Drop shipping is an interesting method of conducting business. Ideally, the retailer is the person who the customer approaches for a particular product. However, the retailer, in reality, does not have the actual product with him. He may have a catalog or a sample.
The actual product is shipped by a wholesaler, at wholesale rates, directly to the customer. The retailer, thus, ends up making a profit, which is equal to the difference between the wholesale and the retail price of the product. Here is some more information on drop shipping.
- As already specified in the introduction, drop shipping enables the retailer to avoid stocking up on the inventory and also earn money at the same time.
- This also creates an opportunity for him to deal in a variety of products simultaneously.
- This is also advantageous for the customer, because time is not lost while a retailer routes the product via the wholesaler. This also reduces the shipping costs that the end customers end up bearing.
- The retailer and the wholesaler usually have an agreement where they decide upon the pricing of various products.
- They also discuss various things such as the delivery service used by the wholesaler, and the returns and refunds policies. The retailer should also know if the wholesaler also delivers internationally.
Transactions between the Wholesaler and Retailer
- Different wholesalers deal in different products and offer great deals. It helps if the retailer does his market research and decides on the product first, rather than deciding on the deal and then knowing about the product.
- Some wholesalers add a handling fee to the costs, and some have a 'participation fee' for retailers.
- Ideally, one should avoid those wholesalers who ask for a participation fee, whether you do business with them on a regular basis or not. You should only pay when you buy.
- This kind of business is extremely suitable for people who have an internet business or storefront. But, one needs to be careful in terms of providing the appropriate services on the website.
- You need to look for an appropriate 'shopping cart' that you are putting on the website.
- You also need to know the detailed and exact payment methods for internet-based orders.
- The retailer also has to apply for the necessary tax documentation and register his company.
There are many sham businesses out there which offer lists of drop shippers, for a fee, of course. It pays to research well about this. Most often, these lists are of other retailers who earn small margins on such business.
Towards this end, it makes sense to conduct this business in the way a real business is conducted. Research your product and the wholesaler thoroughly before you sign on the dotted line.