesn't sell, your loss is limited to any listing fees you paid. If the product does sell, you can simply ramp up your marketing and sell more products.
By outsourcing inventory management, packing, and shipping to the drop ship supplier, you can invest more time, energy, and creativity in the more enjoyable and critical aspects of your retail businessâ€"product and market research, marketing and advertising, customer service, and actually managing your business.
Weighing drop shipping pros and cons
If you're wondering whether drop shipping is right for your business, weigh the pros and cons before making your decision.
First, consider the benefits of drop shipping:
- Drop ship setup fees are minimal.
- You pay your supplier after your customer pays you.
- Your supplier stores and manages the inventory - you do not have to purchase or manage inventory
- Your suppliers pack and ship products for you.
- You don't have to hire additional personnel to handle packing and shipping.
- You can test the market on a shoestring budget by selling one or two items.
Of course, drop shipping also has a few drawbacks you should consider:
- Drop fees may increase your expenses. A drop fee is a per-order fee that covers the cost of processing the order. You typically pay the same fee no matter how many products you include in your order.
- You can't save money by purchasing in bulk.
- Your supplier may run out of a hot-selling product.When your supplier runs out of a hot-selling product, it may put you in a backorder situation, your customer orders an item that is out-of-stock, so you can't deliver it. Although this is something to be concerned about, you can minimize the risks by carefully monitoring your supplier's inventory, running shorter auctions, or even having a few of a popular product shipped to you, in case a backorder situation arises.
To implement drop shipping in your retail business, you have two choices - either search for drop ship suppliers on your own and negotiate with each one individually or gain access to multiple suppliers through a product sourcing marketplace.
Several websites offer lists of drop ship suppliers. Many such lists, however, can be difficult to work with, and some are outright scams. In addition, even after you have a list of suppliers, you must contact each one individually, negotiate prices, and then learn each supplier's system for taking orders and managing your account.
If you do decide to negotiate with drop ship suppliers individually, be aware that many suppliers require some proof that you'e running a legitimate business:
- Proof that your business is a registered entity.
- A company name and tax ID number.
- A description of your type of business, marketing techniques, target market, and so on.
- Current gross sales figures, expected order volume, number of hits you have on your Website (if you sell online), and the typical conversion rate (the number of hits that actually make a purchase).
- Credit references and customer testimonials
- What's your average discount on a product? Wholesale price as a different meaning for different suppliers.
- Do you have a minimum order requirement?
- How much is your drop fee? A drop fee is a flat fee charged per order, which is the same regardless of how many items you include in the order.
- Do you provide digital images and product descriptions that can be used to advertise the products for sale?
- How often will you supply me with updated quantities of products in inventory? If a supplier rarely updates quantities in inventory, you face an increased risk of selling a product you cannot be deliverd to your customer.
- What’s your return policy? A no-return policy can negatively affect your bottom line.
A product sourcing marketplace can take many of the hassles out of locating and negotiating with drop ship suppliers and help you get your business up and running (and growing) much more quickly with much less risk. A reputable product sourcing marketplace offers several benefits:
- Access to dozens or even hundreds of drop ship suppliers.
- A single account to keep track of.
- A single, consistent interface for ordering products.
- Lower wholesale prices by leveraging the buying power of its many members.
- Additional services, including education, product and market research tools, and technical support.
- Ability to "push" a product offered by a supplier to eBay or other online marketplaces -including your own Webstore - without having to cut and paste product descriptions and photos.
Choosing a product sourcing marketplace
When selecting a product sourcing marketplace consider the following:- Which agent offers the lowest wholesale prices? Wholesale prices vary from one supplier to another. Compare the wholesale prices of several identical products to determine which prices are lowest.
- Which services are included in the price? Some product sourcing marketplaces may offer lower wholesale prices by trimming back on services.
- Do the marketplace suppliers offer product descriptions and photos to use in your marketing?
- Does the marketplace offer tracking information for shipped items?
- Do suppliers offer blind drop shipping, so the item appears to have shipped from you?
- Does the product sourcing marketplace offer fraud protection?
- How much is the average drop fee? All drop ship suppliers charge a drop feeâ€"a flat charge per order, regardless of how much you order. This is typically $2 to $5.
- Is the product sourcing marketplace reputable and reliable? Your customer's satisfaction depends on the reliability of your product sourcing marketplace and its suppliers. A reliable marketplace and suppliers increases customer satisfaction, which boosts long-term sales and profits.
- Is the product sourcing marketplace committed to its customer success? Some marketplaces merely provide access to drop ship suppliers without offering you the tools and training you need to succeed. Make sure the product sourcing marketplace you choose is committed to the success of your business, and that they provide you with education, training, fraud protection, and reliable technology.
Achieving your goals with drop shipping
Drop shipping can ease your workload and trim the cost of doing business, but it does not guarantee success. The retail business is very competitive, and if you try to compete on price alone, you're likely to find more disappointment than success. The following tips can help you achieve your goals:
- Identify a niche market. Match your interests to your market. Don't try to sell everything.
- Research! Remain on constant lookout for popular products that other retailers are not delivering or not marketing well.
- Sell the benefits. Don't just describe a product features - describe how the product makes the customer's life easier or more enjoyable.
- Keep an eye on inventory. Before listing an item, make sure your supplier has sufficient stock.
- Compete on trust. Customers need to know that their orders are secure, their information is safe, and that you’re reliable.
Doba is committed to simplifying and streamlining the process of product sourcing for eCommerce entrepreneurs who are looking to start or grow their retail business with the drop shipping solution. Doba offers a Lowest Wholesale Price Guarantee, free and premium educational and training resources, and additional tools to improve the success of Web retailers. Check out Doba for yourself and sign up for Doba's Free 14-Day Trial at www.doba.com/partners/flashecom