The Basics

Drop shipping is service some wholesale distributors provide that enables you to sell items on your website without physically stocking them. The wholesaler warehouses large quantities of product, which you list in your web store. Your retail customers place their orders with you, and you pass them on to the drop shipper. The drop shipper sends the product directly to your customers, but remains invisible to them. The end result is that your small business appears larger than it really is.

The Upside

According to Jason Sanchez, CEO of One Net Enterprises (http://www.oneinc.com), drop shipping presents your business with numerous benefits:

•Lower overhead. Says Sanchez, “The costs that go into warehousing and shipping individual items can be tremendous. It doesn’t become efficient to do so until you do it on a large enough scale.”

•No inventory investments. You don’t pay the wholesaler for an order until your customer pays you. And you can test new products without purchasing inventory that may not sell.

•Recovered time. The time you spent receiving and organizing inventory, printing labels, and packing and shipping orders is time you can now spend promoting your website and providing faster customer service.

•No order minimums. Your wholesale orders are based on your customers’ orders. You can order as many or few items as you need — even down to individual products.

•Broader product selection. You can carry items in your product line-up that would be difficult to physically stock; you’re also able to offer large items, such as furniture, without the hassle of trying to ship each piece.

The Downside

Of course, drop shipping has limitations — two in particular:

•Thinner profit margins. Wholesale is a volume business — the more you buy, the better your price-per-piece. Explains Sanchez, “Although your drop ship prices are true wholesale prices, they are wholesale prices on one item.” You’re not receiving additional discounts for buying bulk, so your per-item-costs are naturally higher. You’re also paying a drop ship fee, either per container or per unique shipping location, to cover the extra labor and material costs the drop shipper incurs.

•Occasional delivery issues. If your drop shipper is slow filling your orders, or does a poor job packaging them, it reflects badly on you and costs you repeat business. When using a new supplier, it’s always a good idea to test them out first and get an idea of what your customers will experience. Place an order with them yourself, and see how quickly and competently they handle it. If you order a few of your most popular items, you’ll also have them on hand in case your drop shipper ever runs short.

The Bottom Line

Particularly when you’re getting started, drop shipping is an easy, cost-effective tool for your E-Biz. That doesn’t mean you should limit yourself to using only drop shipping — the most successful retailers use multiple product sourcing techniques. Drop shipping is a great complement to your other product sourcing methods, and should be a part of your overall product sourcing strategy.