Drop Shipping

What is Drop Shipping?
•Drop shipping is an arrangement that a retailer makes with a wholesale distributor. The retailer sells the product, and the wholesaler then ships it to the customer complete with the retailer's label on the package.
•Drop shipping is a product delivery method in which the seller (retailer) accepts payment for an order, but the customer receives the product(s) directly from the manufacturer. In a drop shipping arrangement, the retailer acts as a middleman between the manufacturer and the customer. His profit in the transaction is the difference between the wholesale and retail price of the items sold.

Advantages of Drop Shipping
•No inventory
•No shipping
•You buy wholesale and sell retail
•Distributor supplies product information and new products

Disadvantage of Drop Shipping
The main disadvantage to drop shipping is that there is a slightly higher chance that there will be returns. Since the retailer cannot see the product, it's possible that the wrong type will be shipped, and the quality of the product cannot be verified.

When starting a retail business, inventory can easily be one of your largest expenses. Not only that, but over time you have to keep your inventory current and stocked with the products your customers most want to buy. If your inventory becomes outdated, you might have to sell it to a discount company at a loss. Overall, no inventory means less risk to you as a retailer.
Depending on the size of your business, shipping and mailing can expend a lot of your resources. This includes processing orders, packaging, and making arrangements with a shipping company to pick packages up or taking them down to the post office yourself and mailing them. For small businesses, it requires having one or more employees dedicating part of their workday to shipping, taking time away from other tasks. For larger businesses, it means having a full-time mailroom with perhaps a dedicated mailroom supervisor. Either way, drop shipping offers an alternative that alleviates shipping and frees your employees for other duties.
The great thing about drop shipping is that you never have to buy an item wholesale until you've already sold it retail. Not only do you benefit from no inventory costs, you also profit from the difference between the wholesale and retail price. You have to get the best price you can wholesale in order to stay competitive in the retail market.
The key to finding a distributor with the best price is to get as close as possible to the manufacturer of a product. Contact the manufacturer and if they don't drop ship, they can recommend a distributor who does. (Please note that the distributor will require you to have a resale or tax number to buy the products wholesale.)
Once you have secured an arrangement with a distributor, you can begin using their product information on your Web site. Larger distributors have marketing packages and smaller ones will let you download pictures and information from their site. In addition, if the distributor begins carrying a new product line, you have the option of adding it to your online selection. This keeps you current without having to do your own research and development.

Things to consider when selecting a distributor for drop shipping
•Watch out for companies that aren't legitimate wholesalers. (Be suspicious if they don't ask for a tax ID number.)
•Be wary of monthly fees. (You should not have to pay to sell their product.)
•Online shopping is highly competitive. Optimally, products should be in demand, but not widely available online — what are called niche markets.
•Be sure the drop shipper uses a method of shipping, such as FedEx or UPS, which can be tracked. (This is helpful when the customer wants a status on their order.)
•Ask about the distributor's policy on defective products and returns. (This always comes up in retail businesses.)

How Drop Shipping Works
Steps Involved in Drop Shipping
•You open an Internet Store with a shopping cart and accept credit cards on your site. You can also sell on Internet Auction sites such as eBay.
•You find a distributor who will dispatch the products you want to sell.
•You open an account with the "drop ship" distributor(s) you choose.
•You receive descriptions and images of the products you wish to sell from the distributor and put them on your Internet Store or Auction.
•When a customer buys from your Store or Auction, they pay with their credit card. Your Store or Auction charges their credit card plus shipping.
•You email the order to the drop ship distributor with the customer's name and address.
•Then the drop shipper dispatches the product to your customer from the warehouse with YOUR business name on the package.
•Then the company charges you the wholesale price plus shipping. Remember you have already passed the shipping charge on to your customer, so the shipping costs you nothing.