Drop Shipping – The Easy Way to Get Started

One of the biggest challenges of selling products online is
finding a cheap way to purchase the items you plan to sell. If
you already have a retail store, and are looking to establish an
online outlet, then this is really not a problem for you.
Home-based businesses, however, have much more difficulty
purchasing goods for resale. That’s because distributors and
manufacturers will not sell directly to a home-based business.

Even if you are able to purchase goods from a distributor,
minimum order sizes are generally large enough that a
significant investment is required to get your initial
inventories. In short, a home-based business intending to sell
products online can easily spend thousands of dollars purchasing
items that may be very difficult to sell online for a variety of
reasons.

That said, there is a certain class of distributors that will
allow a home-based business to sell products on their websites,
and then drop ship them from the distributor’s location. There
is no need to purchase pallets of goods, and no need to worry
over warehousing and fulfilling orders. You sign up for an
account with the distributor, list their products on your
website, and when you get an order, they ship it to the
customer. No inventories, no muss, no fuss.

You can market the products on your website, via online auction
sites like eBay, or through prefabricated online stores like
Yahoo! Shopping. Basically, anywhere you can find to promote the
products is generally ok, however all the providers I’ve seen
have very strict rules against spam e-mail.

Purchasing products from drop shippers is generally quite a bit
less expensive than purchasing the same items retail. That said,
you will not be able to buy items for the same “wholesale
prices” that traditional retail outlets are able to purchase
them for. That’s because you are not purchasing in the same
quantities as more established firms, and most of the drop
shippers charge a “Drop Ship Fee” which is tagged on to the cost
of every order and can easily increase the cost of items you are
selling by a significant percentage.

As an example of how this works, let’s assume you are selling
music CDs on your website. Let’s further assume that the average
retail price of a CD is $15.99. Because you have an account with
a drop-shipping company that specializes in CDs, you are able to
purchase CDs for an average price of $9.99. When someone orders
a CD from you, you charge your customer $15.99. You then pass
the order to your drop shipper who charges you $9.99 plus a Drop
Ship Fee of $2.00 for a total of $11.99. Your net profit of
$3.00 may not seem like a lot, but since you don’t have any
overhead beyond whatever it costs for your web server space, you
really do make out pretty well.

The example above using music CDs is a simple way of explaining
the concept of drop shipping, however practically speaking you
will probably find that CDs are not the best product to sell
online. That’s because you will be in competition against
companies like Columbia House that can afford to sell 10 CDs for
a penny. They make their money back in the end, but only because
they are able to purchase the CDs at an extreme discount.
Whereas you are buying the CDs for $9.99, they might be paying
only $2 per copy.

The same limitation applies to other “commodity” items like
electronics, video games, and software. There are lots of
competitors out there that can purchase the same items for less
money, so you should try to think of niche products or
value-added services that differentiate your website from the
others.

There are quite a few dubious organizations out there that claim
to have lists of Wholesalers that will sell to the home-based
market. Unfortunately most of them are not legitimate. Worldwidebrands.com has an eBook that covers most of
what you need to know about drop shipping called, “Starting Your Internet Business
RIGHT” and it can be downloaded for free Here.

In conclusion, drop shipping should probably be considered as a
start-up activity. Your goal is to test different marketing
programs against each other, get your website ranked on the
search engines, and build your business volume up. Once you get
your site established and have a healthy volume of traffic
flowing through your site, you should be able to gauge the
profitability of establishing an account with a full-blown
distribution company. After all, the drop-shipping alternative
is an inexpensive way to get started in your business, but it is
not the most profitable way to purchase goods once you have a
full-volume business developed.