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What is drop shipping? The practice of drop shipping was first introduced around but lost momentum due to the Great Depression. The benefits of JIT inventory management soon became evident.
The modern drop ship business model mirrors the major themes of the JIT supply chain by eliminating expensive inventory transportation and storage costs for retailers. How Drop Shipping Works When an order is placed through your website, it is immediately routed to your manufacturer, distributor, or wholesaler to be packed and shipped, removing the most expensive component of the traditional brick and mortar business model.
Although you may expect the drop shipper to be the manufacturer of Questionnaire of shopping cart handle cover product in question, there exists a market for wholesalers to drop ship products and even offer customization.
You could go the traditional route, ordering hundreds of shirts with your designs screen printed, running the risk that your product does not sell well or at all.
Or, you could explore working with a drop ship partner who offers custom printing services. In this scenario, your customer orders your new shirt which is routed to your drop shipper to print and fulfill.
Note that this may or may not be the actual manufacturer of the product or t-shirt in this example. Why the Drop Ship Business Model? Low funding requirements If you pursue the drop ship business model, you will be pleasantly surprised by the financial projections.
When you start a company that fulfills orders through drop shipping, you will not typically research and develop a new product, manufacture the product, or stockpile inventory; which limits the capital requirements to expenses mostly pertaining to legal business formation and the technologies required to operate your company.
Low-risk validation Drop shipping uniquely offers the advantage of testing the waters before diving in.
Although drop shipping can be more expensive on a per unit basis, overall the financial risk is limited. Drop shipping is also a great way to test the quality of a new supplier since you will not be forced to purchase hundreds or even thousands of units that may be defective.
Manage from anywhere If you negotiate with a supplier that also handles returns, your only physical tie to the company is a computer.
If you will be handling returns, it may be necessary to rent a storage unit, office space, or even co-working space to handle these returns.
Private label drop shipping Some drop shipping suppliers even allow you, the retailer, to project the status of an established brand. This is achieved through custom printing and on-demand production. When your customer orders, the supplier will start the production line and manufacture your product on demand.
Are There Drawbacks to Drop Shipping? Highly competitive According to Google Trendsawareness around the drop shipping model doubled in after years of stagnation. Although the consumption of goods has not slowed, the marketplace has shifted from brick and mortar to eCommerce.
This new world of virtual retail has allowed for the decentralization of market share. Consumers are now spreading their budgets over many sellers instead of shopping at only a few retailers.
Lack of unique selling proposition USP Although drop shipping can allow for minor product customization, the extent of this customization is very limited. If your product cannot stand out as unique when compared to the competitive landscape, you will likely be forced to compete for the lowest price.
Insufficient quality control All manufacturers experience a percentage of defective finished goods, even if less than one percent. In the past, manufacturers would inspect for quality with the knowledge that the retailer will also scrutinize when unpacking.
When retailers forfeit this direct oversight of quality assurance, manufacturers may relax their standards resulting in more defective products. This can threaten your business as returns will almost certainly increase.
Thin margins Since mass production leverages economies of scalesuppliers offer discounts for high quantity orders. The economic exchange for low-scale production when drop shipping is a higher unit cost, thereby reducing your margin.
Out of stock Turning over the inventory management responsibilities to a supplier can also mean blind faith on the oversight and communication of inventory levels you may have available for sale on your website. If a customer orders a product that is out of stock, it can be a frustrating experience for all parties.
It is best to discuss inventory management during partnership negotiations and have a procedure in place for refunds or replacement. Myths of the Drop Ship Dream When researching the best model to use when starting a business, you will find no shortage of people trying to convince you their methods will certainly mint you an easy fortune.
Most of the self-help gurus and business coaches have made the majority of their money selling their services, not selling a product in the manner they promise you will succeed in. Passive income machine It is a common belief that drop shipping is a viable way to get rich quick.
Unfortunately, drop shipping is another business model in which this is not the case. Despite the ease with which you can list products for sale on your site, you will still need to attract the traffic for a meaningful conversion rate. It can take a substantial advertising budget and a lot of time to build a brand customers can trust.
Eliminate the middleman Although it is often the case for a drop shipper to be the manufacturer of the products, some wholesale distributors also offer to drop ship products they purchased from the manufacturer.
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