For anybody unfamiliar with dropshipping, it can be quickly summarized as the sale of something that you don't actually own. With the permission of course of the product owner. You promote a product at your chosen price, makes sales, and then forward the agreed portion to the distributor or manufacturer. They subsequently send the product directly to the purchaser, whilst you retain a specific proportion. Your profit margin, basically. That may sound pretty simple, and it is, but there can be upsides and downsides to such an agreement.
A Guide To Dropshipping
The ultimate guide to dropshipping. What is it? How does it work? What are the advantages and disadvantages? How do you get started?
What Is Dropshipping?
Drop shipping can best be described as a supply chain management technique and basically involves a retailer selling a product which it doesn't itself keep in stock. The seller finds a buyer, then pays the distributor to ship the product directly to the customer. The seller, if they are doing it right, should be left with a proportion of the sale value which represents their profit.
When shopping on Amazon and eBay you may find that many of the products are being sold by individuals and companies who have entered into such an agreement. They market the product, effectively a middle man. Often the manufacturers or distributors will be based in other countries, such as China, and the retailer will be based in the country of sale. The manufacturer benefits because they don't understand the sales processes in the country of sale, and will generally receive the same amount of money for the product that they would receive from a distributor, and the drop shipper themselves benefits from the low risk.
There are numerous online communities in which aspiring drop shippers and keen manufacturers can enter into arrangements, but from the perspective of a retailer it can often be difficult to find an arrangement which will bring them significant profit. Unless they can find a great product and sell under an exclusive agreement. If you had an agreement which said that you would be the only drop shipper selling a specific product on eBay in the US for example, you would probably be able to achieve decent sales and a good margin. Most products however may have several people trying to sell the same product under a similar agreement, and the result is a very low margin as various parties seek to compete on price. You can make money drop shipping, either through your own sites or on eBay or Amazon, but realistically it can be very hard to find a highly desired and profitable item.
Disadvantages of Dropshipping
The biggest disadvantage is the potential for problems with the shipping process. The buyer does not know that you are not shipping the product, and neither should you ever tell them that. What happens if their is a shipping problem or the item arrives much later than anticipated? They will blame you. It is important therefore that you enter into agreement with an organization which offers a fantastic level of service to you, because you are immediately going to need to know estimated times of arrival or for them to resolve problems. You are the middle man.
What happens if the customer demands a refund? Well, they bought from you, so they need a refund from you. It is important that your shipping partner is one of integrity because otherwise it will cost you money. Your eBay and Amazon feedback if selling via those channels, or alternatively the reputation of your website, is at mercy of a third party. You will get the negative feedback associated with a problem that is not your fault.
Another common problem is inventory. You don't know what your shipping partner has in stock ready to ship, at least you don't if this is not effectively communicated to you. There have been numerous cases of eBay and Amazon accounts being closed as a result of frequent failures to fulfill contracts with buyers. Those who sell large quantities of something which they then find is unavailable will find themselves in plenty of bother.
Advantages of Dropshipping
The obvious advantage to dropshipping is the ability to sell products without tying up money in inventory. Not only would you need to purchase stock to sell the traditional way but you would also need to pay to store that stock, if selling in large quantities. The cost of warehouse space can really eat into, or possibly eradicate, your margins. As a result it really is a low risk agreement.
If selling on eBay or Amazon your only risk is the listing fees, which are pretty minor for most low value goods. Selling fees are higher, but obviously you work that into your desired margin when doing your initial numbers. Another major benefit is your potential product range. When setting up a retail outlet your stock will be limited by the amount of cash or credit that you have to invest, dropshippers can 'stock' so much more on online stores.
If You Are Serious About Dropshipping
If you are serious about getting into drop shipping then it is important to educate yourself as much as possible before taking risks, it is unusual of course for those who are making money to share their secrets unless they can make even more money doing so. In other words, stop 'Googling' for information - buy a decent book or two and spend time reading it, the books below are a good start.
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How To Find Products To Dropship
Finding a dropshipper is easy, finding one which hasn't already entered into arrangements with other marketers is very hard. That means thinking outside of the box when finding wholesalers or manufacturers; there are a number of resources available which lists businesses who actively invite people to market their products, but the reality is that there will be dozens of marketers already promoting these products and the result is dwindling margins. You can try one of these resources, but make sure you ascertain just how much margin is possible - anything less than 20% after costs is unlikely to be worth your time and effort. Popular sources include:
- Dropshippingforum.co.uk - A good resource for UK based marketers, and a friendly and helpful community.
- AidAndTrade.com - A paid resource, this website lists over 170,000 products from almost 5,000 different brands. A lifetime gold membership will cost you just $50 which, if you are serious about the game, is small change.
- Wholesalecentral.com - This site has a list of 87 major dropshippers based in the USA.
The problem is that 'popular sources' are often not the place to find the most lucrative products, as mentioned earlier the businesses who actively seek drop ship arrangements are likely to have relationships with numerous marketers and many of those marketers will be active on the biggest online marketplaces; such as eBay and Amazon. If you want to make big bucks then you need to find a product which is not widely available on these sites, this can often mean seeking out a business who doesn't currently pursue dropshipping arrangements and attempting to persuade them to do so. A couple of ideas:
- Alibaba.com - Alibaba is the ultimate import and export site, with wholesalers and manufacturers from countries worldwide seeking to sell goods to foreign markets and retailers from countries worldwide seeking to buy cheap stock for their online and offline stores. If you can find a product on this site which isn't currently available from numerous eBay sellers, then you could find the key to a fortune. If you can persuade a wholesaler to allow you to market their fantastic product, perhaps even in an exclusive agreement, then you could be on your way to a million dollar income; if you are the exclusive retailer then you also have a degree of control over your margins. Easier said than done however.
- WhitePages - Why not call around, offering to promote the products of small manufacturers? A lot of work, but a good talker will soon persuade a struggling business to allow you to explore online markets. There is very little risk involved for any party.