For a number of folks just starting out online, the cost of inventory can be a real deal killer. Most come up with a great product to sell and find a source, but quickly realize that they have to buy large quantities of the product form the supplier.
Fortunately, there is another way. A way that allows you, the seller, to offer a host of different products for sale without the worries of stocking or shipping product out to your customers. This is just one of many businesses you can run from anywhere you have a connection to the Internet.
The concept is a simple one. You locate a supplier for the product you want to sell that is willing to drop ship for you. Once you make a sale and have payment in hand, you contact the supplier, pay for the product, shipping and drop ship fee that your supplier may charge. The product is then sent to your customer. Not only did you not have to purchase and hold the product, you didn't have to ship it either!
But, there are potential pitfalls you need to watch out for.
Here are my top eight pitfalls to Drop Shipping:
1. Much Less Control
This can be a very frustrating situation if you are not dealing with a top shelf supplier. By having products drop shipped, you have no control over how quickly a product is shipped or how it is packaged. This has always been my number one issue with drop shipping. I like having control of both of these issues.
2. No Volume Discounts
It's often said the profit on the sale is made when you purchase your goods. When purchasing via a drop shipper, you will normally pay the highest wholesale price available. Rather than shipping you a pallet of product, the supplier has to handle individual products, increasing his costs. If you do a lot of business with a particular drop shipper, you may find that your pricing structure improves over time.
3. Dealing With Less Than Competitive Pricing
Where drop shipping suppliers need to charge more, this can be an issue when it comes to your pricing structure. You may feel the need to mark your pricing up significantly. Take care when doing this as you may price yourself right out of the market. However, if you are able to offset the increased price by offering a larger selection or excellent product service, you may be able to get away with the higher price.
4. Return Policies
This can really be a profit drainer. If your customer wants to return a product, yet your supplier doesn't accept them, you could be stuck with the product and out the profit from the sale. Be sure you know what your supplier's return policy is.
<b.5. Value vs. Demand
Where you are paying a higher wholesale price for your products, you may decide to search for drop ship suppliers that will sell you the identical or cheaper products for a lower cost. Be careful when taking this approach because you may unwittingly end up with an inferior product. If this happens and the word gets out that you are offering a less than quality product, the demand for your products will tank and you'll run the risk of losing substantial income.
6. Traffic Generation
When using the drop ship model in your business, you are going to have to be good at driving traffic to your site in an economical way. With a higher cost structure, your pricing is likely going to be higher. This means you are going to have to drive more traffic to your site as fewer people will buy at the higher price point.
7. Inventory Issues
This can be a big issue. This goes back to the control issue. Where you don't have control over the inventory, your customers may experience long delays in receiving their product. If it gets to be too long of a wait, they may simply ask for a refund and go elsewhere.
8. Locating Quality Drop Shippers
8. Locating Quality Drop Shippers
This can be a daunting task. The Internet is loaded with less than reputable people / companies who claim to be drop ship wholesalers. Some of these scam artists sell lists of drop shippers that are either grossly out of date, or are nothing more than pages of Google Search Results.
As I said earlier, Drop Shipping allows anyone to get into business, quickly and efficiently. Heck, I used this model to run a 1/2 million dollar business selling musical instruments on eBay several years ago, so I know first hand that it is a great way to earn an income. Many, many people make a great living with this business model. If you pay attention to the eight pitfalls above, your chances of being successful with this business model will be greatly enhanced.
