What is drop shipping?
Drop shipping is a type of fulfillment model through which you can buy products individually from a wholesaler and ship them directly to your customer. This line of working is advantageous since you don’t have to purchase a large amount of inventory, you just have to tie up with a drop shipping supplier and list their products for sale in your website. Then, once you receive an order for that particular product through your website, you forward it to the supplier for fulfillment. From that point onwards, the supplier will ship the product directly from their warehouse to your customer, and you get charged from the supplier only for the price of the item shipped.
How is drop shipping advantageous to you?
First advantage of the drop shipping is the low requirement of capital on your part. With the facility of drop shipping, you don’t have to invest thousands of dollars in inventory. You only purchase a product when there is a demand for the same in your website and you have an existing order to fill. Since you don’t have to purchase all the items you are displaying as products in your eCommerce website, you can display a wider variety of products in your website. This is the second advantage of drop shipping. Third advantage of drop shipping is that you have a reduced risk on your shoulders. If things unfortunately don’t work out, you are not left out with thousands of dollars’ worth of inventory that you may have to sell at a loss. Fourth advantage of drop shipping business is that since you don’t have to worry about fulfillment or running a warehouse, which is a mammoth task, you can start your eCommerce business from virtually anywhere wherever internet connection is available. Last but not the least, drop shipping business is highly scalable since you don’t have to manually fulfill all the orders yourself.
Is drop shipping a profitable business model? How much can I make with drop shipping?
This is a highly subjective question to answer and the answer will depend on what kind of niche market you have chosen for yourself and the skill and dedication that you have towards your business. However, if you are willing to commit long term and with a right kind of positive approach it is possible to create a type of drop shipping business that gives you a six figure income. You may have to slog for years to achieve that kind of a level, but it is good to know that most of the processes are easy to automate and it is also easy to outsource most aspects of the business, so that you can save both your time and energy.
How much profit can I expect with drop shipping?
Profits will depend on the type of products you are selling via your drop shipping business. For high end electronics, margins are thin and are likely to be in the range of five to ten percent. However, for lower priced accessories, margins will be often in the range of hundred percent. Your profit margin will also depend on your ability to offer value to your customer, and in this way you can charge a premium over your competitors.
Where are drop shipped products sold?
Leading websites like eBay and Amazon are selling drop shipped products. Many sales on these popular websites are fulfilled by drop shippers, as are products on a number of eCommerce websites, especially the smaller ones. Hence, it is clear that even the big boys in the eCommerce sphere utilize drop shipping to expand their product range. This allows them to offer a wider variety of products while restricting the size of the inventory they are holding.
How do I make sure customers don’t order out-of-stock items?
One of the biggest challenge while working with the drop shipping model is that it comes difficult to know when an item is available in the warehouse and when it is actually out of stock. When a customer orders an item that is listed in stock and then comes to know that particular product is actually out of stock, it becomes a very poor experience for the customer and your business and brand reputation can suffer as a consequences of this. To counter this, a few advanced drop shippers opt for real time inventory feeds, but everyone is not a big player in the arena of drop shipping. For the small players there are other ways to counter this problem. Most popular among them is to have an overlapping product line. In this manner, if the first supplier doesn’t have the product in stock in their warehouse, chances are high that supplier number two will have the same product in their stock. Regardless of this, keeping out of stock items properly reflected in the eCommerce website is one of the biggest challenges of drop shipping.
Who owns the responsibility if mistakes are made during fulfillment?
As a matter of rule, it is the drop shipper who is responsible to fix the mistakes they create. For example, if a drop shipper ships a wrong item to a customer then it is the responsibility of the shipper to pay to reship the correct item and as well as pay the fees of returning of the incorrect item back to the warehouse of the seller. However, your responsibility doesn’t end. You should not forget the fact that the customer got through the drop shipper product from your website with your brand name associated with the product and hence if the drop shipper makes a mistakes, it reflects poorly on your website and it is your brand that is suffering. This becomes more frustrating since the mistake was not your fault. In addition, as you chose to be in the drop shipping business, you shouldn’t always shift the blame to the drop shipper, since for the customer who got a wrong or faulty product, you are the supplier and it is you who should take the responsibility. Hence, instead of passing the buck, it becomes imperative for you to solve the problem as soon as possible to save your business and for retaining your customer.
How do you sell items you have never seen before?
Selling items that you have never physically seen in the first place can be quite a daunting task in the first place. However, there are ways through which you can become an authority on the products that you are selling without even physically seeing them. First rule to fulfill if you want to do this is to sell established products. Established manufacturers will usually have quality and highly informative websites that give complete information about the products they are selling along with all the specifications like the weight, dimensions, etc. along with the product descriptions and pictures of all the products. This information will be invaluable to you and you can learn everything about the product that you want to drop ship even if you have not seen the product in reality before. Second way is to buy your most popular products and use them actually so that you get a feel about what kind of product is popular and what is selling like hot cakes. Witnessing firsthand the product and experiencing it by actually using it, you can get all the information about that particular product/s and can easily convince your customers to buy such kind of product. Third method of knowing about a product which you have not seen and experienced is by talking to your customers and knowing their opinion and experiences while using a particular product/s and this will give you a deep insight about the products that you are selling, even if you have not seen them physically.
Is there a risk of fraud with drop shipping?
Credit card fraud is a major concern while buying and selling online and drop shipping is no exception to this. However, by taking precautions you can plug the holes in your security systems and ensure that credit card fraud doesn’t occur. First of all, make sure that you require your customers to enter their CVV number, which are the last three digits at the back of the credit card. This makes it more likely that the purchaser has a physical card present with them while ordering and they are not using credit card numbers that have been obtained fraudulently. Also, you need to make sure that the payment gateway that you are using has an AVS (address verification system) enabled. This ensures that the zip code on the billing address matches with the info in the file present with the bank so that if it matches then payment is accepted but if there is a mismatch then payment is declined. Also, make sure you are more vigilant in case the billing address entered doesn’t match the shipping address where the product needs to be delivered. This is the major area where a majority of the credit card frauds occur. Normally, just a phone call may avert a credit card fraud, and this should be norm in the case of large orders so that you have verified that the credit card user has actually ordered the product or not.
How can I know if I am dealing with a quality drop shipper?
A good quality drop shipper is the mainstay of the success of your drop shipping business. Hence, it is very important that you verify the details of the wholesaler before you spend a considerable amount of time building a business around them. Hence, before taking any wholesaler in your fold, you should verify the following details:
- Test their sales representatives and determine how much product knowledge they possess and whether they are able to convince you into buying or not.
- Place a few test orders in order to determine their fulfillment speed and communication process while fulfilling any order, big or small.
- Speak with your existing customers regarding their shopping experiences and making sure that you get a positive feedback from them.