Basically, drop shipping can be defined as the shipping of goods or merchandise directly from a supplier to a merchant’s customer without ever being inventoried, handled or packaged by the merchant. The drop ship process can potentially minimize the merchant’s inventory, can reduce certain administrative costs and may even introduce the supplier to a newer untapped market.

Drop shipping occurs when the merchant displays and markets their products, attracts customers, receives orders and directs the sale on to a supplier who then ships the merchandise directly to the customer. A common concern and issue for merchants who use drop shippers is that there many be many other Online sellers using the same supplier or drop ship company. Using the same product source as hundreds or thousands of other merchants can make establishing a niche more difficult. It can also mean you will be competing directly with many other merchants, meaning the market is typically more saturated.

A drop shipper relationship as a product source is certainly a great way to start an Online business and can even be used as a way to supplement an existing businesses products, however it is not an easy way to get rich quick or something that can magically transform your eCommerce business into a fortune 500 company overnight. There are many pros and cons surrounding the word of drop shipping. It is always best to understand the potential benefits and risks of running a drop hip reliant business. Understanding the different aspects can help you to accurately estimate the potential negative effects of using a drop ship supplier as a large part of your eCommerce business. Aspects of drop shipping to understand may include the typical process, benefits or risks and common drop ship suppliers.

The Typical Drop Shipping Process:

1. Merchant establishes a product niche
2. Product advertising, promotion and marketing
3. Customers order and payment is collected
4. Merchant directs orders to the drop ship supplier
5. Payment is made by the merchant to the supplier
6. Customers receive items directly from the supplier

Drop Shipping Benefits & Potential Risks:

Benefits of drop ship business models…

• Doesn’t require much budget or funding to get the process started
• Doesn’t require as much overhead to continue selling products
• Doesn’t require as much risk as a typical business model does
• Doesn’t require the merchant to carry inventory on hand or in a warehouse
• Doesn’t require costs associated with shipping or packaging materials
• Doesn’t require the merchant to restock items that get returned
• Doesn’t require custom shipping or packaging labels
• Doesn’t require any fees upfront for product purchases
• Doesn’t require the merchant to physically shipping the product
• Doesn’t require the merchant to settle on less products to sell

Risks of drop ship business models…

• There isn’t complete control over the store inventory
• There isn’t control over product images or image resolution
• There isn’t usually a way to setup inventory tracking
• There is less control over shipping times and methods
• There isn’t a way to control back order shipping times
• There is more of a chance that items will go on back order
• There isn’t usually a way to take advantage of bulk discounts
• There is less of a chance to get better pricing or negotiate
• There isn’t usually a way to brand packages, inserts or labels
• There is a chance the drop shipper may not be reputable
• There isn’t liability if errors are made, merchants take the blame

Common Drop Ship Suppliers:

• Doba
• DropShip Direct
• Salehoo
• Drop Ship Design
• MegaGoods
• Online Supplier

Finding Other Drop Ship Suppliers:

• Searching Engines
• Product Manufacturers
• Local Businesses
• Industry Publications
• eBay
• ThomasNet (US)
• Alibaba (World)
• Paid Directories
• Crafters
• Trade Show Events
• Importers/Exporters

Things to Consider When Attempting to Find Drop Shippers:

• Are there any extra fees or hidden costs for signing up or during a sale?
• Has the drop shipper been in business long and is their site domain new?
• Is the drop shipper registered with the BBB or other similar business programs?
• Do they use quality standards that are clear and flexible for your business?
• Does the drop shipper offer support and quality customer service?
• Are drop ship related policies clearly stated and easy to understand?
• Do they regularly update their product and supplier list and offer it to members?
• Are their suppliers qualified before they are able to join the drop ship program?
• Is the program a service or is it simply a list of suppliers, know what you are getting?
• Is the drop shipper able to provide adequate support and education about their program?

It is important to spend quality time and effort while researching potential drop ship suppliers for your eCommerce business. If you cut corners and make uneducated decisions, you may open yourself up for more of the risk associated with using a drop ship business model. Conduct quality research and spend time getting to know the company(ies) you are considering as your supplier. You wouldn’t want an unethical company fulfilling your orders as any mistakes they may make during the process can come back to reflect poorly on your business, not theirs.

You need to take every precaution and spend time getting to know to ins and outs of drop shipping, including any suppliers you are thinking of dealing with. By knowing what and who you’re going into business with, and more importantly, how to deal with potential issues that may arise, drop shipping can be a great business model for eCommerce.

This article is one of several within our Start to Finish eCommerce Guides.