Your Drop Ship Handbook
- What is Drop Shipping? Understanding through Definition
- Case Studies
- How Drop Shipping Works – Lifecycle of a Drop Ship Order
- Services of a Drop Shipper – What to Expect
- Pros and Cons of Drop Shipping Service
- What Else Do I Need to Know
- What to Look for In a Drop Shipper
- Tips and Tricks to Avoid Pitfalls and Excel Your Drop Shipping
- Final Word – 3 Steps to Drop Shipping Success
For those of you who don’t know, drop shipping is a supply service where you as a retailer are not responsible for keeping merchandise in stock, but simply advertise the inventory of a wholesaler and work as the middle person. Once the buyer wants to purchase the merchandise, the orders are transferred to the wholesaler who fulfills the order by shipping the merchandise to the buyer. Once the order is placed, it is the wholesaler’s responsibility to ship the goods to the customer directly.
Who Does Drop Shipping Really Suit? This type of business is particularly suitable for people who are just starting a business and do not have a huge capital for investment. Since this option does not require keeping the physical merchandise, the retailer does not have to purchase or store it but can still sell it to its buyers.
Moreover, it is also considered a great option for retailers who wish to diversify their list of products or who wish to expand their existing business without risking to purchase the merchandise and stocking it on their own.
What Are the Best Products for Drop Shipping? There are no rules here. Almost all types of products can be drop shipped. However, if you want this method to work for you, it is best to go for items with higher profit margins. Also, look for products that are not very popular to avoid a lot of competition in that category.
In short, you are the middle person working for money. With this method of retailing, the cost is really low since it does not involve stocking up merchandise and thus, can be a profitable business if done correctly.
Here you will witness two different case studies to understand drop shipping better.
Case Study 1
Drop Shipping is Ideal for a Start-Up Business or Retailer who does not want to Risk Stocking on Products
Emma Jones wants to start a women’s lingerie business and want to set it up on eBay. At first, she was considering purchasing the merchandise in bulk, stocking it up and managing the inventory all by herself. But to her surprise, doing so involved bigger capital than she thought. It required at least $1500 to purchase the initial inventory in bulk. Since she was responsible to take care of her family too, she wasn’t willing to risk that amount of money on a startup business.
She met another friend who was also selling on eBay. He was also a regular retailer with stocks in his garage. She noticed how the stock was numbered, labeled and neatly organized. He also told her that he uses software to manage inventory and keep a check on the sales. Learning about this Emma realized how stocking and managing inventory was much more than what she had initially thought.
Another shock was when the friend gave her details about how he manages the stock. He told her how it would take him a couple of hours every day for packaging and processing to fulfill the orders and ship out the next day. Emma was rather upset by this time thinking how she can never manage doing all that with all that responsibility of taking care of her little ones, cooking for them and all other activities at home. Luckily, the same friend came to her rescue when he suggested her to consider drop shipping if she thinks managing inventory, sales, packaging and shipping all by herself was too much work.
Since this method did not even involve big startup capital and no self-managing work, this seemed like a good idea to Emma. Although this option also meant that she was responsible to pay $2 - $5 handling charge for each item she sells, she also knew that it was only applicable for items that were selling and nothing that was idly stored in her inventory. She was paying that amount for a third party (wholesaler) to store, package and ship the products to the buyer when she brings an order. The only think she has to care about is to list products and manage eBay auctions – which was indeed lesser work and easier for managing with all the rest of the responsibilities on her.
Case Study 2
Drop Shipping Enables You to Target Small Niche Markets Without Having to Invest or Stock Up on Inventory
Clark Wilson has a successful existing business that deals in selling DVD and game web store. He has been into the business for the past 2 years but feels he could operate much more efficiently if he differentiates his business from other similar stores by targeting some smaller niches that others tend to ignore.
While he is really interested in doing so, he is not ready to invest or risk it. Neither he is willing to purchase all the stock nor carry the inventory hoping for it to sell in the market. He knows he is moving in the right directions but he does not want to risk it by purchasing the inventory in bulk. This is where he turns to the drop ship option. This method allows him to stock less-popular, cult titles belonging to smaller niches with very small market. This way he avoids huge competition as other similar stores do not stock such inventory. Also, he hasn’t risked the investment and did not physically purchase the stock for it to sell occasionally.
Drop shipping has made Clark’s business much more successful than before. In addition to the current success of the business, he is selling 50-60 extra copies of the lesser-known titles in a week. On the whole, drop shipping is offering him great benefits and he is able to make $12,000 more per year in addition to his existing sales.
1. Start with creating your drop shipper account and pick the products to sell. Add pictures and detailed descriptions for the chosen products.
2. List your chosen products on eBay, Amazon and your website along with the price. List handling and postage cost as the drop shipping fee as well as the freight charges charged by the wholesaler.
3. When the item is sold, you collect the price along with shipping cost from the buyer.
4. Go to the drop shipper’s website, pay the price for the item (keeping the profit), pay the drop ship fee and shipping cost and provide buyers detail for direct delivery.
5. The drop shipper is responsible to package the item and ship it to the buyer – the item is usually delivered within 3 days of purchase.
Variations to the Lifecycle
The above figure shows how a regular (or majority) of drop shippers work at reputable websites such as FinalWholesale.com. However, there are always variations to this method. It is important that you are aware of these variations in case you experience any.
- Some drop shipper may require you to add a certain amount of money into your account when you set it up.
- You may not get product descriptions or pictures from all drop shippers.
- Some drop shippers may require you to pay certain amount as an account setup or joining fee.
- Some drop shippers may not provide you with a website-oriented ordering system. Rather, they may ask you to email them the orders – which could be a lengthier process.
Just in case you come across a drop shipper like that, it is important that you are aware of the variations. This could be a little hassle for you – such as with drop shippers who do not provide pictures or descriptions of the products – but they are not always risky to work with.
But it is important that you know you are working with a reliable, authentic drop shipper before you begin.
As far as services are concerned, it is okay to keep a few expectations.
Majority of the drop shippers will:
- Provide you with pictures of the products so you can use them as reference to persuade buyers to purchase.
- Provide you with a detailed (or basic) description for the item. This will also help you provide information about the product to the buyer and encourage them to buy.
- Offer you ‘ship blind’ services – meaning, the drop shipper will add your company description (info, logo, etc) on the box rather than their own.
- Provide you with the ease of tracking orders for your customers by giving you a tracking number for each shipment.
- Guarantee timely and professional delivery every time.
In some cases, drop shippers may also:
- provide you handling service for the returns and keep you completely out touch with the product directly.
- Insert marketing material, such as your business card, catalogue, newsletter, etc, on your behalf into each shipment that you provide them with.
- Provide real-time data for inventory management purposes – to help you keep up with their inventory and avoid selling items that are out of stock.
Unfortunately, majority drop shippers are not setup to provide such services.
Like every other method, drop shipping service comes with its own set of pros and cons. In order to assess the viability of this service for your new business, it is important that you learn about the pros and cons and decide accordingly. In addition to the benefits we have already discussed above, you must be aware of the downsides too.
Check out the lists below:
- It is best for start up businesses that do not have big capital to get started. Drop shipping is the way to enter market without having to pay for the products you sell. It is a ‘pay as you go’ method with minimum risk.
- Does not require you to store or manage inventory. Since you are not purchasing the inventory, you have no physical merchandise to store on your premises.
- You are not responsible for the management of inventory, packaging of the product, or shipping of the order to the buyer. Everything is taken care of by the drop shipper.
- You can diversify your business as much as you like and offer wider range of products to your customers without having to purchase anything or store products on your premises.
- Drop shipping is a comparatively a more expensive option than others. Since you are not dealing with the products directly, you cannot benefit from bulk discounts. In some cases, you are also charged fee for every shipment to cover the handling cost of the drop shipper. As a combination, these traditional costs can make it difficult for some retailers to make profits. Choosing the right categories – the ones offering higher margins and with less competition – is the only way you can make it a success.
- As mentioned above, some drop shippers may charge excessive fees for account setup, in such cases, the deal can become even more expensive. When dealing with wholesalers outside of FinalWholesale.com, you need to be extra careful with such wholesalers.
- You may even experience frequent fulfillment and backorder problems. Since you are not regularly updated about the current stock by the drop shipper, you may end up selling items that may suddenly run out of stock. In such cases, backorders are sales that cannot be fulfilled are reasonably common. This is a big problem because you are not dealing with the products by yourself.
- If you are dealing with the lazy lot of drop shippers, you may end up getting really bad reviews from your customers. Watch out for drop shippers providing poor delivery service.
It is important to create a balance between the pros and cons and be careful with your choice of drop shipper. If you are dealing with the right people, you can avoid all the downsides associated with the drop shipping method. This is why we recommend you to work with authentic, validated drop shippers on Final Wholesale.
There are many other important factors that you need to be aware of. All of this information will help you carry out a very smooth drop shipping experience.
- Drop shipping service is not available on all auction websites. For instance, TradeMe is one platform that necessitates the product to be in your possession if you are selling it. And such guidelines are not there so that they can be ignored. In case you are unable to prove you have the products in hand at the time of auction, the website has the authority to call off the auction instantly.
- As far as eBay is concerned, it is important that you list the location of the item in the description. For instance, if the drop shipper service is in Hong Kong, it is important that you mention the location as Hong Kong. You cannot misguide your buyer by putting your location instead. As a disadvantage, location information may come with a downside as your buyers can be put off by this, but on the brighter side, it is important to be honest with your buyers, so that in case of a delay in shipping or backorder, your buyers will resist from giving you negative feedback.
Keeping these two important things in mind will save you from common pitfalls.
Finding the right drop shipper is crucial. It can save you from experiencing all the downsides as well as help you enjoy your drop shipping experience smoothly. The following are some factors to decide whether a drop shipper is worth working with.
- An authentic US-based drop shipper will ask you for your resale certificate. If they don’t have such requirements, this might indicate that the prices they are offering are above the wholesale prices.
- Look for a drop shipper with the lowest drop shipping fees. In majority cases, the fee will be something between $2 and $5. However, if you have the opportunity to work with a drop shipper who does not require any setup fees, it is the ideal situation for you.
- Low or no low membership fees – or signup cost.
- A clearly described return procedure.
- Blind drop shipping (one of the best features to market your business).
- No Minimum Order Quantities
If you are looking for suppliers that match the above description, check out the list of suppliers/drop shippers in the FinalWholesale.com directory.
Here are some additional tips and strategies you can use to excel using the drop shipping method.
- Before you get started with the drop shipping method, test the drop shipper you are planning to deal with. Do it by placing order for a product addressed to yourself. This will help you assess the presentation and shipping time. You can easily judge the quality of packaging, delivery time and overall quality of service of the drop shipper. If you are satisfied, continue with the drop shipper for your business. However, it is highly recommended that you carry out such occasionally tests to ensure your drop shipper keeps up with the quality standards.
- While it is important to receive descriptions and titles from your drop shipper (as it allows you to pass on that information to your buyers), it is highly recommended that you rewrite those descriptions (preferably in a more creative and eye-catching way) to stand out from everyone else who might be using the same descriptions. There are a lot of people who judge products on the basis of descriptions and purchase them. Don’t forget to impress them.
- With all the benefits in mind, do not think of drop shipping method as a ‘get rich quick without any hassle’ kind of a scheme. It is indeed a beneficial method for startups and businesses not wanting to invest further or risk bulk inventory. However, it should rather be taken as a supplier system that offers great benefits but comes with its own set of challenged. At the end of the day, it requires calculative approach that should only be tackled by you. In order to get rich using this scheme, it is essential that you are ready to take the challenges, find the right supplier and use the right tactics to make the most out of this opportunity.
- The drop shipper may not call you up or update you about the supply level. In fact, you should do it on your own to keep up with the inventory updates. In order to avoid back backorders, call up your drop shipper or contact him or her through email once every week.
- For the most demanding product, it is safe to keep a few pieces in hand. Again, this will help you avoid backorder issues and you can instantly fulfill the order even if the product suddenly goes out of stock. Fulfilling the orders successfully is the best to keep your customers happy. You might even get a good feedback as a result.
Here are three little secrets that can help you make drop shipping a successful method for you to make money.
1. For drop shipping to work successfully, it requires lots of hard work and research. This is not only important for picking up the right products for drop shipping but also important for working with the right suppliers.
2. Do your calculations beforehand. Determine how much money you require to keep up with the operation of your business. Also, budget out your cost that you will incur selling your products on eBay or any other website. In addition to these calculations, there are other important factors that you need to take into account. For instance, it is important that you are aware of the sellers who are selling the same thing in the market to determine your competition. Make sure you compare the prices and decide for a pricing strategy accordingly.
3. Every business is running for the sake of profit. Thus, it is essential that you are making a profit through the drop shipping method. In order to determine your profitability, calculate your total cost of selling a product along with the overhead cost you are incurring. Now compare it with the money you are making and see if you are making profit. Start selling once you find this deal profitable for you.
At FinalWholesale.com, you can find reputable and authentic suppliers that you can work with. Just make sure you filter out the ones available for drop shipping and work with our validated suppliers for a smooth and safe experience.