What is Drop Shipping?

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What is drop shipping?
Where can I find drop shipping suppliers?
What are the benefits of drop shipping?
What are the disadvantages of drop shipping?
Is drop shipping a profitable business model?
What kind of profit margins can I expect with drop shipping?
Where do people sell drop shipped products?

What is drop shipping?

Drop shipping is a fulfillment model that allows you to buy products individually from a wholesaler and ship them directly to your customer.

Instead of purchasing a large amount of inventory, you simply partner with a drop shipping supplier and list their merchandise for sale. Then, once you receive an order you forward it to the supplier for fulfillment. The supplier will ship the product directly from their warehouse to your customer, and charge you only for the price of the shipped item.

Where can I find drop shipping suppliers?

You can use a supplier directory like World Wide Brands or contact suppliers directly and ask them if they drop ship their products.  For more information on finding drop shipping suppliers please click here.  

What are the benefits of drop shipping?

The drop shipping model has a number of advantages:

Lower Capital Requirement: With drop shipping, you don’t need to invest thousands of dollars in inventory. Instead, you only purchase a product when you have an existing order to fill.

Wider Product Selection: When you don’t have to pre-purchase all the items you sell, you can offer a significantly larger number of products to your customers.

Reduced Risk: Without thousands invested in inventory, the risk involved with starting an online store is dramatically reduced. If things don’t work out, you aren’t stuck with thousands in inventory you have to sell at a loss.

Location Independence: Because you don’t have to worry about fulfillment or running a warehouse, it’s possible to run a drop shipping business from anywhere with a laptop and an internet connection.

Highly Scalable: Because you don’t need to manually fulfill each order, it’s relatively easy to scale a drop shipping business.

What are the disadvantages of drop shipping?

Lower Barriers to Entry:  Because you don’t need capital or a warehouse more people drop ship which increases competition.

Lower Margins:   Because there’s more competition margins for drop shipping businesses are usually lower.  This makes it harder to grow early on because you can’t afford to advertise as much to acquire a customer.

Is drop shipping a profitable business model?

Drop shipping model that I used to start my own store after quitting my job and build a seven-figure business.  So it’s definitely possible to build meaningful drop shipping businesses that generate real wealth.  However this was in 2008.

Since then, it’s become more difficult to compete as a drop shipper in the world of Amazon and as eCommerce has become more competitive.  Today, it’s important to have a very strong unique selling proposition.  It’s not impossible to accomplish this with drop shipping, but this is much harder when you’re selling other people’s products.

Drop shipping usually works best when you can a) offer a tremendous amount of informational value with your products and b) you can sell a lot of high-margin accessories or c) you use it to supplement a catalog of your own proprietary products.

What kind of profit margins can I expect with drop shipping?

Profit margins will vary greatly depending on the products you sell. For expensive electronics, margins are thin and will likely be in the 5% to 10% range. But for low-priced accessories, margins will often be in the 100% range.

However, on average drop shipping gross margins are usually in the 10% to 15% range.

Where do people sell drop shipped products?

People sell drop shipped products just about everywhere! Many sales on eBay and Amazon are fulfilled through drop shippers, as are items on thousands of eCommerce sites, especially smaller ones.

And even the big boys utilize drop shipping to expand their product catalog and offerings. It’s likely that large companies like Sears and Home Depot utilize the drop shipping model for some of their less popular items.  This allows them to offer a broad selection while limiting the inventory they have to maintain.

While it’s possible to sell drop shipped items in a number of ways, creating your own eCommerce site offers the best chance of building a scalable, profitable and successful business in the long run.


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