"What Is Drop Shipping?"

 

To understand Drop Shipping, we should first understand product distribution.


People have been distributing products since before the first mastodon skinner traded a fur coat for a flint axe.


Here’s how it works.


Let’s say ABC Manufacturers makes a product called Mom’s Ankle Wax. We’ll say that Mom’s Ankle Wax has been around for years. It’s a very well known brand name product. It will without a doubt give you the shiniest ankles on your block, and everybody wants some.


ABC Manufacturers makes Mom’s Ankle Wax, but they don’t sell it directly to the public. They’re a manufacturing operation. They’re far too busy melting paraffin and waxing test ankles to go around building stores all over the place. They need distributors; companies who will take their product and distribute it to the places that will sell it.


For years, ABC Manufacturers has sold Mom’s Ankle Wax to a company called DEF Distributors. The founder of DEF Distributors knew Mom herself, back in the old days when she made her Ankle Wax by hand, out in the turkey barn.


Today, DEF Distributors buys Mom’s Ankle Wax by the truckload. They pay $5.00 a case for it, which is a very good price. It’s such a good price, it has it’s own name: the Manufacturer’s Wholesale Price.


However, DEF Distributors does not sell it to the general public either. They are a distributor. They distribute Mom’s Ankle Wax.


DEF Distributors works with a chain of retail stores called Wax R Us. This place was founded by a retail business visionary who saw the incredible potential of Mom’s Ankle Wax a long time ago. Today there are Wax R Us retail stores on every street corner in every major city in the country. Wax R Us buys truckloads of Mom’s Ankle Wax from DEF Distributors for $10.00 a case.


So, DEF Distributors makes $5.00 on every case of Mom’s Ankle Wax they sell to Wax R Us retail stores. This makes DEF Distributors very happy.


Cases and cases of Mom’s Ankle Wax arrive in the stockrooms of Wax R Us stores everywhere. The Wax R Us employees open those cases, and pull 12 cans of Mom’s Ankle Wax out of each case. With their pricing guns, they stick a price of $4.50 on each and every can.


Wax R Us stores make a total of $44.00 on each case of Mom’s Ankle Wax. (12 cans x 4.50 per can = 54.00, minus the 10.00 they paid for the case = 44.00).


Wax R Us is even happier than DEF Distributors.


However, the happiest people of all are the people who can stroll into Wax R Us and purchase a can of Mom’s Ankle Wax for only $4.50. They think this is a great price, and they’re walking around with the shiniest ankles in town.


Well, that’s it…basic product distribution. The manufacturer sells to the distributor, the distributor sells to the retailer, and the retailer sells to the end user (the customer). The manufacturer, the distributor and the retailer all make money because the customer is willing to spend money for the product.


Drop Shipping has been around for a long time, too. Probably as long as mail order catalogs; maybe longer. If you want to use a buzzword to impress a corporate type, call it “second party addressing”.


Above, we talked about the manufacturer-distributor-retailer relationship. When you use drop shipping to sell products on the Internet, (or anywhere else), YOU become the RETAILER in that relationship.


For our purposes, there are two kinds of retailer. There is the retailer who stocks products, and there is the stockless retailer. Drop Shipping means that you become a stockless retailer.


Retailers who stock products


Let’s imagine that you want to open a retail store on the Internet. You have to have products to sell, right? Let’s also imagine that you like to suffer. Mental anguish is your favorite pastime. You aspire to financial ruin. In that case, you will want to stock products for your Internet retail store.


To stock products for your store, you will have to rent warehouse space, or at least clean out your garage. You will have to have to pay for a shipping account with UPS or FedEx, unless you want to saddle up and trot down to the post office every day. Worst of all, you will have to pay for those products up front.


Yes, that’s right. Money. Probably lots of it. For example, if you want to sell Mattel Toys, you can contact Mattel and they will be happy to set you up as a retailer. I know…I’ve talked to them. We had a nice conversation about setting up an account, placing orders, and all the other wonderful things businesspersons discuss with each other when beginning a relationship. Toward the end of our conversation, this nice woman said to me, in an offhand manner, “By the way, your minimum first order must be at least $100,000.” That’s One Hundred Thousand Dollars, folks.


I nearly choked on my bagel. Needless to say, I do not stock Mattel products. Or anyone else’s, for that matter.


Stocking products costs money, that’s the bottom line. No matter what you sell, if you carry stock, you pay first, and then hope you sell later. If you don’t sell the products you buy, there are going to be some very happy people at your next garage sale, and your bank will be sending you an amazing amount of undesirable mail.


There’s a much better way.


Stockless Retailers (Drop Shipping)


It should be noted here, if only to keep the Punctuation Police happy, that if you use the method of drop shipping in your business, YOU are not the “drop shipper”. The company(s) who supply the products to your customers for you is the drop shipper. YOU become a “Stockless Retailer”.


Here’s how drop shipping works.


1.) You open an Internet Store, with a shopping cart and the ability to accept credit cards.
2.) You find a distributor who is willing to drop ship the products you want to sell. The best place on the Internet for this is www.DropShipSource.com. This is our website, and our Drop Ship Source Directory is recognized as the best source for legitimate wholesale drop shippers on the Internet. 3.) You establish an account as a retailer with the distributor you choose.
4.) You receive images and descriptions of the products you want to sell from the distributor, and post them on your Internet Store. 5.) A customer surfs into your Internet Store, and falls in love with a product that you have priced at, say, $80. They purchase the item with their credit card. Your Store charges their credit card $80 plus your shipping fee.
6.) You turn around and email the order to your distributor, along with the customer’s name and address.
7.) The distributor sends the product directly to your customer, with YOUR Store’s name on the package.
8.) The distributor charges you the wholesale price of, say, $45.00, plus shipping. 9.) Your customer gets a cool product from your store shipped to their door, and they tell all their friends about you, and you make even more money.


There you have it. You just made a $35.00 profit on one item. You didn’t have to buy a whole bunch of the product and keep it in your warehouse, hoping you would sell it. You didn’t have to pay to have it shipped to you, and then pay to ship it to your customer. All you did was send an email to your distributor.

Cut Startup Costs By Using a Drop-Shipper!
You've got enough to worry about when starting an e-business. Get a drop-shipper to fulfill your orders for you.

Q: I'm starting an online specialty shop that sells gifts and home accessories. I want to be able to have items drop-shipped to customers through my site. I already have a Web site and a domain reserved, but I don't have a lot of money to get this going. Can you offer any insight?

A: Setting up relationships with companies who will ship merchandise directly to your customers for you--drop-shippers, as they're called--is an excellent way to start your e-business and, if done properly, doesn't have to be a costly endeavor. There are literally hundreds of companies out there that will drop-ship products for you, everything from gifts and housewares to power tools and furniture.

In a nutshell, here's how drop-shipping works. You set up an account with a drop-shipper (or multiple drop-shippers who offer different kinds of products) who provides merchandise that you can sell on your Web site. The drop-shipper typically supplies you with images and product descriptions that you can use to build your online store or feature on static HTML Web page.

When a customer places an order for the product on your site, he or she pays you for the product. You, in turn, place the order with the drop-shipper and pay them for the product. The drop-shipper then ships the item directly to your customer under your company name. To your customer's knowledge, the product was shipped by you.

Drop-shipping offers many advantages to the shoestring online startup. You don't have to pay for an item until it sells, and your customer pays you, so your personal cash outlay for the product is zero. You never have to handle or warehouse the merchandise, as order fulfillment is handled by the drop-shipper. You can also offer a wide variety of items from multiple drop-shippers, and your end customer is none the wiser.

Drop-shipping does have its downsides. Since you do not actually stock the products featured on your site, you have no control over inventory management, product availability, order fulfillment, shipping processes and so on. Still, if you do your homework and establish a good relationship with a reputable drop-shipper, the problems you experience should be few.

Your goal should be to find a drop-shipper that will ship items one at a time instead of requiring that you purchase a fixed minimum number of items each time (single-unit purchases vs. minimum-order purchases). With this arrangement, you don't have to invest your limited cash reserves in inventory that might not sell (and that sits in your garage for months).

Thanks to the stiff competition the Web has created, many drop-shippers will now do business with you without requiring that you pay a setup fee or have a tax ID number. You simply set up a reseller account (you're the reseller) and start marketing the products on your site. Account registration can often be done online at the drop-shipper's Web site. With this process, you can literally be selling products within minutes of setting up your reseller account.

Be warned, however, that some drop-shippers are not as reliable as others. Also, be aware that some companies who claim to be drop-shippers are really middlemen who have positioned themselves between the online merchant (that's you) and the real wholesale merchandise distributor. These middlemen will eat into your profits and usually don't offer much in the way of customer support and service. They can actually hurt your business more than help it, so make it a point to do business only with--and directly with--established, reputable drop-ship companies.

Spend the time to research the drop-shippers doing business in your particular product category, and try to get feedback from their current customers. Remember that your customer doesn't know (or care) that the product they are purchasing from you really comes from a drop-shipper. If there is a problem, your customer will come back to you for resolution, not the drop-shipper, so make sure that the drop-shipper you use has a policy for resolving problems quickly.

Setting up an online store that offers merchandise from drop-shippers doesn't have to be expensive or time-consuming. However, this brings up the age-old question: If I build it, will they come? The age-old answer is: Only if you let them know you are there.

Using Drop Shippers for Your Online Store!
Don't want to deal with the headaches of inventory, warehouse space, shipping/receiving and product returns? Then drop shipping may be the answer.
 
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.

Using Drop Shippers for Your Online Store
Choosing The Product

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:

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