Drop shipping is a popular retail method online, many internet seller or stores take advantage of drop shipping as it saved them a great deal of money. If you are interested in drop shipping and wondering how drop shipping works, read on.
Drop shipping is popular as retailer does not need to keep all the products they are selling in stock, they just buy the item that customers order from the manufacturer or wholesaler and have it shipped directly to their customer. The merchant never touches the inventory or item they sell.
Whenever an item is sold on their website, the retailer just passes the customer’s order to the supplier or wholesaler, who shipped the package to the customers given address. This process is perfect for a retailer who has no big capital as they do not need to buy and stock the product they are selling. The supplier handles the warehousing, packaging, and also the shipping, saving retailer money.
How Drop Shipping Works
In order to help you understand the process of drop shipping, allow me to explain the process in details.
Step #1
First step, you as a retailer first picks an item you want to sell on your website from the supplier or wholesaler product catalog.
Step #2
List or post the products on your website using the images and product description of the wholesaler.
Step #3
When an item sells, collect the money from your buyer then place an order to your supplier.
Step #4
Pay your order, your profit comes from the difference of your sale and the cost of the item you are paying to the supplier.
Step #5
The item is shipped to the customer home or office address.
Advantages of Drop shipping
Like any other business method, there are advantages and drawbacks to drop shipping as well, below are some of them.
Less Capital – The biggest advantage of drop shipping is the capital required. You see, you can launch an e-store without spending thousands of dollars up front for inventory.
Traditionally, retailers have large capital to purchase inventory for their ecommerce store with drop shipping method, you don’t need to purchase your inventory to sell a product. You can start your business with limited capital with drop shipping.
Easy to Operate – Running a business is easier when you don’t have to worry about making physical inventory and handling the products.
The following are some of the things that make operation easier:
- There is no need to rent and manage a warehouse
- Packing and shipping of orders all handled by the wholesaler or supplier
- No time consuming inventory for accounting purposes
- No need to worry about inbound and return shipments
- No need to manage stock inventory
Low Overheard – Drop shipping take care most of the costly part of the business from managing and paying a warehouse to inventory, which is why the overhead expenses are low. With drop shipping, all you need is a functional website and laptop to run your ecommerce store.
You can run your business anywhere, as long as you have an internet connection to communicate with customers and supplier it is a business as usual.
Wide Range of Products – You can offer lots of items as you do not need to purchase the items you will offer to potential customers.
All of the above make drop shipping attractive and perfect for new entrepreneurs. But of course, like any other business it is not all rainbows with drop shipping as the flexibility and convenience have a price.
For one, you have a lot of competition because of the low capital. Anyone with internet connection, laptop can start an ecommerce store. Tracking items is time consuming especially when you are sourcing from different wholesaler or warehouses. You also have no control on the quality and shipment, in case there is a problem you’ll get blamed for the mistake of others. However, with proper planning and coordination with your supplier, you can minimize the risks of drop shipping.
Drop shipping is not a perfect method, but if this is your first time to venture into entrepreneurship, drop shipping is a good start especially if you have limited capital.
