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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8 Comments

  1. We are launching a wholesale channel after being only ecommerce through our online store. We have online retailers that would like to carry our products on a dropship basis, but need to get an understanding of drop ship fees (we have no sense of what to charge). Do you have any suggestions?

  2. Why everybody is only talking about Amazon and selling to the U.S.? Why nobody is recognizing that now China already has 700 million internet users and 600 million of them are visiting e.g. Taobao every month. Why we ignore the world largest e-commerce business and not taking advantages from it?

    1. The problem with that is that buying Chinese goods from Chinese manufacturers marking them up to make a reasonable profit and reselling to the Chinese will make you extremely uncompetitive. Goods are ridiculously cheap in China because not only do they benefit from cheap manufacturing, they also don’t have to pay for freight to another country to sell. Even more the exchange rate for RMB to USE is unfavorable for them, which make you much more expensive for the same product.

    2. simply because you need connections in China to distribute the products and you some good Chinese marketers. Do you have one?

  3. I have a customer that would like me to drop ship for them on top if printing their clothing apparel. How do I charge them? Not sure on that. How much should I charge on top of the wholesale costs for the shirts?

    1. You should know your products and services very well. You best know the tools and products you use when printing. This is not a question to ask someone for assistance at all. You might as well quit the business.

    2. Hi Jonas I’m interested in looking for someone to design and drop sell t-shirts as well. Would love to know what figure you came up with. You may have a future client!

      Thanks
      Bianca