Written by Chris Malta of Entrepreneur.com
Whether you're opening your first Internet store or you're an old hand at online selling, drop shipping offers an easy entry point into buying wholesale products. A drop shipper is a wholesale supplier or manufacturer that will send individual items straight from their warehouse to your buyers' homes, on your behalf.
The Ups and Downs of Drop Shipping
For an e-commerce business, drop shipping presents several considerable advantages:
There is no risky inventory investment.
There are no storage or shipping issues.
It lets you offer an extensive product lineup.
It provides a model for testing out new products and identifying hot sellers (that you can then purchase in volume for higher margins).
That's not to imply that drop shipping is the end-all solution for all Internet sellers. It poses certain limitations as well:
Because the majority of the work falls on your wholesaler, the profit margins are notably thinner than if you were purchasing in volume. They are true wholesale prices, but they are wholesale prices on single items, rather than bulk lots.
Since the supplier is handling the shipping, you have less control over that area of your customer relations. Any late deliveries or poorly packaged products will reflect badly on your business. For this reason, it's always a good idea to place a small test order with a drop shipper before listing their products on your Web site.
Identifying True Wholesalers
Finding legitimate wholesale drop shippers isn't easy. Many new online sellers begin looking in the worst possible place -- the search engines. You will rarely find genuine wholesalers there. What you will find are a great number of middlemen and con artists, posing as true wholesale sources.
One way to find reliable sources is to attend tradeshows. The wholesalers and manufacturers you'll meet there have been vetted by a trade association. Not every vendor at a trade fair will be willing to drop ship, but many will; and you'll feel confident that they've been verified.
You can also check out industry publications. Trade magazines are a good source for finding wholesale suppliers. Lastly, you can call the manufacturer of the product you're interested in selling. Ask them for a list of their factory-authorized wholesale suppliers. Then call the wholesalers on that list to see which ones are willing to drop ship.
Finding the Right Fit
Once you're certain you're talking to real suppliers, narrow your list to the companies you want to do business with. To decide if a drop shipper will be a good fit for your business, ask pertinent questions.
Early on in your conversation, ask if the supplier will work with your business. Many wholesalers aren't anxious to sell to online businesses. They operate on thin margins and make their money selling in volume.
So naturally, they don't believe an online store will place any large orders on a consistent basis. Some also have sales territory agreements with their physical retailers that restrict their customers from selling across the Internet.
Even if a wholesaler will work with online sellers, that doesn't always mean they'll work with
eBay (EBAY Quote - Cramer on EBAY - Stock Picks) sellers. So if eBay is your primary sales venue, you need to ask up front if they'll sell to you. Sometimes, the manufacturers fear their merchandise will be devalued in the market if it sells for too little on eBay. If you sell mainly on eBay, make sure your drop shipper permits their merchandise to be listed there.
Another important question to ask is whether the supplier offers single-item drop shipping -- the critical words being "single-item." If a supplier sets a drop shipping quantity minimum -- say five items -- you're forced to require your own customers to purchase products at least five at a time. Find wholesalers who will drop ship individual items for you.
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