Risks with Drop Shipping
As with any model of online business there are risks or issues to consider. Weigh these up in comparison to advantages and the decision is yours.
1. Lower Profit Margins than holding your own physical stock.
You won't be the only person taking the drop shipping route.
The benefit to the customer, and usually why we shop online, is it's easy to compare prices for the same goods.
Most drop shippers offer ultra low prices in reflection of their low overhead costs and to win business.
Be aware you will need to do the same if you want to win business. When deciding your mark up and profit base do your research and offer competitive pricing.
Your profit margin will be lower than some larger major retailers but will be substantially higher than affiliate commission.
2. Suppliers are not all made equal
Shop around for good suppliers. Some drop shipping suppliers are awesome, some are crooks...research and ensure your supplier is offering you the best rates, deals, packing and postage etc.
Remember your business will grow and succeed or it will falter and die. Usually this is of your own making...however with drop shipping your choice of supplier will affect your business. They must keep quality stock records, tracking information and provide on time delivery and customer service.
3. Shipping Costs
You will offer multiple products and probably use multiple suppliers. Shipping costs will differ for each supplier.
If one of your customers orders 3 items from your store and each of these items comes from a different supplier with a different shipping cost you need a strategy.
You can charge your customers delivery when they make a purchase. To determine this cost look at your suppliers, average the shipping costs that they charge and apply this formula to your customers sales. Sometimes you will need to absorb the additional cost of a suppliers shipping to keep customers happy.
Not many customers will return if they are made to pay different shipping costs per item.
Shop around...many drop shippers offer you free shipping of their goods as they add it to their base formula and so ultimately you're paying for it when you purchase their goods on behalf of your customer.
4. Quality Control
When you add other third parties to your sales process you will occasionally have issues and errors can happen.
Things like missing items, poor quality, damage or mere returns will be your responsibility. While these issues may be the fault of a supplier if you want to retain your reputation you will need to be the person who deals with the customer and rectifies the mistake.
While annoying it is all part of the drop shipping process and can happen if you were doing the shipping yourself.
Is there a special 'lingo' for dropshippers? I can imagine it being so popular that googling 'dropshopping inventory' may not lead to the best results ;-)
Thank you, Wim
Reply
And now that I have become an "expert" and am looking to enhance my pre-retirement income and develop income streams that I can continue after my official retirement, it looks like Dropshipping could be a winner for me.
John
Questions: When you are checking out the reputations of various drop shippers, how do you find out whether they actually fulfill their ends properly? Is there somewhere to see any comparison charts of the different drop ship companies?
Is this the same thing as if you find a company that sells and ships it's own physical products which you become a (seller) for. For example, I know a company called Regal that produces it's own stuff and looks for people to market it. They will give you your own site or just the ads. You post these on your site with pictures and your link back to the company site where they process the purchase and order. If this is not drop shipping - what is it?
The best is to find a drop ship listing company . There are many but you need to verify the quality by reading their reviews and recommendations
Dropshippers basically are the suppliers of products. They will form an agreement with you to sell you their products for a certain price. You then list those products on your website and you decide how much to charge your customers. When someone orders a product they pay you. You then order and pay the dropshipper. So if you sell a product for $25 you may only be paying $15 to the dropshipper
You keep the profit and the dropshipper sends the product to your customer.
What you describe is more affiliation where you promote the goods but the order is actually made on the suppliers website and you gain a commison - like Amazon
Hope this helps
