Should You Use Drop Shipping?

If you are considering your options for starting a business, one of the items you may have heard about is drop shipping. Do you really know just how it works?

Here’s the overview of the drop shipping system:

1. You offer products for sale to your customers.

2. A customer purchases an item..

3. You contact your drop shipper who will take that item from their warehouse and mail it to your customer.

While this may seem like there are too many people involved in the process, drop shipping can be a great boon for a new business or one with limited budget or space for inventory.

First is the budget. If you want to stock an item to sell at a retail price, you are going to need to be able to get wholesale pricing on that item, in order to have room for an adequate mark up. That often means you will need to purchase a number of these items. Wholesalers are selling items at a low mark up, so you can enjoy a big markup for your sales. The only way this works for them is to make large sales, which will give them a good profit over the sale. They are going to insist you make a large order in order to get those low prices. Those large orders mean a need for a lot of money to get started. In addition, keep in mind if you are selling these items individually, it could take a long time for you to see that money come back.

If you have the money to purchase large lots of items for your business, you may have another problem a place to put all those items. If you have smaller items, like jewelry, you may be able to store them in an extra room or two of your house, but if you are selling larger items like computers and clothes, you are going to need much more storage space to keep all these things organized and ready to ship.

Drop shipping is a way to be able to run retail sales without having to keep a warehouse of inventory on hand or having to put a fortune out up front. Instead, the drop shipper does these things. Then as you sell one item, it is shipped from your drop shipper's facility.

The obvious question is 'What does the drop shipper get out of this deal?' They get a fee for each sale. They may list this as a ‘fee’ on each purchase or just mark up the price of the individual items a little over what the wholesale purchase price would have been if you were to purchase in bulk.  

While your per item profit is lower using a drop shipping system, your outlay in cash and storage are minimal and drop shipping is a great way to begin a business with out taking on too much risk.