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 email@example.com
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Category: Startup Advice