How to Use Drop Shipping

With the popularity of auction websites and online marketplaces steadily increasing, many people are questioning what it takes to begin an online business. One appealing and often advertised possibility is the use of drop shipping companies instead of retaining an inventory. As with all things, there are positive and negative aspects to this solution.

Drop shipping involves the use of a third party company for order fulfillment and inventory control. Using drop shipping, the retailer does not have to keep an active inventory. Instead, the retailer sells selected items from the drop shipper’s inventory, at a markup that will become the retailer’s profit. Once the retailer gets an order, they notify the drop shipping company, which then packs and ships the item to the client. Drop shipping companies generally maintain a large online catalog of available products in many categories. It is up to the retailer to select a product that they are interested in, and that is not oversaturated.

Since maintaining an inventory is expensive and unwieldy, drop shipping can be incredibly useful to a beginning retailer, or a retailer who is interested in testing the market. In addition, packing costs are generally included in the drop shipper’s item cost. This not only means that shipping and packing fees are much lower due to the drop shipper’s bulk rates, but also that the retailer can devote all their time to selling and marketing their chosen products.

Unfortunately, like many online business opportunities, drop shipping has become infested with scams. Many websites claim to sell lists of drop shipping businesses. Often, these lists do not name actual drop shipping companies, but instead simply name middlemen who will connect the retailer to a drop shipping company, for additional fees. Other times, it is simply an old, unmaintained list of drop shipping companies that could be found in the phone book.

Drop shipping can be risky to a retailer due to the same aspects that make it beneficial. By placing the shipping and item fulfillment in another company’s hands, the retailer has little ultimate control over what happens. This can open the retailer up to customer service issues such as items being sold when they are on back order. Additionally, because drop shipping has become so popular, many retailers are now selling the same items on the same markets, and receiving them from the same source at identical cost. This can lead to a competition amongst retailers as to who can slice their profit margin thinnest.

Drop shipping can be an excellent tool when a retailer is just beginning their online marketplace business, or for niche items that are not yet saturated. The usefulness of drop shipping to test market interest on new items cannot be dismissed. By using drop shipping for research purposes, a retailer can discover an ideal product without the need for a large inventory investment that may or may not actually sell. Unfortunately the cost of drop shipped items over wholesale items, and the oversaturation of the items, mean that with few exceptions it is not a sustainable model for long term profit.