Many retail merchants looking for products to sell without the high costs of inventory and the hassles of packing and shipping products have discovered drop shipping to be the perfect solution. With this model, 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, who 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 Web store, 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 it does sell, you 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 businessproduct 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 don't 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 ship 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 with, 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.
Tracking down drop-ship suppliers
To implement drop shipping in your retail business, you have two choiceseither 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, like Doba, which offers its customer sellers more than 1.5 million products to sell in more than 8,000 product categories representing more than 3,200 brand names. Doba also offers a lowest drop ship wholesale price guarantee, free and premium educational and training resources, integrated data research tools, and additional tools to improve the success of Web retailers. Doba is currently offering visitors to Auctiva.com/edu a free 14-day trial of its service. To learn more, visit www.doba.com/partners/auctiva.
Several Web sites 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 have to contact each 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're 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, etc.
- Current gross sales figures, expected order volume, number of hits you have on your Web site (if you sell online), and the typical conversion rate (the number of hits that actually make a purchase)
- Credit references and customer testimonials
When you contact suppliers, ask the following questions:
- What's your average discount on a product? "Wholesale price" has a different meaning for different suppliers.
- Do you have a minimum order requirement?
- How much is your drop fee?
- 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 delivered to your customer.
- What's your return policy? A no-return policy can negatively affect your bottom line.
Simplified drop shipping through a product sourcing marketplace
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 marketplacesincluding your own Web storewithout 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's 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 flat fee per order, regardless of how much you order. This is typically $2 to $5.
- Is the product sourcing marketplace reputable and reliable? Your customers' 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 customers' success? Some marketplaces merely provide access to drop-ship suppliers without offering you the tools and training you need to succeed. Ensure 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's featuresdescribe how the product makes the customer's life easier or more enjoyable.
- Keep an eye on inventory. Before listing an item, ensure 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.
This article was written in cooperation with Jeremy Hanks, a co-founder of Doba.
Other Entries by this Author
Auctiva staff writers constantly monitor trends and best practices of those selling on eBay and elsewhere online. They attend relevant training seminars and trade shows and regularly discuss the market with PowerSellers and other market experts.