All About Drop Shipping

E-Commerce the easy way (Well maybe!)

You may have heard about drop shipping. It’s often portrayed as an ideal way to start a small or home-based business and an easy way to make money. It will probably come as no surprise if I say that the easy money bit isn’t true. (It never is). However, the drop shipping model does have some attractions for a small business and it’s definitely worth looking at drop shipping in more detail.

What is drop shipping?

The idea behind drop shipping is quite simple. You accept orders and payment from customers for goods that you advertise on your Web site. However you don’t hold any stocks of these goods. Instead you place an order with a manufacturer (or wholesaler) who delivers the goods direct to your customer's address. Normally the paperwork accompanying the delivery will make it appear that the goods were delivered directly from your business. Your customer pays the retail priced fixed by you, while you pay the wholesale price from the supplier, thereby (hopefully) making a profit.

Why use drop shipping?

Two main reasons. Firstly it removes the necessity of holding any stock. This simplifies the operation of the business, but it also benefits the cash flow. Money doesn’t have to be tied up in stock. This is especially useful for a business start-up as it avoids having to risk your own, or borrowed money in buying stock which you may not be able to sell. It also means that you can change the items you sell very easily to cope with changing demand. The other advantage is that your supplier deals with the shipping and packaging.

Are there any disadvantages to drop shipping?

Of course there are. Firstly, you lose control of part of your business. No matter how efficiently you process an order, if your supplier is inefficient and slow to deliver it makes your business look bad. Secondly, the drop shipping model has an inherent problem with shipping costs. If you use several suppliers, and a customer orders an item from more than one of them, you are faced with having to bill the customer for the costs in shipping several items from different locations. This can be overcome by using a distributor to drop ship, rather than ordering direct from the supplier, however the introduction of a middle-man will increase your costs.