There’s no doubt the internet has transformed the way people access their favourite merchandise and services. Products in particular, are cheaper and more available than ever before and drop shipping has played a big role in driving down those costs.
This week we’ll be answering some of the most common questions about drop shipping and give you the information you need to get started in this competitive market place. Check out our answers to some of the industries common questions below.
What is drop shipping?
For a lot of people this is going to be their first question. Basically, drop shipping is an innovative way to fulfil customer orders. It works by allowing businesses to access smaller quantities of a product from wholesalers then ship them directly to your customers; all without ever taking ownership of the merchandise.
Rather than taking the risk of purchasing a large inventory, you partner with a drop shipper and list their merchandise as if it was your own. When you receive an order via your website, you simply forward the details to your partner for fulfilment. The supplier then ships the product directly from their warehouse to your customer allowing you to keep the mark up.
What are the benefits of drop shipping?
As you can imagine, drop shipping has some distinct advantages over traditional online retail models:
Low (or even no) capital requirement
The nature of drop shipping means there’s no need to invest large sums of money to buy your initial inventory. You only purchase a product once it’s been sold, lowering risk and allowing for experimentation.
Unlimited product selection
With the need to pre-purchase your items eliminated, there are virtually no restrictions on what you can sell. You’ll likely want to start with a clear niche, but you’ll be able to offer a large selection right out of the gate, no matter what type of product you choose.
Work from anywhere
No big inventory to manage means you don’t need to worry about logistics or running a warehouse. A drop shipping business can be run from anywhere, you just need a laptop and an internet connection.
Scale quickly with low risk
Orders double in a month? No problem. As long as you stay on top of your drop shippers inventory (they can help you with this) you can grow rapidly and reap the benefits.
Is drop shipping a profitable business model?
At this point you’re probably seeing $$$ in your eyes and wondering if a drop shipping business can be profitable. The answer to that question is, like all businesses, dependant on a range of variables.
When done correctly, the answer is a definite yes! If you take the time to research the right products, develop a great site, and invest in some smart marketing, it’s possible to create a highly profitable online business through the use of drop shippers.
With that said, you shouldn’t think that drop shipping is some type of magic key to success. If it was easy everyone would be doing it, so be prepared to put in long hours and lots of hard work if you want to succeed.
What do the profit margins look like if you use drop shippers?
Profit margins are very much dependent on the niche you operate within and will vary greatly from product to product. For expensive items, such as electronics or home appliances you’ll be looking at small margins in the 5% to 15% range, with the lower end being far more common. Low-priced accessories or cables can fetch margins that are much higher, with mark ups of 100% or more, even mark ups of 1000% are not unheard of.
But beyond mark ups, your margins are going to depend on what value you bring to your customers. The more value (think free returns, instalments, protection plans, etc.) you provide the high the premium you can charge.
So there you have it, a quick intro to the world of drop shipping. Are you interested in getting started with a drop shipping business of you own? Check out our recent post on how to do market research to see if your idea has what it takes! And if you want more information about drop shipping let us know in the comments; we’ll add a part two!