Sales is an evolutionary entity, and evolution happens at a very fast paced rate with it. The subdivision of wholesale and retail, the emergence of catalogue based sales, the idea of malls, and finally that of selling online are things that have come up in less than the past hundred years.
Drop shipping is an alternative model to the now predominant model of wholesale-retail. It has its advantages and its risks, but it is worth it to look into the phenomenon and know something more about it. So in this article, we will try and answer some basic questions about drop shipping.
FAQ About Drop Shipping
What Exactly is Drop Shipping?
Drop shipping is an alternative model to sell products to your customers. The usual way it works is that a retailer buys a bunch of products from a wholesaler and keeps them in a warehouse. Customers then buy products directly from the retailer, who adds a profit markup for himself/herself, and the cycle continues.
Drop shipping, on the other hand, is when the retailer, instead of pre-buying from the wholesaler, just transfers customer orders and shipment details to the wholesaler, who then ships the goods to the customer. This model can be seen in many marketplaces today, like eBay and Amazon.
Of course, there are many ways with which drop shipping can work. A retailer may have a brick and mortar store with samples of products that can be ordered and shipped to the customer directly from the wholesaler, or the retailer may also have a website or an e-store to do the same job. Finally, the retailer becomes more of a middleman between wholesale and customer, and in essence, gets paid in commissions.
What are the Benefits of Drop Shipping?
Drop shipping has many advantages for online retailers. Some of them are:
- Elimination of up-front Inventory: You don’t have to handle and manage inventory, which saves a lot of time and money.
- Wider Product Selection: Since you don’t actually have to sell the products to the customers, you have a larger range of products that you can showcase.
- No Shipping: You don’t need to handle the shipping, which means you can grow geographically without constraints and not worry about things like packing, labelling and tracking products.
- Flexibility: Since you are just a middleman here, your job becomes highly flexible. You can scale through brands, categories and demographics without much strain to your operation.
What are the Risks of Drop Shipping?
Of course, drop shipping has its own share of risks. These are:
- Back-Ordering: What if you place an order to your wholesaler and the product is sold out? Since you are the customer’s only contact, it becomes your responsibility to deal with the situation.
- Product Returns and Shipping Mistakes: Again, since you are the middleman, the customer deals with you. And you have to handle issues that are beyond your control, like shipping or testing of the product. The wholesaler’s incompetence might cost you your reputation in these cases.
- No Control Over Inventory: You can only sell what your wholesaler has.
Who Should Drop Ship?
Drop shipping is generally better suited for retailers that sell niche products that either need to be made to order, or can be customized. Drop shipping popular wholesale items like iPods is an option, but you might end up making less profits on them as compared to retailers who stock the same product.
All in all, it’s good to know that drop shipping is out there. It can turn out to be a good plan for some, while not so much for others. You can also think about mixing up the two – drop shipping and stocking your warehouse, for example, you can drop ship only the products that are a pain to store and ship, etc. For more information get in touch with Browntape. We are always happy to help.