StartLogic Tech Talk Newsletter

	By Mitch Bettis, Practical eCommerce Drop shipping remains a hot topic among etailers but, even though it has many benefits, it isn‘t the best option for every business. A drop shipper is a product supplier who is willing to ship individual orders. Usually when products are purchased for resale, you have to buy them in bulk quantities, have them shipped to you and then ship them out to your customer. Drop shippers are the exception because they don‘t have minimum purchase requirements and will ship the item directly to your customer when you place an order. "Using a drop-shipping model is an excellent idea if you don‘t have a lot of capital to start with," writes Jeremy Hanks, Nichole Haims and Brandon Williams in Drop Shipping for Dummies. "Because you don‘t need to carry any inventory and never make an actual order purchase until you‘ve already been paid, drop shipping is a great way to break into the retail business." There are pros and cons of using drop-shipping services: SOME PROS: • No need for your business to stock inventory, eliminating a significant cost for your business. • Your site can be open for business very quickly. • No need for your own warehouse or for filling your garage full of products that you might never sell. • Many drop shippers will also sell to the etailer in "light bulk" (units of 500 or less), allowing the etailer to do his own fulfillment. SOME CONS: • When doing research, know there are a lot of scams and poor lists of drop shippers out there, and get one that is regarded as credible. • Since you don‘t own the inventory, you usually can‘t control packaging and can‘t include coupons or offers to boost return business. • There are different fees from different companies for drop shipping, so do your research. You don‘t want shipping costs to be so high that it turns away customers. • You won‘t get as good a deal on products because you‘re ordering one at a time as opposed to buying in bulk. • Selling multiple products from multiple suppliers can result in a significant drop-ship fee for the customer. Many suppliers that provide drop-shipping services also provide various ways to integrate their products into your website. There may be fees involved for using certain services from a supplier, so be sure to do thorough research before beginning any partnership. Finding quality drop-ship partners isn‘t easy. Chris Malta, product-sourcing editor at eBay Radio and author of The Drop Ship Source Directory (available at www.worldwidebrands.com) advises etailers to avoid the term "drop ship" at popular web-search engines. He said few legitimate drop-shipping companies would appear. "‘Drop ship‘ is a huge keyword and many companies tie themselves to it even if aren‘t legitimate," Malta said. Malta says the best way to locate a legitimate drop-shipping company is to contact suppliers directly and ask whether they provide that service or purchase a resource like The Drop Ship Source Directory where companies have already been vetted to work with online businesses. If drop shipping is selling products you haven‘t purchased or inventoried, direct shipping is the opposite. Direct shipping happens after you purchase the product from a manufacturer or supplier, keep it in stock and then ship it when you receive an order. There are pros and cons to having a direct-shipping organization: SOME PROS: • You are in control of the entire process. There is no third party between you and the customer and you can provide the level of customer service you desire. • You are in control of the packaging. The mailing label has the information you want on it and you can insert into the package any coupons, newsletters or promotional material you want the customer to have. • You can ship immediately. You are not at the mercy of a third-party to ship the product to your customer. • Your profit margins are higher because you don‘t have a third party in the process. SOME CONS: • It‘s more expensive at the front end than drop shipping. You have to purchase items, inventory items and staff the shipping process. • If inventory doesn‘t sell, it's belongs to you. Though managing an inventory can result in higher margins than using a drop-shipping company, if you make mistakes selecting inventory, you‘ll be stuck with it. This article is used with permission from Practical eCommerce magazine, copyright 2006. Practical eCommerce is a printed an online resource for ecommerce businesses. For tips, tools and advice to improve your ecommerce business, click here.
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