When it comes to starting up your own business, especially one on the internet it can be a difficult task to know what to sell and how to deliver the products to the customers. This is especially true for small business owners and entrepreneurs who do not have the money to store the products that they have for sale.
Traditional retail businesses must purchase, store, inventory and ship the products they have to customers when they are bought. This type of expense which includes renting the space for storage, purchasing the items, running a proper inventory and shipping them out can be quite expensive and time consuming.
However, there is a simple alternative that businesses all over the world use to avoid having to pay such expenses. Drop shipping is a simple, efficient means of delivering the products to your customers without having to pay for any expenses that involve storing or shipping. To understand how does drop shipping work which includes its advantages and issues will help entrepreneurs and small business owners better handle their expenses and deliver products to their customers.
Basically, drop shipping means that when a customer purchases an item from a store, the store then buys the item from a third party which then ships the product to the customer. Generally speaking, the third party is usually a wholesaler or the manufacturer with the store acting as a go-between. The benefit for the merchant starts with not having to buy and store the item until it is sold. In fact, this type of system is designed to save a great deal of time and expense that benefits the entrepreneur or small business owner.
The drop shipping method is a very simple one and for many online businesses it is automatic as the sale of the item alerts the third party who is paid and sends the product to the customer’s address. There are many advantages when it comes to how does drop shipping work as well as a few issues that will also have to be addressed.
Setting Up Your Drop Shipping Supplier
Naturally, you will have to know what types of products that you are selling and for most new businesses that number should be one. A single product that you promote makes things very easy for you to start and allows your business to focus all of its efforts in getting that one product in front of potential customers. Now, you will need to find the right supplier that will drop ship the product to the customer.
There are innumerable wholesalers and manufacturers who have a drop shipping program in place for entrepreneurs and small online business owners. They generally set a price for their products that are sold individually, so your price will have to be higher so that you can make a profit. You’ll need to check out the various suppliers to see which one offers the best services and quality of product.
In fact, once you narrow down the suppliers to just a few, you should order the product from them to hold in your hands and see for yourself the quality. From that, you should be able to choose which supplier is right for your needs. However, you should also keep one or two other suppliers in mind just in case a product goes out of stock.
Advantages of Drop Shipping
There are numerous and obvious advantages, but the important point is that virtually anyone can take advantage of this method if they do it right.
Simple to Startup:
Little Up Front Money: Perhaps the best reason why drop shipping works is that the entrepreneur or store owner does not have to invest many thousands of dollars in purchasing and storing the items that await sale. With traditional stores, it is expected that money will have to be spent for storage, inventory and shipping. Here, there is no money spent until the customer pays for the product which offers major advantages in terms of cost.
Essentially, you can start up a drop ship business and have the customers themselves pay for what they want while not having to invest your own money. This means;
This is about as simple as it gets when it comes to running your own business as you can focus more on marketing.
Run Your Business from Anywhere: All you need is an internet connection and you are ready to go. This means that you can run your business from any location as long as you stay in communication with the wholesalers or manufacturers who provide the products you sell.
Virtually No Overhead: When you consider just how little it takes to run an online business when you understand how does drop shipping work, it can mean saving a considerable amount of money that can go towards your advertising efforts. Many successful entrepreneurs and small online business owners report spending less than $100 per month when running their business off of a laptop because they have virtually no additional overhead.
It also helps that you can choose the products that you want since there are wholesalers and manufactures of all different types. You will only need to order what has already been purchased, so it can really pay to develop good relationships with these businesses so that you can maximize your flexibility and add new products to your store.
Plus, you can scale your business to be as big as you want thanks to drop shipping. Since they are the ones doing the work, you can grow the business at your own pace and add what you need. Many online business owners prefer to stay very lean in terms of their own growth even when raking in huge profits and you can do the same if you so desire.
Despite all the advantages that drop shipping offers, it is not a perfect system and understanding this will help out when you run into difficulties along the way.
Out of Stock: Arguably the biggest issue with suppliers is that they can run out of stock on a particular item that a customer just ordered. This can be a big-time headache as you race to find another supplier that will get the product to the customer. Of course, if you have the room in your home or place of work a few products around that can be shipped in case it is out of stock, but this should only be as an emergency measure. You are better offer having two, three or more suppliers that you can switch to just in case this happens.
Complex Shipping Arrangements: If you have multiple products from multiple sources, this can become problematic with a customer orders three items and find out they have to pay the shipping cost for each. If you pay it, your will definitely experience a loss in terms of your profits and if your customer is faced with multiple shipping charges, they may cancel the order. This is where you will need to be careful once you expand beyond a single product and single supplier.
Small Profit Margin: Another substantial disadvantage is that drop shipping provides a lower profit margin than if you ordered in bulk. Given that your competition will also be using the same suppliers, you can bet that they will offer the lowest prices possible as well. This means that you must sell a considerable number of products before you can enjoy a substantial profit given how little you will make off of each item.
However, if you have selected the right niche, you will not face that much competition and your professional efforts will go a long way towards making your business quite profitable in the long run. That is why knowing how does drop shipping work can make you quite a bit of money if you apply the right lessons.