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Drop Ship Your Way to Wealth
by Stephen Pope
Published on this site: October 14th, 2005 - See
more articles from this month
Your customer sees a marvelous array of products on your website.
After thoughtful consideration, she purchases the product
she wants. Amazingly, you have never actually seen the product.
That is because your supplier shipped the order directly to
her.
- Problems With Stocking Inventory
After deciding what products you will sell, you are immediately
faced with many challenges.
First: "To stock my products, will I need to
rent store or warehouse space? I was hoping to sell by Internet,
mail order, or export, but I don`t have much storage space
for inventory at home."
Second: "Will the supplier even deal with me
if I don`t have a retail location? I was counting on keeping
my overhead down by operating from home."
Third: "I know that many manufacturers and
distributors have a minimum order, sometimes in the thousands
of dollars. I don`t have that kind of money!"
Fourth: "Even if I did have the money, why
should I tie it up in inventory? How do I know if the product
will even sell?"
Fifth: "I guess I will have to add extra insurance
coverage for my inventory. Maybe I better upgrade my security
system while I`m at it."
Sixth: "The shipping charges are going to kill
me. First, I have to pay to get the goods here (freight-in).
Then, I have to pay to ship the goods out to my customers
(freight-out)."
Seventh: "If I expand and hire employees, how
will I control the inventory? How will I know if my employees
are stealing from me?"
Eighth: "How much time and money am I going
to spend packaging and fulfilling orders?"
These problems can be reduced or eliminated by drop shipping.
- Drop Shipping to the Rescue
Drop shipping is a method of selling products without stocking
inventory yourself. You don`t need to stock inventory, because
you only order an item when a customer requests it.
With drop shipping, when you make a sale you contact the
manufacturer or authorized distributor and make arrangements
to pay for the order at your wholesale cost. Your distributor
then ships the product to the customer with your invoice
and shipping label.
For example, let`s assume that you have just sold a product
to a customer for $100.00 plus shipping charges of $15.00.
Having received the customer`s payment, you now need to
fax or otherwise send your order to your drop ship supplier.
You will need to pay your supplier, by credit card or other
means, your cost of $50.00 plus $15.00 shipping. This leaves
you a $50.00 gross profit. Your supplier will now ship the product to
your customer.
With this arrangement of not having to stock inventory yourself,
there are many advantages.
You eliminate the high costs of holding inventory. There
is no need for you to rent expensive storage space, finance
high minimum orders, get stuck with goods that don`t sell,
or pay other expenses associated with maintaining inventory.
Indirectly, you do pay inventory costs. Your drop ship supplier
must maintain his inventory and pay all associated costs,
including freight-in, storage space, insurance, accounting,
shrinkage, and so on. To make a profit, he must pass these
costs on to you.
The real advantage to this drop shipping arrangement lies
in keeping your costs variable. Instead of being stuck with
these expenses up front, whether you sell or not, you pay
only when you make a sale.
- Profit From Drop Shipping
Many legitimate drop ship suppliers may not require you
to have a retail location, but they will want to see evidence
that you are in business. They may require you to produce
a resale license or retail sales tax permit.
To be sure, there are pitfalls to watch out for in drop
shipping. For example, some suppliers claim to sell at wholesale
prices but are actually selling closer to retail. Also,
margins are very slim in some competitive areas, such as
electronics. However, with proper research and information,
you should be able to avoid these problems.
Whether from your home, retail store, directly from your
website or through an online auction, you can arrange to
sell an item before you purchase it. That way you have nothing
invested in inventory and won`t get stuck with stock that
won`t sell.
Rather than financing and stocking inventory yourself, consider
drop shipping your way to wealth.
J. Stephen Pope, President of Pope Consulting Inc., has
been helping clients to earn maximum business profits for
over twenty-five years. For more information about drop shipping
and other Work at Home Small Business Ideas, visit
http://www.yenommarketinginc.com/dropship.html
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