Starting a drop shipping business is a great way to make money with a relatively low upfront investment. However, starting a drop shipping business isn’t free. In addition, there are hidden costs of drop shipping that you need to be aware of before you find yourself selling a product at a loss.
The key to avoiding hidden costs of drop shipping is to know what those hidden costs can be and to watch out for them in the process of negotiating an agreement with your potential wholesale supplier.
One of the most common hidden costs of drop shipping is a sales volume penalty. Many wholesale suppliers, even if they do drop shipping, will not give you as good a price if you don’t sell as many units. Make sure you know what the unit price will be, up front, based on the minimum volume that you expect to sell.
In some cases, a drop shop wholesale supplier may have hidden costs in their packing and shipping process that aren’t obvious at first. Maybe they charge a premium rate for all but the slowest of shipping services, or they charge a specific packaging materials fee in addition to the shipping and handling fees.
You might also find that your supplier is charging fees based on where the products originally came from. For example, a wholesale supplier might import products from several countries, such as Taiwan or India. It may be that the import excise taxes are higher for products coming from a certain place, and the wholesale supplier might charge either an explicit line item adding those to your costs, or raising the cost of the product altogether.
Drop shipping has another, more nebulous cost that has to be figured in, as well. There is always the risk that the drop ship wholesale supplier will ship a defective product, or that shipping will be delayed in such a way that your customer isn’t happy. When this happens, you lose time, money and reputation. While you can’t put a direct dollar cost on these things, making sure that your wholesale supplier has a solid reputation of quality and reliability is key to being successful over the long haul.
Being able to identify all of the costs, not just the stated product and shipping costs, will help you to know which products are truly profitable for your drop ship business and which products won’t make you any money.
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