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 Markets
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:
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.
Stuart Lisonbee is an eBay Certified Consultant and Doba's first-ever Education Specialist. Prior to joining Doba (http://www.doba.com http://www.doba.com/), Stuart worked for eBay as a Customer Support Representative, and ran a retail department store's PowerSeller-level eBay business. Stuart has authored over one hundred articles on online business success, along with several eBooks designed to help others grow their eBay businesses.
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.
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:
Of course, drop shipping also has a few drawbacks you should consider:
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:
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:
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:
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
Jeremy Hanks the co-founder of Doba. He leads the company in executing against its strategic vision and coordinates and oversees day-to-day operations of the business. Prior to co-founding Doba, Jeremy spearheaded the development of numerous businesses in the supply chain, wholesale distribution, and retail industries. He founded GearTrade.com, an online marketplace for used and distressed inventory, where he was the companyâ€™s President and CEO. He led the company through a merger with e3vertical, where he was CEO and focused on providing ecommerce and supply chain management solutions for small and midsized businesses. He holds a Bachelor of Science degree in Business Management from Brigham Young University.