Imagine for a moment, that you're the owner of a business, generating a healthy income. An income that easily sustains and allows you to do the things you love for the rest of your life. That might be living by the beach, shopping in Paris, driving fast cars on weekends or regularly attending the ballet - or maybe doing them all would be the "icing on the cake" for you.
Well, this scenario is becoming more and more real to an increasing number of people.
Using the Internet for commerce continues to grow and with that growth new opportunities for businesses (of all sizes) are being created all the time.
How is that happening?
As Business-to-Business (B2B) trading becomes increasingly commonplace, the need to compete in new ways has become essential for all organisations, leading to greater trading flexibility. The result of these new ways of trading is that now it's even easier to get into a successful online business of your own, with brandname suppliers, to create that dream lifestyle you've always wanted.
For someone new to the world of online business the great news is that of all the new trading options available, one of the easiest you can get into, with no money down, is Drop Shipping. What's more, organisations that support Drop Shipping are making it easy for start-ups, by providing you with access to the same information, knowledge and expertise that they, themselves use.
Drop Shipping Unraveled
Drop Shipping is a supply chain management process where the retailer passes through customer orders and delivery details directly to the manufacturer or wholesaler; who then ships the ordered products directly to the end customer. For the retailer, this means there is no need to keep an inventory of stock in a storeroom or on shelves where items can become obsolete or damaged. Furthermore, since the retailer doesn't need to pay for storage costs or shrinkage, prices tend to be more attractive to customers.
The retailer makes money by adding a margin to the wholesale price to create a retail price for which they sell the item. It is the margin that the retailer receives and from which their expenses and cost of sales are deducted. The rest is pure profit.
To prevent retailers from destroying the market by competing on price, often-times, the manufacturer or wholesaler will even demand a minimum retail price.
Drop Shipping has actually been around for decades and was the backbone of many catalogue businesses during the 1980's. The Internet has made it possible for people wanting to start up home-based businesses to set up webstores and e-commerce websites without the hassle of buying and storing products or negotiating shipping contracts.
How Drop Shipping Works
- You find wholesale items and list them for sale on an auction website or in your own webstore.
- The item is sold via your auction listing or website and you receive payment from your customer.
- You order and pay for the product from the manufacturer or wholesaler and arrange for it to be shipped directly to the the person you sold the item to (your customer).
- The difference between how much you received from your customer and how much you pay the manufacturer/wholesaler is yours to keep.
The thing to note here is that you're selling an item you don't own - In fact you haven't even order it yet! What you do have is a confirmed order you place with a manufacturer/wholesaler and the money to pay for the order, and all this you've done with no money down. You've also avoided having to worry about packaging, handling and shipping, which the manufacturer/wholesaler does for you; sending the item straight to your customer.
What's the catch?
As easy as this all sounds there are a few things you need to watch out for.
The main one is to do with timing... You've just had a customer buy something from you, so you go your your wholesaler to place your order and find that they're out of stock. Now it's down to you to sort out something with your customer to keep them happy despite not getting what they thought they'd bought from you right away or at all.
Therefore, your choice of wholesalers and the quality of the relationship you have with them becomes vital for maintaining your good reputation (At the very least, you would want to be able to get back to your customer with an ETA and this means working with a wholesaler who, when you have questions, can get back to you quickly.).
The up side is that with the Internet it's pretty easy to keep an eye on what's happening at your manufacturer/wholesaler end, and at the end of the day you have a new customer that you can entice with future offers.
Finding wholesalers who will drop ship is as simple as doing a quick Google search. Typing in "drop shipping directory" will present you with millions of websites and organisations to browse and investigate.
Next you'll need to work out how to choose who buy from and how to avoid the pitfalls of being in drop shipping.
7 Important Things to Know Before You Get into Drop Shipping
Shop around for the right price. Chances are the first wholesaler you come across isn't the only one with the items you're looking for, so check out a few before you decide so you're confident you're getting the best overall deal on the items you want to sell. A good price from a supplier/wholesaler gives you more room for building bigger profits into your retail price.
- Fees & Charges
Watch out for Participation Fees in particular. Some wholesalers charge additional fees for just having a relationship with them. It's important that you understand all the costs involved; handling, freight and any other order specific fees will impact your profit margins negatively.
You have no control over the condition your customers items arrive in. Find out as much as you can about the shipping arrangements your wholesaler will use. Things to watch out for are the quality of the shipper they use, whether they will ship internationally and freight rates based on distance.
- Payment Terms
Know when you need to pay for items. Initially you may be required to pay for your orders immediately, however as you become an established buyer, you may be offered alternative payments term (paying one big bill at the end of each month is common for established buyers). Taking up these offers is something your Accountant can advise you on; how big you are plays a big part in whether this is favourable or not.
- Customer & Product Support
Check the levels of support available, either from your wholesaler or through independent service and support organisations. Some products require after sales support, maintenance, installation and warranties which you may not be in a position to provide if you're just starting out. Ensure you know what your responsibilities are in relation to these types of products.
- Returns Policies
Be clear on what happens when a customer wants to return an item. Find out if the wholesaler has a Returns Policy and what needs to happen for your customers to take it up. If the wholesaler doesn't have a returns policy then chances are you may need to sort it out yourself, this could mean you need to foot the bill to get the product back them.
Keep an eye on rejected credit card transactions. Regrettably, some people will abuse the credit card chargeback process and you may find yourself defending the transaction. Keeping good accounting records for all steps of transactions, from the point of purchase by your customer, all the way through to acceptance of goods, will give you some protection in these cases. It will also help for you understand the credit card authorisation process and fraud screening procedure your payment system uses.
Starting Your Own Drop Shipping Business
Drop shipping makes it easy for anyone to sell something online without having a large amount of starting capital (some say all you really need is a bank account into which you get paid.). So, if you've been inspired and want to get into Drop Shipping here are some organisations you can investigate.
If on the other hand you're already selling things over the web and want to expand your existing offerings, Build a Niche Store can help.
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