Imagine having a website full of wonderful products that consumers buy off you at a profit, a website that sells and ships these products to your customers without you ever having to physically see or touch the product! This is not a glorious yet unrealistic daydream, it is the way a lot of people make money, its called drop shipping.
Drop shipping is a way to run a business that sells products that you never need to store in inventory yourself; you order the products once you have actually sold them - not before. Here is an example of how drop shipping works:
A customer sees a product that they want to purchase on your website places their order and pays you for the product, let's say a set of saucepans that you are selling for $150 plus shipping costs. Once you receive the customer's payment you send an email to your supplier ordering the saucepans and advising your supplier of the customer's delivery address details.
Your supplier will then charge you the wholesale cost of the saucepans plus the shipping costs to deliver them to the customer. You pay the supplier the wholesale cost of the saucepans $75 and the shipping $15 and once he receives your payment he forwards the saucepans to your customer.
You have made the sale and the goods are delivered to the customer leaving you with a $75 profit!
Drop shipping will eliminate the need for you to have to purchase stock up front, so you can start your business with a smaller amount of capital.
You will also be saved the expenses involved with storing any inventory such as warehouse rental, and insurance of the inventory etc. You will also receive the advantage of not having stock on hand that does not sell, stock that takes up valuable storage space and that you may have to end up selling at a loss.
The wholesale prices of drop shipping suppliers are higher than those of other wholesalers to compensate him for the costs involved with holding the inventory (especially as he generally has to have more stock on hand than other wholesalers). So in effect you are still paying inventory costs but indirectly and only when you actually make a sale.
To be able to open an account and start trading with a drop shipment supplier most will require you to prove that you are a legitimate business; you will have to supply the necessary paperwork to support your claim such as retail sales tax permit or a resale license or other legitimate proof.
There are some disadvantages involved with drop shipping when compared to purchasing from a regular wholesaler such as a higher wholesale price, sometimes closer to retail price. The goods available through drop shipment suppliers are very often low margin high turnover goods, to ensure that they are not stuck with unsellable stock.
Drop shipping is a good way to start a business with very little capital, and no risk of ending up with stock that won't sell; it could just be the way you will make your fortune!
