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Using Drop Shippers for Your Online Store (12/31/2004)
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If you've been interested in starting your own Internet business,
but you've been trying to avoid the hassles of things like developing
and producing products, tracking your inventory, setting up warehouse
space, and maintaining a confusing shipping/receiving infrastructure,
then drop shipping may be the answer.
Drop shipping is simply an arrangement between you and the manufacturer
or distributor of a product you wish to sell in which the manufacturer
or distributor--not you--ships the product to your customers. This means
you can sell quality, brand-name products on your Web site for a hefty
profit, while someone else looks after product development and order fulfillment.
Sounds like a pretty great deal, right? Well, it can be. But there
are advantages and disadvantages to this business model that you
should know about before getting started. So keep reading and I'll
explain what you need to do to steer clear of the scam artists and
identify great partners who will ship brand-name products on your
behalf and help you generate sales without taking you to the cleaners.
How Drop Shipping Works
Let's say Mary sets up a Web site where she sells a product called
"The Total Skin Care Package," priced at $97. A customer visits her
site, places an order, and is billed $97 plus $11 for shipping and handling.
Mary then sends her distributor an e-mail with her customer's order
and shipping information. The manufacturer packs up the customer's
order, puts Mary's shipping label on the package, and mails it out
via UPS or FedEx, usually within 48 hours.
The distributor then bills Mary for the wholesale price of the
"Total Skin Care Package"--in this case, $64 plus $11 for shipping
and handling. Since Mary has passed the shipping and handling fee
on to her customer, she just netted a profit of $33. And all she
had to do was send her manufacturer an e-mail!
Drop Shipping Advantages
In addition to not having to worry about shipping products yourself,
there are a few other advantages to this business model. First,
it saves you the cost of building your own inventory. If you're
like most people starting a small business, you don't have a
ton of extra money lying around--the last thing you want to do
is tie up your cash in inventory that you may or may not be
able to sell.
Second, no inventory also means no leftovers. If the product
you sell suddenly becomes outdated, obsolete or just plain untrendy,
you aren't the one with a room or warehouse full of stock nobody
will buy. Many online retailers find themselves having to offer
deep discounts--and taking huge losses--on old products just to
get them out of their homes or warehouses to make room for more inventory.
Third, you'll be able to add new products to your site almost
instantly. Since you don't have to worry about stocking inventory,
if you find that your customers are clamoring for a particular
product, it's not unrealistic to expect you could add the item
to your site in just a few days.
Have you noticed there are literally hundreds, if not thousands,
of sites selling huge mish-mash selections of inexpensive gift
items . . . things like plastic gnomes and porcelain figurines?
That's because there are a few very large drop shipping companies
that import these items and then recruit Web sites to sell them
on their behalf. These companies have massive product inventories
and make it very easy for people to get started selling their
products for them.
Unfortunately, this is not the way for you to go if you're getting
started with drop shipping. There are already a lot of giant gift
sites out there--and way too much competition for you to
reasonably expect to be successful at it.
Instead, spend some time researching different kinds of products
that you might want to sell. The products you choose should be in
demand but not widely available online. As usual, I highly
recommend targeting a niche market rather than trying to find a
product that everyone wants to buy.
Choosing Your Drop Shipper
So how do you go about finding a reputable drop shipper for
your business? Well, here's where doing your homework pays
off. Whenever possible, you'll want to set up drop shipping
arrangements directly with the manufacturers of the products
you want to sell. The fewer middlemen you have to go through,
the bigger your profits will be.
If, after contacting the manufacturer, they agree to drop ship
for you, great! You can be fairly confident they'll offer you
a competitive price. If they don't agree to drop ship for you,
you'll have to look for another alternative.
This usually means tracking down a distributor. A distributor
is simply a company that maintains a large inventory of another
company's products and distributes those products to smaller
companies. The best way to locate a distributor is to simply
ask the manufacturer of the product to recommend one.
Another great way to find a distributor for the type of product
you wish to sell is by looking through related trade magazines.
You'll frequently find manufacturers and distributors advertised
in the backs of these publications. To find appropriate trade
magazines, check out Yahoo's listing of trade magazines. You
may also be able to find distributors and manufacturers using
the Thomas Register. They provide listings for thousands of
companies broken down by product, brand name and company name.
Most companies you contact will be more than happy to speak
with you--after all, you're going to be selling their products
for them. When you call, simply ask to speak with someone about
becoming a vendor for their products. Once the switchboard puts
you through to the right person, they'll be able to answer any
questions you have, including:
1. What is the wholesale price they can offer you on their products?
You'll need to make sure the wholesale price they offer is low enough
that you'll be able to generate a good profit based on what you will
be able to sell their products for.
2. Do they charge a handling fee for drop shipping? If so, how much?
Most companies that drop ship will simply add the cost of UPS or
FedEx shipping onto your wholesale price, but some will also
charge you a handling fee (generally between $1 and $5). This
is to offset their cost of picking, packing, and processing
the order for you.
3. How do they ship their products? Almost every company that
drop ships products will use a major nationwide delivery service
like UPS or FedEx. Ask them to include tracking numbers with the
order confirmations they send. This will save you many potential
problems when customers ask, "Where is my order?".
4. How do they bill you? Most drop shippers will bill your credit
card the wholesale price of the product plus shipping and handling
as soon as they receive an order from you. With others, you may be
able to set up a monthly billing cycle where you submit payment for
all orders at the end of each month.
5. How do they deal with product returns? Be sure to find out what
their policy is regarding returns. Most reputable companies will
offer some kind of guarantee or warranty on their products and
will deal with returns for you. This way, if a customer contacts
you with a return, you can simply tell them the manufacturer
will be happy to speak with them directly. If your manufacturer doesn't
accept returns, look out! You'll be the one stuck replacing defective
merchandise for your customers.
The fact is, there are a lot of people making excellent full-time
incomes--even six-figure incomes--with drop shipping. But there is
also no shortage of crooks and scam artists just waiting to take
your money in exchange for the promise of "Instant Drop Shipping
Riches" or "Ready-Made Online Drop Shipping Stores".
So here are a few things to watch out for when you're researching drop shipping:
Companies offering to sell you lists of drop shippers for $3, $4, $7.
The old saying "You get what you pay for" applies here. Spend $4 on a
drop shipping list, and you'll get an e-mail listing 200 company names,
addresses and maybe phone numbers. A few calls to out-of-service numbers,
and you'll realize that the list is years old and basically useless.
Companies charging you a "monthly fee" to be your drop shipper. Think about
it: Why would a company charge you to sell you things? Answer: Because
their products are either worthless junk or they're marked up way too
high. In either case, they know your online store won't be able to sell
any of them, so they need to make their money from you through a monthly fee.
Companies offering you a turnkey online business, complete with Web site,
products that can only be purchased from them), and a merchant account
that allows you to accept credit cards. The strategy here is to get you
to spend your money advertising and selling their products that they're
buying from real wholesalers, marking up and selling to you. These
companies usually also charge a one-time and/or monthly fee.
Here's the bottom line: No one's going to do your work for you. If you
want to set up a real online business, you're going to need to do some legwork.
Always look twice at any company that offers to make your job "easier" by
giving you lists of hyped products to sell or offers to set up your site for
"free"--chances are, their "all-in-one" solution will eat up a hefty portion of your profits.
Final Thoughts
Drop shipping can be an easy way to get started selling online. Since
the manufacturer or distributor takes care of warehousing and shipping,
you'll be able to concentrate your efforts on building your site and
marketing your products. And this is what most entrepreneurs are good at.
When searching for a product to drop ship, don't spend money on "drop
shipping directories." Think about it: Not only is their information
frequently out of date, but everyone who buys these lists will be
contacting the same companies, which means more competition for the
products you'll be selling.
And choose your products carefully:
1. Make sure there aren't already hundreds of sites selling the same
thing at prices you can't afford to compete with.
2. Choose products that target a "niche" market rather than "everyone."
You'll always be more successful with this strategy.
3. Ask yourself: Is this a product I would buy myself?
Most important, remember that drop shipping isn't a magic formula that
will make you rich. Building a business always takes a certain amount
of elbow grease. The real "magic" is that drop shipping allows you to
invest your money in marketing rather than inventory, and a well-planned
marketing strategy is what will ultimately help you build a lucrative
online income.
-- Corey Rudl
Source: Entrepreneur.com
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