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How to Start a Drop Shipping Business

How to Start a Drop Shipping Business

Want to know how to start a drop shipping business? The following Q&A answers many common questions associated with starting and running a drop shipping business. For a real-world example, you’ll want to read this post which details the fulfillment process in one of my own businesses, TrollingMotors.net.

Jump to questions/answers: 

Where do I find suppliers who will drop ship for me?
What do I need – and much does it cost – to start a drop shipping business?
Do drop shippers provide customer service and/or talk with my customers?
How do I submit orders to suppliers?
What is the turnaround time for fulfilling a drop shipped order?
How do I get tracking information for orders?
How do I pay my supplier?
Who pays for the shipping costs on orders?
Do orders appear like they came directly from my company?
How do returns from customers work?
Who pays for the shipping on returned items?
Do drop shippers ship internationally?

Where do I find suppliers who will drop ship for me?

You can find them through a drop shipping directory service like World Wide Brands , through in-depth google searches or by contacting the manufacturer.  For more details on finding suppliers please click here.  

 

What do I need – and much does it cost – to start a drop shipping business?

To properly set up a drop shipping business in the U.S., you’ll need:

  • To incorporate a business with your state (Approximately $150 to $300)
  • Request an EIN number from the IRS (free)
  • Request a sales-tax ID from your state (if your state charges sales tax, usually free)
  • Find and establish a relationship / open an account with a drop shipper (free)
  • (Recommended) Create your own eCommerce website (Approx. $10 to $50 per month)

The costs will vary based on your circumstances, but in most cases you should be able to get a drop shipping business up-and-running for less than $400.  For more information on finding suppliers, please see the section on finding drop shipping companies.

 

Do drop shippers provide customer service and/or talk with my customers?

No. As the retailer, you’re 100% responsible for dealing with customers. You’ll need to build and market your website, handle customers support issues, solve problems and deal with any issues that arise. You’ll act as the intermediary between your supplier and your customer.

 

How do I submit orders to suppliers?

Each drop shipping wholesaler will be different. Most suppliers (but not all) will accept orders via email. Many will accept them over the phone, and those with more advanced websites will accept them online. A few sophisticated suppliers will even allow you to submit your orders in bulk via a specially formatted XML or CSV file.

 

What is the turnaround time for fulfilling a drop shipped order?

This will vary based on the quality of the supplier, and their location. Most decent suppliers should be able to process, pack and ship out an order the same-day if it’s received by noon their local time.

 

How do I get tracking information for orders?

This will also vary by drop shipper. A quality drop shipping wholesaler will provide tracking information via email in plain text or in a specially formatted .CSV or .XML file. Tracking information should be received immediately after the shipment is processed or by the end of the day the order was shipped. Once you receive a tracking number, it’s your responsibility to pass it along to your customer usually through your shopping cart interface.

One mark of a poor drop shipper is delays in sending you order verification and tracking information and/or making you log-in to their website to retrieve tracking numbers.

 

How do I pay my supplier?

Starting out, a drop shipper requires you to have a credit card on file to pay for orders. When getting a business credit card, make sure you get a Visa or Mastercard as many suppliers won’t accept Discover or American Express.

Once you’ve built up a relationship and track record, you may be given the option of ‘Net 15’ or ‘Net 30’ terms. This means that the supplier will extend you credit, and simply keep track of what you owe. Then, you’ll need to pay them by check within 15 or 30 days.

I have established, multi-year relationships with numerous drop shipping suppliers and still prefer to pay by credit card over ‘Net’ terms. Why? It’s more convenient, I don’t have to write and mail a check, and I can rack up some serious reward points using the right rewards credit cards.   In fact, I was able to accumulate enough rewards to pay for a trip around the world.

 

Who pays for the shipping costs on orders?

While a drop shipper will usually use their own UPS/FedEx/USPS account to pay for shipping, they’ll pass along the cost to you when billing you for the order. It’s up to you how much to charge your end customer for shipping.

 

Do orders appear like they came directly from my company?

Yes! This is one of the great things about the drop shipping model. Most drop shippers will put your company’s name and logo on packing slips and invoices, as well as your return address. So it appears like the package was shipped directly from you.

 

How do returns from customers work?

Most drop shipping companies will have restrictions on what can and can’t be returned. So you’ll need to make sure you clearly communicate (both before the purchase AND before accepting the return from the customer) that it meets these criteria.

Most suppliers will issue you a RA (Return Authorization) number. This unique number will identify the return in their system. Once received, simply pass along this RA number along with the address of the warehouse to your customer.

Once the supplier receives the return, they should send you a notification along with a credit invoice showing that they’ve credited you for the item. Then, you in turn refund the customer who purchased from your store.

 

Who pays for return shipping on returns?

This will vary from retailer to retailer, but here are the policies I have in place and highly recommend:

For Defective Items: If a customer received a defective item, I feel it’s my business’ responsibility to pay all the associated costs to get them a working product! Some store owners will argue:

We didn’t make the product! It’s not our fault! A defective item is the risk a customer takes for purchasing.”

…but I think that’s a poor way to do business, and provides a very bad experience for your customer.

I recommend paying for the return shipping costs incurred by the customer to send back the item, as well as the costs involved with shipping out a new replacement. In the event the product is very low-value (costs $20 or less), I’ll often ship the customer a free replacement without requiring them to return the old product. This is often easier, faster and cheaper than paying to have a customer return a cheap defective product.

On the bright side, if a product is genuinely defective, most drop shipping wholesalers will pay for the shipping cost of sending out a new item, which means you’ll only need to cover the cost of shipping from the customer to the warehouse.

For Non-Defective Items: If the customer decides to return an item due to incorrect selection – or because they simply changed their mind – they will usually be responsible for paying for return shipping fees. However, if the product was incorrectly advertised or presented on the website, the business should cover return fees if this was the cause of the problem or incompatibility.

 

Do drop shippers ship internationally?

This varies widely by drop shipper, so you’ll need to check. I would say approximately half of the drop shippers I work with will ship internationally.

International shipments can quickly get expensive, and getting accurate quotes regarding shipping fees, customs and duties for hundreds of countries is complex. It also takes a drop shipper significantly more time to process an international order as there is more paperwork involved. Some will charge an additional fee while others simply won’t bother.

Also, issues with returns and fraud get a bit more complicated with international shipments. If an international customer receives a defective product, getting them a replacement will be significantly more expensive. And the likelihood of fraud and abuse increase with international shipments.

 


There are many great eCommerce conferences that can help you learn the in’s and out’s of drop shipping. You can also learn how to start your own successful drop shipping business with this free mini-course or jump to one of the sections below:

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9 comments
  • As far as selling on amazon, what would be a good way to start, what are the pro’s and con’s, what should I watch out for…etc. looking to start up my own store.

    • From what I have read so far regarding drop shipping and Amazon, I wouldn’t do it from the get go until you have all the kinks ironed out. You can lose your Amazon account for any fulfillment mistakes that Amazon is aware of.

  • How do I find out how much to charge my customer on shipping, If I am selling to a potential global market? As all countries will have different shipping costs/rates, how can I calculate how much to charge a customer based on their location?

  • I have been researching dropshipping for a while a now. A lot of colleagues have participated in such ventures with DropShipDomination, and a few other generic companies. I am wondering if it is for me, and maybe there is someone here that might be able to contact me in regards to starting up?

    Thanks,

    Kyle Jilks

  • The company I work for has been approached by a few online retailers that are interested in selling our product on their online store and having us act as the drop shippers.

    For orders purchased through our own online store, we are using an outside fulfillment center. We are using Teapplix to automate the process so that once an order comes in to our store, the fulfillment center has access to this, sets up the shipping, and then pushes the tracking information back to use to send to our customer.

    Can anyone give me any advice on what the best way to handle orders with these potential online retailers that want to sell our products but have us act as the drop shippers (even though this will really be our outside fulfillment center)? Are we the ones dictating how they should submit their orders to us? Is it their job to have a system in place to get up to date inventory information? We are currently managing our inventory with WooCommerce, which automatically updates when new orders are placed via our website and through Teapplix. Any information at all would be helpful regarding what we, as the supplier, should do to make the process as easy as possible on these potential retailers that want to sell our product on their websites.

  • Last year I was layed off from my job. Since I am over 60 I have not been able to find a new job though I have applied for hundreds and interviewed many times. I have to find a way to generate income and since company policy seems to be not to hire older candidates I figure I will need to make my own job.
    I have been researching drop-shipping for a while now and was hoping someone could direct me to the best information. I am unsure of many issues involved. I have never ran my own business and honestly I am a bit overwhelmed.
    Any information would be greatly appreciated.

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