Wouldn’t it be a great business where you just accepted orders and another company ships the product straight from their warehouse? This scheme is called drop shipping, and I can show you why it’s promising. Read on to know how to get started!
One of the hardest things in setting up a new business is actually knowing what business to get into. There are many factors involved: capital, ease of operations, convenience, and many more. Luckily, a new style has allowed business owners from all over the country to maximize these factors. With the development of online shopping, drop shipping companies have become more and more popular because of their convenience in dealing with product delivery. It’s the main component of my success story as an online businessman, and it might be yours as well.
What Is Drop Shipping?
The concept of drop shipping allows a business owner to take customer purchases individually and the products are then shipped straight to the customer’s address by the manufacturer or wholesaler.
What’s great about this scheme is that you do not need to maintain a large stock of your products, some of which may not get sold. Instead, you will simply partner with wholesale suppliers or wholesale distributors. On your end, you will just list the products that your partner offers and then accommodate the purchases of the customers. Once you have orders, your supplier will directly ship their merchandise from their storage facility. The only thing you need to pay for in this partnership is the price of the shipped item and the fees set by the supplier.
Manufacturer, Wholesaler or Drop-shipper?
Right now, there might be some confusion on your part with regards to these three terms.
To clarify, a manufacturer is the one responsible for actually creating the product to be sold. When you think of manufacturers, you should think of big factories, large trucks and loads of raw materials. Since manufacturers create huge amounts of products at a given time, they sell their products in bulk.
A wholesaler is the trader who purchases in bulk straight from the manufacturer. Since wholesalers purchase the products at discounted factory prices, they earn a profit by reselling the products to retailers.
Lastly, a drop shipper is anyone who ships purchased products directly to the customers from their warehouses. They wait for orders from partners who sell their goods, and then they work on the shipping.
Because of this explanation, both manufacturers and wholesalers could become drop shippers. What you need to do here is to talk to any manufacturer or wholesaler to see if they would agree to become drop shipping companies for your business. Manufacturers, because of their scale and tight schedules, rarely agree to become drop shippers. It is more common to find drop shipping wholesalers who accommodate partnerships.
The Benefits of Drop Shipping
Because another party handles the products and shipping, drop shipping has many benefits:
- Lower risks: You will only ever need to deal with products that are already bought. Because of this, you do not have to stock up on products that may not even sell. When setting up an online store, you no longer need to invest as much. In the worst case scenario, where you have no customers, you wouldn’t be burdened by a loss because of unsold inventory.
- Lower capital needed: Because you don’t need to invest in purchasing products, you only really need to spend on your partnership and setting up your online store.
- Wider variety of products: Your product listing will depend on what the manufacturers or wholesalers offer. Since you don’t have to buy single items in bulk, you can accommodate for other products. Your customers will have a lot more to choose from.
- More freedom in location: All you need to maintain the business is a phone, a laptop, a bank account, and reliable internet service. You don’t need to rent out an office or a warehouse. This allows you to work on your business anywhere.
- More scalable than others: Your partners will handle the purchases for you. This will make it very easy for you to increase the scale of your business.
Can I Really Profit From Drop Shipping?
While drop shipping might have many benefits, you still need to know whether or not you will profit from it. It depends. Many things are necessary to make a business successful. However, looking at it overall, drop shipping is a very viable low risk model. With proper planning, you will be able to start your own online store and generate a good profit. You may also become a full-time eCommerce worker and even stop your daily job for good. All you need is careful planning and proper execution.
Starting Your Own Drop Shipping Business
Once you’ve decided to give it a shot, there are multiple steps that you need to consider before you can partner with drop shipping companies.
The first thing is that you need to have your business registered so that you can get an Employer Identification Number (EIN). This is necessary because drop shipping companies will refuse to work with you if you are not a legal business. This is for their protection if something ever comes up. You may also need a sales tax ID depending on your state.
Luckily, making your business legal is not too complicated in the United States. Online services such as Legal Zoom can guide you step-by-step in starting your business. They can help you determine which corporate structure best fits your needs. Once you have that processed, you can easily request an EIN from the Internal Revenue Service (IRS).
When your business is legal and you have successfully completed the requirements, you can start contacting manufacturers and wholesalers to discuss your partnership. However, you need to first understand what kinds of products to sell. Before proceeding, conduct a market research to determine an appropriate supplier with an appropriate price that addresses the market demand and competition. That is why you need powerful drop shipping companies or directories to work with. In the next part you will know about the two best drop shipping directories.
Finding Your Drop Shippers (Drop Shipping Companies)
Once you have figured out your niche and you have understood your market, you can now look for relevant drop shipping companies that could partner with you. The following are three basic ways of finding one.
Contact the manufacturer. Suppose you already have a clear idea on what product to sell; you can directly contact the manufacturer of the item. The manufacturer will most likely direct you to distributors of the product with whom you could negotiate to see if they are willing to drop ship.
Perform a Google search: You can look online for the contact details of wholesalers. However, wholesalers do not make it easy for people to look them up. Should you choose this method, you must have the willpower to go through tons of dubious listings to find a proper drop shipper.
Subscribe to a directory. There are some legitimate and informative online directories for drop shippers, but there are also many others that do not provide much help. Based on my experience, I recommend The 2 Powerful Drop Shipping Companies World Wide Brands and Salehoo. They have an extensive database of thousands of reviewed drop shippers and suppliers.
1- Worldwide Brands:
Worldwide Brands is an online directory that will help you find wholesale suppliers and drop shippers that will help you to make the most out of your business. Here is my full detailed worldwide brands review. Read it if you are interested in joining the company.
SaleHoo is a professional supplier directory, which has become popular recently because it lists only the most legitimate and qualified suppliers online. And here is the comprehensive Salehoo review.
Paying Your Drop Shippers
When you contact your drop shipper of choice, it is important to understand how your partnership will work out.
All drop shippers will request a Per Order Fee. This fee is collected to cover the expenses of shipping and will usually range from $2 to $5. You might also be asked to pay for a Monthly Fee. Some wholesalers may not originally be drop shipping companies; they may request for a fee to convince them to participate. You should be wary of companies that do request monthly fees as they may be poor drop shippers. Lastly, you may also encounter Purchasing Minimums, which is a set number of products for your purchases. If you don’t reach the minimum, the drop shipper will charge you for smaller purchases. They implement this to ensure that their partners are serious, productive, and not wasting their time.
The bottom line
So, there are a lot of things to consider and study when you first open your online store using drop shipping. What I recommend you to do is to take action now and get access to one of the top drop shipping companies like SaleHoo or WorldWide Brands and see the unlimited opportunities to start selling online.