Online Home Business Model #6 – Dropshipping
Drop shipping can be a very effective and simple way to get involved in ecommerce. Many established online merchants are now turning to drop shipping as a method for minimizing stock on hand, decreasing overall shipping costs. However, like other things, there are always pros and cons to drop shipping that you have to know before jumping into this online business. Make sure you understand how drop shipping works, the pricing method, fee and charges, shipping process before getting started with drop shipping business.
The Pros and Cons of Drop Shipping
Drop shipping is becoming popular to start an online business because of the following advantages:
- Drop shipping allows website owners to send single/low quantity unit orders gathered on their web sites to manufacturers, or major warehouses, who in turn “drop ship” the items directly to the customers.
- Because a warehousing company can buy in huge volumes, they will also be able to offer you the best prices on products and shipping, which will return a greater profit to you.
- There is no capital investment and no need to invest in inventory.
- Using drop shipping allows you great flexibility in terms of product range – promote a dozen items or promote a thousand.
- Instead of worrying about inventory and delivery, you get to focus on listening to the market and discovering the products your visitors you want.
Even though, drop shipping seems like a perfect solution to start an online business for some people, there are some facts that you have to aware in associated with drop shipping business:
- Drop shipping is not for people who want a big money with little work
Drop shipping is a real business and like any kind of business, it involves a lot of work and focus in running a business. Although, drop shipping saves you from warehousing, inventorying, and packaging and shipping items, but you’ve still got a retail business to run. Moreover, profit margins are thinner because the drop ship suppliers are those who take more profits with the risk involved with warehousing the products.
- Not all drop shippers are happy and willing to work with you
Drop shippers who work with anybody typically charge a fee to be associated with them or else they do not offer a good wholesale price. Some drop shippers have minimum requirements i.e several thousand orders per month.
The application fee scheme is varies, it can be monthly fee or annual fee. Some drop shippers will even charge you a non-refundable application fee. If they decide you are not big enough to work with them, you lose your application fee.
- It is still possible to make money with drop shippers
Despite the little profit margins you may get, it is still a profitable business for some of the internet’s largest retailers which use drop shippers exclusively as their product suppliers. If they were not making money, then they would not exist.
- Pricing is only one small part of business
In drop shipping business, do not focus exclusively on price, otherwise your business will never succeed because you will be completely ignoring the many other parts of business that are required to succeed such return rate, conversion rate, market competition, etc. Focus on all aspects of my business, rather than just one or two like so many of your competitors were doing.
- Drop shipping is not always a solution for business
Drop shipping is a specific service for a specific need. It is not a magic solution for business. Before jumping in this drop shipping system, you should be sure that your business will benefit from drop shipping, and you should have a well laid out plan for making that happen.
How to Select a Drop Shipper
Many companies will have an interest in teaming up with you in a drop shipping arrangement as it’s an easy way for them to generate extra revenue, but there are some factors to consider in drop shipper selection.
- Pricing – Don’t accept that the first drop shipper you come across unless they are willing to provide you a “Best Price Guarantee.”
- Fees and Charges – Some companies will have a handling fee over and above freight costs – it’s important to know all the costs involved so you can calculate your profit margins accurately.
- Shipping Method – Are they using small private shipping companies or UPS? Will they ship internationally? You need to be sure that their shipping methods will ensure your clients receive their orders in one piece.
- Shopping cart – If you use a specific type of shopping cart in order to handle drop shipping, please keep in mind that many shopping carts only allow for one “ship from” zip code in the configuration for freight calculations. If you are dealing with a number of drop-shippers you may have dozens of point-of-origin zip codes – and this can be a real headache if freight is based on distance.
- Payment Method to Drop shipper – Will the drop shipping company automatically debit your credit card on each order you submit, or can you get monthly payment terms? When you are starting out with a company, they are unlikely to offer credit, but it is good to check if this will be possible once you have established credibility.
- Supports, Returns, and Refunds – The last thing you will want is to be caught up in a nasty situation where you have a number of returns and have to cover the bill. Ask the drop shipping company about their return policy, what kind of support they will offer you for their products and about any guarantees associated with their products. It is possible to get an agreement in writing to avoid problem in the future.
- Credibility – It is essential to choose drop shipping company who has a good reputation and being around for some time. Do they respond to your requests for information rapidly and professionally? Young companies have the habit of going belly up quickly, or growing too rapidly and as a consequence basic good customer service suffers.
How Do I Get Started in Drop Shipping?
You can start in drop shipping business in 7 simple steps:
- Set up a website that includes a Shopping Cart and credit card processing facilities, or setup an eBay or other auction account.
- Find suppliers of products you wish to sell that incorporate drop shipping as a business method.
- Open an account with them.
- Gather content and images relating to the products you have chosen, incorporate them on your site and shopping cart.
- Collect the order and payment from your site.
- Provide the supplier with the customer details.
- The supplier then bills you at the special price you have agreed upon; fulfills the order and sends it to your client – in most cases with labels referring to your business or website instead of the company.
With all good and bad you heard about drop shipping, make sure you understand how drop shipping will affect your business so you can have a successful business with drop shipping.
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