What is Drop Shipping?
As a retail fulfillment model, Drop shipping facilitates you to purchase products individually from a wholesaler and ship them directly to your customer. In place of buying a huge amount of inventory, you simply partner with a drop shipping supplier and list their goods for sale. Then, after you receive an order, you forward it to the supplier for fulfillment. The supplier will ship the product directly from their warehouse to your customer, and charge you only for the price of the shipped item. With this service, you will never see or handle the product.
The biggest benefit of drop shipping is you don't have to worry about fulfillment or inventory issues. In addition to this, most customers don't know you're drop shipping since "private label shipping" lets you ship from the wholesaler with a return address and invoice customized to your eCommerce store.
Benefits of drop shipping
The drop shipping model has some advantages:
1) Lower Capital Requirement: You don’t need to invest thousands of dollars in inventory with drop shipping. As an alternative, you only purchase a product when you have an existing order to fill.
2) Reduced Risk: Without thousands invested in inventory, the risk involved with starting an online store is reduced dramatically. If things don’t work out, you are not stuck with thousands in inventory you have to sell at a loss.
3) Extensive Product Selection: When you don’t have to pre-purchase all the products you sell, you can offer a considerably larger number of products to your customers.
4) Highly Scalable: Because you don’t need to fulfill manually each order, it’s pretty easy to scale a drop shipping business.
5) Location Independence: Because you don’t have to worry about fulfillment or running a warehouse, it’s possible to run a drop shipping business from anywhere with a laptop and an internet connection.
6) Convenience & Efficiency: Successfully launching and growing an eCommerce business takes lots of work, particularly if you have limited resources. Not having to worry about fulfillment is incredibly expedient and frees up your time to focus on your marketing plan, operations, and customer service.
7) Easy to Get Started: Running an eCommerce business is much easier when you don't have to deal with physical products. With drop shipping, you don't have to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
Is drop shipping a profitable business model?
Just like all businesses, profitability and success depend on some variables. But when done properly, it is possible to create highly profitable online businesses with drop shipping. Drop shipping is not a magic formula – and real success takes significant time and work – but it’s a viable online business model with very low risk. Drop shipping was the model I used to start my online store, facilitating me to quit permanently my corporate job.
How much can I make with drop shipping?
Again, like all businesses, profits and success range widely based on some factors – most notably, the commitment and dedication of the business owner and the niche selected. But with hard work, right approach, and a long-term commitment, it’s possible to create a drop shipping business that provides a six-figure income.
A business of this scale will take the time to build – likely years – but it’s possible. And once a drop shipping businesses is up-and-running, it’s fairly straightforward to automate and outsource most of the day-to-day aspects of the business.
What kind of profit margins can I expect with drop shipping?
Profit margins will vary significantly depending on the products you sell. For costly electronics, margins are thin and will likely be in the 5% to 10% range. But for low-priced accessories, margins will often be in the 100% range.
Your margins will also depend greatly on your capability to offer value to your customer, which enables you to charge a premium price over your competitors. This is instrumental to the success of a drop shipping business, and a topic we cover in-depth in our free eBook on how to create an online store.
Where do people sell drop shipped products?
People sell drop shipped products almost everywhere! Many sales on Amazon and eBay are fulfilled through drop shippers, as are items on thousands of eCommerce sites, especially smaller ones.
And even the big boys utilize drop shipping to expand their product catalog and offerings. It’s likely that large companies utilize the drop shipping model for some of their less popular items. This facilitates them to offer a broad selection while limiting the inventory they have to maintain.
While it’s possible to sell drop shipped products in some ways, creating your eCommerce site offers the best chance of building a profitable, successful and scalable drop shipping business in the long run.
The Final Words on Drop Shipping
Do I get overnight eCommerce success with drop shipping? Of course not. As with any fruitful online store, you will need to invest time in a quality website, marketing, and customer service.
But drop shipping does provide a simple way to get started and the capability to leverage other people's capital without having to spend thousands of your own. When managed properly, it can form the foundation of your successful online store.