What is Drop Shipping ?And Why Do You Choose Drop Shipping Method? Part 3
What Is Drop Shipping?
The Drop shipper is a distributor or supplier with whom you have contract, ships a product directly to your customer after you have sold it on your website. This business model is known as drop shipping method.This is a great way to make money and reduces many of the challenges and risks of the other business model.
How Drop Shipping Works?
Let me try to explain, how dropshipping works . When we had decided to sellstainless steel chafing dishes, we contacted suppliers like thundergroup.com, easterntabletop.com, abestkitchen.com and agreed to their drop shipping terms and conditions as well as details wholesale or discounted pricing on the stainless chafing dishes.
As soon as we received a green signal, we marked up the products up to competitive prices and added the products on our website. We checked the prices, if they are competitive, by visiting other sites that sell the same kinds products as ours.
For this example, let’s say one stainless chafing dish had a wholesale cost of $250, and we were selling it for $300.00 on our website. When we made our first sale, we have sent an email to drop shipper or supplier and told them where to sent the products then drop shipper ship the product to the customer, we paid them $250 and kept the other $50 as a profit! Of course you will want to charge tax and shipping and handling fees from your customer.
Why We Chose Drop Shipping Method?
There are many benefits of choosing a drop shipping method:
- We never have to worry about inventory. Let’s say, we wanted to have 13 chafing dishes available for purchase on our web site and the wholesaler gave me the price per item averages $250. To obtain wholesale pricing, you are required to purchase at least five of each item. Based on the average cost per item you will need to invest roughly $16,250 just to have products to sell! (5 items x 13 chafing dishes x $250 average price = $16,250).Not only are these inventory costs high, you also have to find a place to put your inventory of atleast100 stainless chafing dishes!
- We don`t have to make a large upfront investment for an expensive chafing dishes we had planned to sell.
- We only paid for the chafing dishes when we had sold any item!
- Drop shipping saved us a lot of time, especially in the beginning of the business when time was very demanding. If, had chosen another model and kept an inventory of chafing dishes, we would be needed to package and ship each order. Then we would either need to go to the local Post Office, FedEx or UPS store and stand in line to ship it or have it picked up. While many delivery companies have package pick‐up at no additional cost, that service is not available everywhere and still requires you to weigh and package each item. With drop shipping, your supplier takes care of all the packaging and shipping for you!
- Another benefit to drop shipping is that you can get and offer more competitive shipping rates. Most wholesalers get large volume discounts from their shipping companies and those discounts get passed on to you and your customers. So, in the example of the stainless chafing dishes, if we carry our own inventory and ship the chafing dishes by ourself, it might cost $70 to $80, but through a drop shipper the same item only cost $50 to ship.
- Lastly, many drop shippers can ship your products without their company name on the package. This call Private label shipping method. Whenever, we ordered they put my company’s name which is USS International, LLC on the return address with their (drop shipper) shipping address. You’ll want to ask your drop shipper about the availability of this option.
Drawback Of Drop Shipping Method:
While the drop shipping method has much great benefit, there are a few drawbacks too.
- Whenever you use a drop shipping, much of the customer’s trust and shopping experience is in drop shipper`s hands because they are the one who fulfill your customer`s order. If your drop shipper is slow to ship, doesn’t package their items well, or has not kept your products in stock, it will affect your customers ‘satisfaction with you since they bought the item on your site.
- Another challenge with drop shipping is the lower profit margins you earn compared with other business models. And drop shippers can add fees to the order, especially if your drop shipper is not the manufacturer, which is usually the case. The drop shipper is usually a middleman between you and the manufacturer. And the more people involved in the sale, the less profit there is for you. Since you are not buying products in bulk, when you drop ship, your wholesale price is not as low as it would be if you bought items in large quantities. So, we are selling stainless chafing dishes, we may be able to buy a certain items for $140 wholesale (if, buying in bulk) and we can resell it for $250 on our website. This gives us a profit of $110. However, the same item using the drop shipping method may cost us $205 so we’d make a $45 profit instead.
Look for Free Drop shipping directories like wholesale central, dropshippers, dropshipaccess, thomasnet, wholesaledir etc.
The final conclusion is that drop shipping is still a great way to enter into online business and makes it easy to start building your site right away. Later, as your sales volume grows, you may choose to buy your products wholesale to increase your profit margins. Good Luck!