What is drop shipping? Wikipedia defines a drop shipping business as one that uses a “supply chain management technique in which the retailer does not keep goods in stock, but instead transfers customer orders and shipment details to either the manufacturer or a wholesaler”.
That sounds pretty easy and simple. So why is it a good business to be in?
Drop shipping first came to my attention after I read this Q&A with Andrew Youderian on Reddit.com. When I was finished with that, I read through the rest of Andrew’s writings on his blog, along with various other articles on the web. When all was said and done, I could honestly say that I was impressed with the elegant simplicity of the business model. Here are some key points about drop shipping:
No on-site inventory
Let’s face it: warehouse space is expensive. So much so, that it’s nearly impossible for small businesses to get some without a significant amount of capital. The beauty of drop shipping, however, is that you don’t keep any items on hand. If you can find a wholesaler that will drop ship for you, you can simply forward your orders onto them, and they will pack and ship the items directly to your customers. This typically comes with a cost, however, so bear that in mind when you choose your niche. You’ll want to choose a niche whose items have enough of a margin that you can sacrifice a few dollars per item in processing fees and still make a profit.
No in-house order fulfillment
Besides warehouse space, do you know what else is expensive? Manpower. Any business that holds their inventory on-site has to do their own order fulfillment. That means that they have to grab each item off the shelf, pack it up, seal it, label it, and ship it, all by themselves. You can either do this yourself, or you can hire someone to do it for you — either way, it’s going to be expensive.
With drop shipping, the order fulfillment process is offloaded to whichever wholesaler you are working with. You don’t have to pack up, label, or ship a single item yourself, thereby saving you a ton of money.
Location independence
If you aren’t tied down to a physical location, such as a storefront or a warehouse, you can literally run your business from anywhere in the world. With just a laptop and an internet connection, you can run your drop shipping empire from a beach on Maui while sipping your drink of choice.
Low cost-of-entry, low risk
Because you don’t have a physical storefront, a warehouse, and no on-site inventory, the cost-of-entry for an online drop shipping business is extremely low. If you plan well and play your cards right, you can be up and running for under $1,000.
Pitfalls
No business is foolproof, and as such, there are some things that you’ll need to look out for when setting up a drop shipping business.
- Scam artists. If you search online for wholesalers and drop shippers, you’re bound to run into a ton of websites that seem a bit too good to be true. Many of these are simply middle men like yourself who are looking to make a buck on those who don’t know any better. Real wholesalers do not sell to the general public, and generally have less-than-stellar looking websites. The best way to find a reputable wholesaler is to talk to product manufacturers directly, and get recommendations from them.
- Hide your home address. If you’re starting up a small drop shipping business, then chances are you’re doing it out of your home. As such, giving your home address out to your customers is the last thing you want to do. Here are a few ways you can hide your home address from your customers. However, if you’ve rented out some office space, then you don’t need to worry about this point.
- Know what you’re doing. All businesses require planning and strategy. Even if you’re new to the business world, you’re going to have to know at least a little bit about what you’re doing before you rush into things. Check out these resources for entrepreneurs before you commit to anything.
Questions or comments?
If you have any questions or comments about drop shipping, then I’d love to hear from you! Just drop me a line below, and I’ll be sure to respond as quickly as possible.