- Personal Finance
Make Money Working From Home by DropShipping
What is Drop-Shipping?
Drop-shipping is a relationship between two businesses or an individual and a business whereby the goods are delivered direct to the customer from the vendor without the seller ever physically holding the stock.
For example, if I set up a drop-ship relationship with a business and I am selling on ebay, what I am required to do is obtain their permission (sometimes they freely give permission to list their products - check with the supplier if you are unsure) to list their product on my ebay store. For this example we will assume that I am selling a Women's Green Top for $29.90 with free shipping.
When a customer comes along and purchases the product from my eBay store, I receive the payment for $29.90. I will then need to go to my drop-ship suppliers website and order the product from them. My cost for the item in this example will be $9.50 and the postage cost is $7.90.
My gross profit here is $12.50.
The higher your turn-over of stock, the higher your total gross profit will be.
But make sure if you are selling on eBay and accepting payment with PayPal to also take the eBay fees (listing and final) and PayPal fees into consideration.
I always calculate eBay final fees as 10% of the selling price and the PayPal fees as 40% of the eBay fees.
Example, my Green Top sold for $29.90
The eBay fees at 10% will be $2.99
PayPal Fees at 40% of eBay fees will be 40% of $2.99 = $1.196
Net profit after eBay and PayPal expenses = $8.314
Drop-Shipping Explained in a Diagram
Finding Drop-Ship Suppliers
Finding reliable suppliers that sell good quality products is the hurdle many people new to drop-shipping need to cross.
I obviously don't need to tell you to avoid any business or company that sounds like a scam!
You need to do some research but this research will pay off with profits. A win-win in the end. Having the right supplier can help your business grow tremendously.
Online research is most common and easiest. You can google different strings of words on drop-ship suppliers "abcd" replacing "abcd" with the specific category you want to be a reseller in. For instance, I prefer reselling electronics, so I would type in drop-ship suppliers electronics.
You search will most likely reveal a large number of drop-shippers, many of them based in China. Now is the time for you to do some planning. What type of business do you want to run? How long do you want customers to wait before their receive their products? Are you comfortable buying from overseas or is a local supplier preferable?
Go through the stage of looking through every supplier that comes up and ask yourself if you are interested in reselling their products. If you find yourself in agreement, then look into shipping costs, delivery time frames,
One thing that you MUST do before undertaking the drop-ship business model is to try the products yourself and make sure that the supplier is trustworthy. Google the business for reviews and also drop-ship the product to your friend/ a family member to get their thoughts on the process and any feedback.
Benefits of Drop-Shipping?
- You don't need to physically hold the stock yourself
- There isn't a requirement for large sums of money
- It is an easy and efficient business model
- You only pay for shipping once (to the supplier - whereas with wholesale you end up paying shipping twice)
- It is a tried and tested business model in which many people have succeed.
Problems with Drop-Shipping
- If you are in a competitive market, you will experience slow sales and low margins
- Your inventory not matching the suppliers, that is, you sell a product which you cannot now buy from your supplier as it is out-of-stock
- You are unable to answer extensive product related questions from buyers if you have never seen the product
- The product may be low quality and you might have buyers complaining and leaving negative feedback