Drop shipping
From Wikipedia, the free encyclopedia
Drop shipping is a type of retailing in which the retailer does not keep goods/product in stock, but instead passes customer orders and shipment details to wholesalers, who then dispatch the goods to the customer directly. The retailers make their profit on the difference between the wholesale and retail price.
Some retailers may still keep "show" items on display in stores, so that customers can inspect an item similar to those that they can purchase. Other retailers may only provide a catalogue or Internet presence.
Drop shipping can occur when a retailer (who typically sells in small quantities to the general public) receives a single large order for a product. Rather than route the shipment through the retail store, the retailer will arrange for the goods to be shipped directly to the purchaser. This has been made easier since the internet revolution of the mid 1990s.
The book selling industry provides an example. Book retailers typically sell single copies of books to the general public. But a store may receive an order for, say, 50 copies of a book from a company that wishes to buy the books for their employees, clients, or stockholders. The book retailer will arrange for the wholesaler to deliver the books directly to the company.
Many sellers on eBay also drop ship. Typically a seller will list an item as new and ship the item directly from the wholesaler to the highest bidder. The seller profits from the difference between the winning bid and the wholesale price, minus any selling and merchant fees from eBay.
Yet another version of drop shipping is the practice of using private freight carriers to transport large volume items direct from the manufacturer to a postal facility close to the location of the end recipients (as opposed to dropping the items at a postal facility close to the manufacturer). This practice is employed for purposes of postal and time savings.
An example is a magazine publisher trucking all magazines addressed to subscribers in Miami directly to the post office in Miami.
NOTE: Drop shipping companies don't always offer wholesale prices. In order to determine whether a dropshipper is a legitimate wholesale supplier, pay close attention to the following: 1) Are prices already displayed to the public? -- Genuine wholesale prices are never shown to the public. 2) Is a Tax Identification number required? -- The majority of wholesale distributors require either a Federal Employer Identification Number (EIN) or Social Security Number to conduct business.
[edit] Risks
Just like in any business, there are risks involved when it comes to dropshipping. One such example is back ordering. Back ordering occurs when a seller requests the wholesaler to 'drop ship' but the product is already sold out. The best way to avoid such an incident is to be in constant contact with your wholesaler. Wholesalers are busy people and they have to keep merchandise moving. If you can establish a good relationship with your wholesaler, then this should not be an issue. A good wholesaler will always keep you updated but as a business owner, it is your job to be constantly aware of the quantities that your wholesaler has available. Dropshipping is a very easy way to get started online especially for the first timer looking to take that leap and start their own business. Today, a lot of wholesalers have private member areas that clearly show the product quantity. This is an excellent feature to help you be aware of the exact inventory supply.
[edit] Conclusion
Most wholesalers are not convinced that they can make a profit dropshipping or dealing with small business owners or budding start-up individuals. That is why they choose to deal with the big retail and distribution channels. However, today they are establishing dropshipping channels almost on a daily basis, thanks to success stories on eBay and other online internet marketers.
