When starting a business, entrepreneurs face two choices: sell knowledge or sell merchandise. Inventory takes up space, which costs money. This is where drop shipping becomes a viable option for online retailers.
Drop shipping keeps the liability and responsibility of merchandise in the hands of a wholesaler or manufacturer. The retailer, the entrepreneur in this case, simply brokers the deals and sells the merchandise to the customer, and the wholesaler is in charge of mailing the goods.
A drop shipping business sounds very enticing, but there are potential pitfalls that entrepreneurs should be aware of before agreeing to this supply chain management method.
The most common hidden dangers of drop shipping include problems that can occur when you hand off control to the supplier.
Loss of Control
In a traditional retail environment, you have control over the merchandise. If it arrives broken, you return it to the vendor. In the case of drop shipping, if the vendor sends out a lot of broken items directly to customers, chances are your business (and brand) will suffer big time as a result of disgruntled buyers and negative online reviews. This is why it’s important to find a good supplier.
You can counteract these issues by, first, ordering a wide variety of products from the supplier. Know the product, how it should arrive, and when it breaks how to fix it. Also, don’t rely on one supplier.
Beware of how long it takes for the manufacturer to ship goods. Always build relationships with more than one supplier, because you never know when you may have to bail, suggests e-commerce template supplier Just Template IT. Also, keep backup suppliers in your Rolodex because you never know when a supplier will drop you to serve your competitors better.
Along the same lines, you’ll want to establish that your supplier is loyal whether you are ordering 1 million units or one thousand. Be ready to compete because you will likely be one among many other online retailers working with the same supplier.
Minimum Order Quantities (MOQs)
Manufacturers are in the business of selling to retailers, and they may require you to place a hefty minimum order. Likewise, when they run out of a product, they may not go into production on it again. So, if you are selling an item that is popular, you may run out of luck if the manufacturer stops production.
It’s helpful to determine how much you are willing to spend on your first order. From there find suppliers who are able to meet your minimum order amount.
Make Money with Drop Shipping
Can you can make money with a drop shipping business? Yes. Many entrepreneurs do. First, find the right product, locate a good distributor, understand the marketplace in which plan to do business and never underestimate timing.
Need product ideas and a better sense of what is hot right now? Google Trends offers insight by providing a great list of timely and highly searched terms. Some products will only sell during certain seasons or holidays, and others are in constant demand.
In some marketplaces, the margins will be razor thin. When you add on shipping and handling costs along with a generous return policy, you simply cannot make money.
Remember that when it comes to online business, it matters how good you are at being found—particularly by search engines. Make your retail shop stand out. Define your brand with incentives, excellent customer service, fast and free shipping, and an appealing website.
Reap the benefits of lower startup costs, easy website setup, low overhead, and improved product selection. No storefront, no warehouses, and no merchandise eating away at your bottom line.
Avoid the above-mentioned drop shipping problems so you can succeed rather than fail before you have even begun.
This article has been edited and condensed.
Cormac Reynolds works and writes for a variety of marketing and internet blogs. He loves all sorts of different aspects of blogging and also has a big interest in bludgeoning the culinary arts. Connect with @brightoncormac on Twitter.
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