What is Drop Shipping and How Can I Use It In My eCommerce Business?
What is drop shipping? Every business wants to see big demand for its services. But when you’re running a small eCommerce business, big demand can often spell disaster if you lack the capacity to fill and ship out orders. After all, it’s hard to secure enough capital to invest in a whole load of inventory you aren’t confident you can sell, and it takes a lot of time and energy packing and shipping orders all over the place.
That’s precisely why more and more small businesses are experimenting with drop shipping.
What is Drop Shipping?
Simply put, drop shipping is a retail fulfillment method in which a business does not keep the products it sells in stock. When a drop shipping arrangement is put in place, a store will sell a product online.
Then, the business will purchase the item it has sold from a third party, and have that item shipped directly to the customer.
Bearing that in mind, drop shipping means that the merchant never actually touches the product being sold.
Why Do Businesses Use Drop Shipping?
Drop shipping isn’t for everyone, but it does come with a clear set of advantages for certain businesses.
First and foremost, choosing to drop ship items means that you won’t need as much capital to get up and running. If you launch an eCommerce store using the drop shipping method, you don’t need to invest up front in any inventory whatsoever. In fact, you won’t need to purchase a single item until you’ve already sold it to a customer.
Likewise, small eCommerce businesses tend to drift towards the drop ship model because it has exceptionally few logistical constraints. By drop shipping, you won’t need to worry about managing a warehouse or renting space, shipping your orders or handling returns.
That means lower overhead, flexibility in terms of location and the ability to offer a huge selection of products of all shapes and sizes. This makes scaling up a whole lot easier, which can increase your bottom line substantially.
That being said, it’s worth pointing out that drop shipping does come with a few disadvantages, too. Margins are usually pretty low — and because you’re relying on the competency of suppliers and third parties to fulfill your orders, drop shipping takes a lot of business elements out of your control.
How Can I Use Drop Shipping for My eCommerce Business?
First and foremost, you’ve got to do your homework. If you run an existing eCommerce business, it’s worth conducting some extensive market research in order to figure out what you stand to gain or lose from striking a drop shipping agreement with a third party.
If you feel that drop shipping is right for your business, there are plenty of options to explore. There are a wide range of drop shipping companies that specialize in imports, exports and every niche product you could possibly think of — and they all come with their own fee structures, terms, pros and cons.
If you manufacture your own products, or are trying to free up space you currently occupy in a warehouse, eCommerce platforms like Amazon offer their own fulfillment services in which you can use their space and resource to store, sell and ship your inventory.
Just remember: Rome wasn’t built in a day, and you might experience some trial and error in terms of finding the right drop shipping partners and a sustainable level of integration. But if you truly think drop shipping could bolster your eCommerce business, it’s definitely a possibility worth exploring.
Market ResearchBefore diving into drop shipping, understand your target market’s needs and preferences.Use tools like Google Trends, surveys, and competitor analysis.
Specialized Drop ShippersPartner with companies that focus on niche products, imports, or exports.Research their reliability, fees, terms, pros, and cons.
Utilize Major eCommerce PlatformsUse platforms like Amazon to leverage their vast infrastructure and fulfillment services.Consider the fees involved and the platform’s audience reach.
Manufacture & Drop ShipIf you manufacture your own products, consider drop shipping them rather than stocking them yourself.Ensure the drop shipper can maintain your product quality.
Free Up Warehouse SpaceConvert your inventory to be drop shipped, freeing up existing warehouse space for other needs.Ensure consistent product availability and delivery times.
Diverse Product OfferingUse drop shipping to test or add new products to your lineup without major upfront investment.Monitor sales trends to decide if you should stock certain items permanently.
How to Get Started with Dropshipping
To start your drop shipping journey, follow these steps to set yourself setup for success:
1. Research and Choose a Niche: Before diving in, it’s essential to determine which products you want to sell. Ideally, these should be items that align with your business vision, have a strong market demand, and aren’t oversaturated in the drop shipping world.
2. Select Reliable Suppliers: Partnering with trustworthy suppliers is crucial. Platforms like SaleHoo, Oberlo, or Doba can help you connect with potential suppliers. Always request samples, read reviews, and conduct interviews before making a decision.
3. Register Your Business: Ensure you have all the necessary licenses and registrations in place. Depending on where you operate, this may include a business license, sales tax permit, or an Employer Identification Number (EIN).
4. Set Up an eCommerce Store: Choose an eCommerce platform that integrates well with drop shipping, like Shopify, WooCommerce, or BigCommerce. Make sure it’s user-friendly and offers necessary features like secure payment gateways and inventory tracking.
5. Design a Pricing Strategy: Consider factors such as competitor pricing, wholesale cost, shipping fees, and your desired profit margin to set competitive yet profitable prices.
6. Create a Customer Service Plan: Even if you’re not handling products directly, your customers will look to you for support. Plan for things like return policies, product queries, and potential issues with orders.
7. Develop Marketing and SEO Strategies: A drop shipping business needs visibility. Focus on search engine optimization (SEO), pay-per-click advertising, and social media marketing to attract potential customers.
8. Stay Informed on Trends: The eCommerce world is ever-evolving. Regularly check trends, best practices, and updates in drop shipping to stay ahead of your competition.
Drop Shipping Photo via Shutterstock
This article, “What is Drop Shipping and How Can I Use It In My eCommerce Business?” was first published on Small Business Trends