Drop shipping has garnered quite a lot of attention over the past few years, presenting an easy way to become an Internet retailer. Is it just another get-rich-quick scheme? Multi-level pyramid deal? Flash in the pan? Not really. Like anything, you do have to put some energy into it. When you first consider the concept of drop shipping, it seems remarkably simple. You don’t have to carry any inventory, and you don’t have to do any shipping. You just put up a web site, send the orders to the drop shipper, and collect the checks.
Well, it’s not really that easy, folks. Successful drop shipping involves successfully doing two things: Making a good product selection, and marketing. On the product selection front, it’s easy to just load up everything the drop shipper has to offer into your virtual catalog, but a more effective method is to create a niche for yourself—specializing in one particular area. Don’t try to be everything to everybody, because the customer will just get lost. Specialize in one area and position yourself as the expert in that area. On the second front, marketing—again, it’s easy to just put up a web site, but will anybody see it? How many web sites are out there today? With no marketing, again, it will get completely lost.
That said, drop shipping can be an effective management technique, especially for handling inventory.
Drop shipping, for the uninitiated, is a form of inventory control whereby the retailer sells his items to the customer, but instead of having a supply of the item on his shelves for immediate delivery, the retailer orders his items directly from the manufacturer or the wholesaler, who then ships them directly to the retailer’s customer. In this way, there is no need for the burden of carrying inventory. The retailer still retains his profit margin as a difference between the wholesaler’s or manufacturer’s price and that of the retailer.
Often, the final customer never knows that the retailer is drop shipping his merchandise because the retailer chooses not to disclose this up front, thereby hiding his inventory control from view. There are several ways to hide the drop shipping from customers. The best way to do this is to have the manufacturer or wholesaler ship the product with the retailer’s name and logo on the packaging slip.
The benefits are obvious: no inventory means less cost can be passed on the retail customer, and the retailer retains positive cash flow throughout the entire process. The potential downside is that it may take longer for the customer order to be fulfilled, since it’s going through a third party, there may be a backorder that the retailer is unaware of, and the retailer’s markup will not be as high as if they were sourcing, warehousing, and shipping the product direct.
In part two of this article, I will explain a few of the positives and negatives of drop shipping in more detail, and how the retailer who drop ships can benefit in the end. To be sure, there are negatives to the drop shipping idea, but they are manageable if you know how to navigate the drop shipping maze.
Recent Comments