05/ 18/ 2005
by Steve Strauss
Q: I want to take my business online, but I can't afford the entire inventory I would need to get started. Should I wait to receive orders before buying the stock?
A: That may be one way to handle the issue, but it is not a very good way. You must remember that the online customers are taking a leap of faith when they buy from an e-merchant. They do not know if the vendor really exists, and they cannot look the proprietor in the eye. The virtual customer is trusting that the virtual merchant will deliver what is promised.
Therefore, the last thing you need is a holdup in shipping. But that is precisely what you will get if you wait until you receive the order before ordering the product. If you do that, it will likely be several weeks before you ship, and that is far too long.
Here is a much better solution: It is called "drop shipping." The beauty of drop shipping is that you can stock your online store with virtual merchandise, take orders and then have the supplier of that merchandise ship the product for you. All you are is the middleman who takes the order and orders the delivery, all while taking a nice cut for your efforts. Sound good? You bet, because it is.
Basically, drop shipping is an arrangement between you and a supplier in which you stock your online store with the supplier's products and you take the orders. Once a sale is made, both you and the supplier are notified via email. The supplier then ships the product, you receive the buyer's payment, and the supplier sends you a bill for its wholesale cost.
While all you are is a middle man, the great thing is that no one need know that since it looks to the world like the products in your online store are stocked and sold by you. That you don't actually own the inventory, or that the supplier ships it out (using your labels no less) is no one's business. With drop shipment, you can sell great products on your site, and make a fine profit, all while not having to actually stock and ship product.
For example, let's say that your upscale grocery store carries a product called "Chocolate Mousse Decadence" and a package of three sells for $44, plus $6 for shipping and handling. When an online customer purchases this item from you, you and the supplier receive an email notifying you of the sale. The supplier then ships the chocolate off under your label and sends you a bill for their cost – say $25. You make $19 on each purchase, and all you did was take the order.
If you think this is a great business model, you are correct! There are no labor expenses associated with shipping, no inventory to stock, you can stock name brands and adding or deleting items from your e-store is simple.
How do you get started? First see whether your regular suppliers offer drop shipping. If not, you need to decide what online products you would like to carry and see whether that supplier offers a drop-shipping system. Once you locate the products you want, and a drop-shipping supplier, you are good to go.
When you find a supplier you like, be sure to find out:
- What their wholesale prices are compared to what you can retail the product for, so that you can accurately gauge your potential profit
- What they charge for shipping
- How and when they will bill you
- How they handle returns and refunds
Drop shipping is a simple, affordable way to sell in cyberspace. As long as you find a reputable company to work with that offers quality products and has a reliable shipping system, your e-store should be ready for takeoff.
