Become an Instant Internet Entrepreneur: Dropship! : Under30CEO Become an Instant Internet Entrepreneur: Dropship! : Under30CEO
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Become an Instant Internet Entrepreneur: Dropship!

| November 13, 2010 | 8 Comments

Anyone who has started an ecommerce business can tell you that there are a lot of expenses involved in creating a new web-based company.  Beyond the initial cost of creating a website, there are reoccurring costs which detract from the overall profitability of the company including: payroll, warehousing, and shipping expenses. The practice of drop shipping merchandise effectively eliminates many of the overhead costs associated with operating an online business.

Drop shipping is a simple retailing process for sending merchandise from the manufacturer/wholesaler directly to the consumer.  The ecommerce website selling the product will get all of the pertinent listing information from the wholesaler such as item name, description, UPC, picture, quantity available for order, and wholesale pricing.  When customers purchase product directly on the website a notification will be relayed to the wholesaler.  Orders are sent to the customer “blind” meaning that the location and identity of the wholesaler are not revealed.  The ecommerce site is paid by the customer and the wholesaler is paid by the ecommerce site upon fulfillment of the order.

Many multinational internet businesses exist entirely by drop shipping.  Gilt.com, a high end clothing distributor, fulfills tens of thousands of orders every day exclusively using drop shipped merchandise.

The benefits of drop shipping are easy to see.  To begin with, ecommerce companies using drop shipping do not have any warehousing expenses because their products are located off site.  Employee costs associated with finding, packing and shipping the merchandise are passed onto the wholesaler, who is responsible for distributing the products.  Online businesses selling drop shipped goods will never have to deal with overstocked merchandise.  Additionally, as the goods are moving directly from the wholesaler to the end consumer, the cost of shipping the goods from the wholesaler to the online business has been removed entirely.  The wholesaler is also responsible for the tracking of all shipped orders, which rids the ecommerce company of that worry as well.

There are a host of services available to ecommerce entrepreneurs looking for a drop ship vendor.  Many industry directories are available for free.  Drop ship forums are another free option tailored specifically for the drop ship community, and more specifically budding entrepreneurs.  Companies like Doba and Shopster offer a paid alternative by charging members monthly fees to search their multimillion product database, for items to retail online.

Important criteria to consider when selecting a drop ship vendor:

  • Quality and depth of merchandise
  • Ability to fulfill orders
  • Shipping time
  • Merchandise picture quality
  • Merchandise description quality
  • Customer service capabilities on returns, exchanges and refunds

Jason Kole is the VP of Business Development at Kole Imports currently working to make the wholesale industry more knowledgeable about the drop shipping capabilities of direct importers.  He can be contacted at jason@koleimports.com

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Category: Startup Advice

  • Liana

    The information about Gilt Group is misleading, they don’t do pure drop shipping. Their vendors do not ship directly to Gilt’s customers, they ship to Gilt’s warehouse, where Gilt Group then handles packaging and shipping.
    Gilt commits to buying a minimum purchase from vendors, and then basically sells on consignment (obviously a little more complicated than this, but they don’t own the goods beyond their minimum purchase, but these do goods do get shipped to them) anything past their minimum purchase.

  • Liana

    The information about Gilt Group is misleading, they don’t do pure drop shipping. Their vendors do not ship directly to Gilt’s customers, they ship to Gilt’s warehouse, where Gilt Group then handles packaging and shipping.
    Gilt commits to buying a minimum purchase from vendors, and then basically sells on consignment (obviously a little more complicated than this, but they don’t own the goods beyond their minimum purchase, but these do goods do get shipped to them) anything past their minimum purchase.

  • Liana

    Sorry if that last part didn’t make sense…I erased and then didn’t edit.
    The items that Gilt sells, that they do not own outright, end up getting shipped to them before being shipped out to the customer, so unlike true drop shipping, Gilt still has warehouse fees, employee fees, etc. Also, unlike most drop shipping relationships, Gilt takes their own photos, does their own descriptions, etc.
    Gilt also keeps the merchandise that is returned to them.

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  • http://www.financemetrics.com/internet-entrepreneur-shadow-favorite-internet-start-ups/ Internet entrepreneur

    Personally, one of the biggest advantage of drop shipping is that you don’t have to think of delivery. Especially if one is just starting online business. One can dedicate his time and efforts on marketing online business instead of worrying about order fulfillment.

  • Anonymous

    Hi,

    It’s great article guys, it can help to become an Instant Internet Entrepreneur. it’ s really very useful article. I really liked it.

    Thanks

  • CDS.COM

    Our company does drop ships for our customers all the time. We ship blind either as “Warehouse” or we’ll put in the customer’s name as the shipper if it’s someone we get multiple orders for. I don’t know how a business owner gets there name out there that they’ll drop ship for customers in this way, but we do it, especially with CDs, DVDs, and inks. http://www.cds.com