Retailers that drop ship merchandise from wholesalers have a couple of different ways to hide the fact they are not the ones shipping it out or to keep the wholesale source from becoming widely known. This process is called “blind shipping” or “private shipping” and it is when the wholesaler who ships the product either does not put a return address (tracking numbers will make sure the product does not get lost in transit). The wholesaler might even include a customized packing slip, including details such as the retailer’s company name, logo, and contact information to have the illusion it came from the retailer.
Understanding Drop Shipping
- Finding a secure location to hold your stock
- Making it to the post office every time you make a sale
- Handling returns and inbound shipments of stock
- Keeping track of stock levels and being sure you have enough
Low Outlay – These are all major advantages of running a drop shipping business but by far the most attractive positive is that there is no financial outlay involved with buying stock. The only upfront cost you can expect to encounter with drop shipping is if the supplier requires a bond payment or establishment fees.
Low risk – There is a lot less risk involved with stock not selling. If a product does not sell, you don’t have to worry about trying to recoup the money you spent on the stock.
Easy to grow – It is extremely easy to grow your eBay store from being small time to being a real influential online store. This is because the business plan is so easy to replicate. Want to expand your store by adding 20 new products? Easy! Just obtain a price list and make the listings. You don’t need to be concerned with ordering, holding and paying for the extra stock.
Low overheads – Running a drop shipping store costs next to nothing to upkeep and a majority of the fees and payments you can expect to pay only payable after the sale of product. For example, you only pay for the product after it has been sold. The only things you really need to worry about paying for upfront is your computer that you work from, internet costs and establishment fees (there are wholesalers who do not require this payment) for your drop shipping account.
This can obviously cause a headache but the customer is usually understanding if you are prompt and refund their money. If it turns into a recurring problem and you are constantly refunding peoples money, eBay will more than likely pick up on this.
Shipping times and errors – On top of your supplier running out of stock, shipping errors can occur that you are not in control of which again, cause headaches and can lead to refunds & complaints.
Also, be mindful when using a new supplier or wholesaler, especially if they are outside of Australia. The shipping times have been known to extend outside of 40 days and obviously this will lead to negative feedback from customers. This is easily avoidable by researching your supplier prospect and checking their feedback.
Smaller profits – Understandably, the margins when drop shipping are much lower compared to buying in bulk/light bulk. This is because you don’t get access to the kind of discounts you would when buying in bulk.
Retailers who gets access to these larger discounts because they are buying bulk can cause problems when you’re pricing an item. They have the ability to undercut you and get a bigger share of the market.
Does drop shipping work?
The short answer, yes! Drop shipping gets some criticism because of the small margins. Your success is totally subjective and relies solely on you. The only reason you wouldn’t create a successful business using the drop shipping business method is if you didn’t work hard enough. Yes, it is easy to get started and does not require that much expertise but don’t let this fool you, you will still need to work hard.
It is suitable for people at both ends of the spectrum. Whether you are brand new to the eCommerce game or you have been involved with eCommerce for years, anyone can be successful.
Also, the beauty of it is that when you have had enough of drop shipping and you’re ready to ramp things up you can use the capital you’ve gained to buy stock and increase your margins!