Drop shipping is a term used when the person selling the goods does not stock the items but has the manufacturer deliver them directly to the client.
How does drop shipping work?
Let’s say you want to start an online retail business for a new line of tee shirts; you design the shirts and then you find someone to manufacture them for you. Now you have two options; the first being that the manufacturer sends you your order of a certain number of tee shirts and you make sure to fulfill customer’s orders as they come in. And the second, that you could tie up with the manufacturer to have the product shipped directly to the client. The second option is drop shipping.
What are the advantages of drop shipping?
If you were to have the manufacturer send the product to you there are a number of things that you have to consider:
- How many tee shirts you need to stock
- What are the different sizes and colors and how many of each do you need
- Where you are going to store the goods
- How you are going to ship the product out to the customer
If you use drop shipping you eliminate all of these concerns and can concentrate solely on marketing the product and informing the manufacturer when orders come in. The manufacturer then makes the product and has it shipped directly to the client.
When using drop shipping you don’t have to worry about keeping inventory or having storage space. You also don’t need to order in bulk and pay a lump sum upfront before you have any orders coming in. You can sell a wide variety of products from your e-commerce portal by simply tying up with different suppliers or manufacturers.
Are there any disadvantages to drop shipping?
There are some disadvantages to drop shipping:
1. You don’t actually handle the product so you cannot do a quality check for every product going out.
2. The supplier might have run out of the product and not kept you informed in which case you will have to make the customer wait or cancel the order from your side and give a refund.
3. The supplier might ship the wrong product and you will end up having to do some damage control.
4. The profit margins are very low.
5. If you have multiple suppliers or manufacturers and the customer orders items from various sources all the shipping costs could be different. You would have to work out a way to charge the customer for the same without overpricing the product.
Drop shipping has its advantages and its disadvantages; it is up to each individual business to decide what works best from them.