What is Drop Shipping?

 

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What is drop shipping?
What are the benefits of drop shipping?
Is drop shipping a profitable business model?
How much can I make with drop shipping?
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.

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.

Is drop shipping a profitable business model?

Like all businesses, success and profitability rely on a number of variables. But when done correctly, it’s possible to create highly profitable online businesses with drop shipping. Drop shipping isn’t a magic formula – and real success takes significant work and time – but it’s a viable online business model with very low risk. Drop shipping was the model I used to start my own online store, allowing me to permanently quit my corporate job.

How much can I make with drop shipping?

Again, like all businesses, profits and success range widely based on a number of factors – most notably, the commitment and dedication of the business owner and the niche selected. But with a long-term commitment, hard work and the right approach it’s possible to create a drop shipping business that provides a six-figure income.

A business of this scale will take time to build – likely years – but it’s definitely possible. And once a drop shipping businesses is up-and-running, it’s fairly straightforward to automate and/or outsource most of the day-to-day aspects of the business.

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.

Your margins will also depend heavily on your ability to offer value to your customer, which allows you to charge a premium price over your competitors. This is instrumental to the success of a drop shipping business, and a topic we cover in-depth in our free eBook on how to create an online store.

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 drop shipping business in the long run.


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