How does drop shipping works?

[emaill337]

Hi. I’ve been looking into some alternative methods for maintaining stock for my ebay store and I’ve heard a bit about drop shipping. Up until this point I’ve mostly just been selling my own stuff as it’s become unnecessary/unwanted for me and possibly viable to make money from, but I want to try to turn this into an at home business. How exactly does drop shipping work?

[MICROmud]

Drop shipping is a technique that employs supply chain management, i.e. the retailer does not keep their goods in stock. Rather, the retailer maintains a business relationship with a wholesaler or drop shipper who has the stock in house. The retailer then transfers his customer orders and shipment details to the wholesaler (or manufacturer as the case may be) and it is then shipped directly from the wholesaler’s warehouse to the customer.

[O_OWHISPER]

Drop shipping is a technique that employs supply chain management, i.e. the retailer does not keep their goods in stock. Rather, the retailer maintains a business relationship with a wholesaler or drop shipper who has the stock in house. The retailer then transfers his customer orders and shipment details to the wholesaler (or manufacturer as the case may be) and it is then shipped directly from the wholesaler’s warehouse to the customer.

Wouldn’t that cause issues and questions on the part of the customer when they receive items from an address and company they didn’t purchase from?

[MICROmud]

That’s a valid question, O_OWHISPER. It has become commonplace for the drop shipper to mail the items with labeling that lists your company and address info on the box, as well as on the invoice within the box. A good drop shipping company will not include any kind of a paper trail back to the wholesaler, and should only direct customers back to yourself in the event of an issue with the product. Other things to look for in a good drop shipping company are as follows:

1.) You want a drop shipper who provides fast delivery along with a quality product. This may seem like common sense, but there are a lot of companies out there who claim to provide these things, yet don’t maintain on their follow through. Before signing on with a specific company, research them heavily. Read reviews from other retailers about them, call and speak with the company directly and, if at all possible, stop by their warehouse to view the products. Often companies will offer pictures or samples of their products, but this is not necessarily indicative of the product your customer will receive.

2.) Find out about their customer service. It will do you no good to have a drop shipper who takes days and even weeks to respond when you do have an issue (which you inevitably will). You want a company that is known for having a quick response time in providing solutions to its retailers.

3.) It is best to find a drop shipper who sends items through first class, recorded delivery. Also, you’ll want to find a company that provides tracking details once the product has been mailed (i.e. you should be able to see where the item is in the mailing process via the US Mail tracking system or whatever other system the item has been sent through, such as FedEx).

4.) It is imperative that the company you choose provides regular updates to their stock list so you don’t end up selling something to a customer that your wholesaler doesn’t have in stock.

[emaill337]

Ok, so that’s a great list for what to look for in a valid drop shipper, but why should I choose the drop shipping method in the first place over simply keeping the stock personally? At least then I always know what I have in stock and what I don’t!

[MICROmud]

There are two primary and very basic benefits to using a drop shipper over maintaining your own stock:

1.) You have no outright inventory purchases to make. i.e. you won’t pay for stock that you may or may not eventually sell, out of pocket no less.

2.) Instead, the customer pays you for the advertised product plus shipping costs, you place the order with the drop shipper, paying them with the payment you’ve already received including shipping costs (which should be a lower price than you’ve charged the customer since you are purchasing wholesale) and you get to keep the difference as your profit, thus creating a positive cash flow for yourself. The drop shipper handles everything from there.

This is a very reasonable and cost-effective way to sell products, particularly if you are attempting an at home business. Most of us don’t have a lot of extra money on hand to put into creating an at home stock base.

[emaill337]

Hmm... Thanks for that info MICROmud. I’ve been looking into this in other places as well and am leaning towards trying it out. I did notice that there is apparently a reduction in cost associated with the drop shipping style of online business since there’s no duplication of the packaging and shipping… Like, if you bought the stock yourself you’re paying to have it packed and shipped to you, then once you sell the product to a customer you have to pay for packaging and shipping all over again. You can really only charge the customer for shipping costs once and keep people buying from you.

[webrobot]

Hmm... Thanks for that info MICROmud. I’ve been looking into this in other places as well and am leaning towards trying it out. I did notice that there is apparently a reduction in cost associated with the drop shipping style of online business since there’s no duplication of the packaging and shipping… Like, if you bought the stock yourself you’re paying to have it packed and shipped to you, then once you sell the product to a customer you have to pay for packaging and shipping all over again. You can really only charge the customer for shipping costs once and keep people buying from you.

I’ve been running my ebay business via drop shipping for a while now and it’s a decent way to do it. Before, I did it this way I was buying the stock directly and shipping myself from my home. I’ve noticed a significant difference in not just cost, but also my own time. I feel like my time is valuable, so not having to rebox everything I sell and take it down to the post office is totally worth it as well. Just make sure you get a good drop shipper, like MICROmud mentioned. Those are good guidelines to go by.

[Andrewdennis]

MICROmud, also, is there a preferred method for keeping track of current stock from your drop shipper? Currently, my drop shipper just sends emails out every once in awhile, notifying me of changes to the stock.

[MICROmud]

To answer your question, Andrewdennis, there are a couple methods that are easier to keep up with as far as stock lists go. The first would be through a regular stock newsletter. The second would be through downloadable CSV files. Either way, you definitely want it to be a regularly updated list so you aren’t offering products to your customers that your supplier doesn’t have on hand.