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Use Drop Shipping To Set Up A Successful Online Store Selling Name Brand Products... Without Spending A Dime On Inventory!
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Use Drop Shipping To Set Up A Successful Online Store Selling Name Brand Products... Without Spending A Dime On Inventory!
By Derek Gehl
Let's face it: Not everyone wants to develop, design, and manufacture
their own products. You may be more interested in finding great
products that already exist and then using your online marketing
know-how to build a successful business.
But what if you DON'T want the hassles of things like tracking your
inventory, setting up warehouse space, and maintaining a confusing
shipping/receiving infrastructure? Wouldn't it be great if there was a
way to set up a business online WITHOUT having to deal with all these
Well, there IS a way to avoid these headaches: a technique known as
"drop shipping." This model lets you sell quality, brand-name products
on your web site for a hefty profit, and the drop shipper takes care of
fulfilling the order. They warehouse the stock, pack the orders, and
ship it out to your customers.
But be warned: There are both advantages and disadvantages to this
model. Keep reading, and I'll tell you how to steer clear of the scam
artists and identify great partners who will ship brand-name products
for you... on your behalf... all while generating solid profits for
How Drop Shipping
Drop shipping is simply an arrangement between you and the manufacturer
or distributor of the product you sell whereby the manufacturer or
distributor -- NOT YOU -- ships the product to your customers.
Here's an example: Let's say Mary wants to set up a site that sells
skin care products. Instead of filling her basement with cases and
cases of stock, and then going downstairs each time an order comes in,
Mary puts together a drop shipping arrangement with a manufacturer who
ships the products to her customers directly.
And the best part is that the manufacturer will happily ship the
products using shipping labels with Mary's company's name, address, and
logo instead of their own. The product arrives at the customer's house
a few days later, and they never know that the product wasn't shipped
directly from Mary's warehouse!
Let's say Mary has a product called the "Total Skin Care Package,"
priced at $97. A customer visits her site, places an order, and is
billed $97 plus $11 for shipping and handling. Mary then sends her
distributor an e-mail with her customer's order and shipping
information. The manufacturer packs up the customer's order, puts
Mary's shipping label on the package, and mails it out via UPS or
FedEx, usually within 48 hours.
The distributor then bills Mary for the WHOLESALE price of the "Total
Skin Care Package" -- in this case, $64 plus $11 for shipping and
handling. Since Mary has passed the shipping and handling fee on to her
customer, she has just netted a profit of $33. And all she had to do
was send her manufacturer an e-mail!
There are a few huge advantages to this model. First, it saves you the
cost of building your own inventory. If you're like most people
starting a small business, you don't have a ton of extra money lying
around. The last thing you want to do is tie up your cash in inventory
that you may or may not be able to sell.
No inventory also means no leftovers. If the product you sell suddenly
becomes outdated, obsolete, or just plain un-trendy, you aren't the one
with a house full of stock that nobody will buy. Many online retailers
find themselves having to offer deep discounts -- and taking huge
losses -- on old products just to get them out of their homes to make
room for more inventory!
You'll also be able to skip the hassles of shipping your products.
Unless you've already set up a shipping account with someone like FedEx
or UPS, you'll be heading down to the post office every day to buy
stamps and mail out your products.
And you'll be able to add new products almost instantly. Since you
don't have to worry about ordering inventory, you can add products to
your web site within a few hours. If you find that your customers are
eager to buy a certain product, you can have that item up on your site
in almost no time.
Choosing The Product:
Have you ever noticed that there are literally hundreds -- if not
thousands -- of sites selling huge mish-mash selections of inexpensive
gift items... things like plastic gnomes and porcelain figurines?
That's because there are a few HUGE drop shipping companies that import
these items and then recruit web sites to sell them on their behalf.
These companies have massive product inventories and make it very easy
for people to get started selling their products for them.
Unfortunately, this is NOT the way for you to go if you are getting
started with drop shipping. There are already a lot of giant gift sites
out there -- and way too much competition for you to reasonably expect
to be successful at it.
Instead, spend some time researching different kinds of products that
you might want to sell. The products you choose should be in demand but
not widely available online. As usual, I highly recommend targeting a
niche market rather than trying to find a product that EVERYONE wants
Once you've found a product that you think may be the right one for
your business, you'll need to do a little "competitive analysis." This
simply means finding out what potential competitors are charging for
the products you want to sell and calculating how much of a profit
you'll be able to make.
Choosing Your Drop
So how do you go about finding a reputable drop shipper for your
business? Well, here's where doing your homework will pay off. Whenever
possible, you'll want to set up drop shipping arrangements directly
with the manufacturers of the products you want to sell. The fewer
middlemen you have to go through, the bigger your profits will be!
Let's say you want to sell wooden toys on your web site. After spending
some time combing through the search results for "wood toys," you'll
have come up with a list of manufacturers of wooden toys that you might
want to carry. From there, you'll want to contact the manufacturers
directly and ask them if they drop-ship their products.
Some will let you know right away that they are set up to drop ship for
you. Others will tell you that they simply don't offer drop shipping.
Smaller manufacturers may never have heard of the concept!
If the manufacturer of the product agrees to drop ship for you --
GREAT! You can be fairly confident that you'll be getting the best
price possible. However, if they don't offer drop shipping, you'll have
to keep looking for another alternative. This usually means tracking
down a distributor. (A distributor is simply a company that maintains a
large inventory of another company's products and distributes those
products to smaller companies.)
The best way to locate a distributor is to simply ask the manufacturer
of the product to recommend one. Most manufacturers have established
relationships with at least a couple of distributors, and they should
be happy to put you in touch with one of them.
Another great way to find a distributor for the type of product you
wish to sell is by looking through related trade magazines. You'll
often be able to find listings of manufacturers and distributors
advertising in the back of these publications. A couple of resources to
check out for listings of trade magazines are SmallBusiness101 and Yahoo!'s listing of trade magazines.
In addition, Drop-Shipping-News.com sells a
"Consumer Products Source Directory" that claims to provide listings of
dozens of trade magazines.
You may also be able to find distributors and manufacturers using the Thomas
Register. They provide listings for thousands of companies
broken down by product, brand name, and company name. It takes some
time to get used to navigating through this site, but it can be a great
What To Expect From
Your Drop Shipper:
Once you've tracked down a few manufacturers and distributors, you'll
need to get on the phone and contact them directly. Before you start
dialing, though, you'll need to have a few things in order, including
your official business name and your Tax ID or Resale number.
Your Business Name and Tax ID Number
Take the time to set up your business as a legal entity before you get
started. The U.S. Government's Small Business Administration maintains
a web site that has all the information you need to get your company up
and running and explains how to apply for a Tax ID or Resale number in
every state. You can search for the requirements in your state by clicking
The process of setting up your business legally is actually a LOT
easier than most people think. In many states, you can get all the
paperwork done in about a day, and it shouldn't cost you much more than
a few hundred dollars if you do everything yourself. Of course, there's
no shortage of lawyers and accountants to help you incorporate your
business if you'd rather not deal with the paperwork.
Some companies will also ask for a credit reference... but don't panic!
A manufacturer will probably only require a credit reference from you
if they will be billing you monthly. Since most manufacturers will bill
you at the time of purchase, this shouldn't be a problem. If they do
require credit references, though, you can usually just provide them
with the name and telephone number of your bank.
IMPORTANT NOTE FOR
Drop shippers based in the U.S. are generally NOT willing
to drop ship internationally. There are simply too many hassles with
customs -- especially since September 11th. Also, companies like FedEx
and UPS charge a fortune to ship internationally. The cost of the
shipping can often be more than the cost of the product!
If your target market is in Australia, for example, you'll want to
locate manufacturers or distributors based in Australia so that you can
avoid the hassles of international shipping. You -- and your customers
-- will end up with a LOT fewer headaches this way!
Questions You'll Need
Most companies that you contact will be more than happy to speak with
you -- after all, you are going to be selling their products for them.
When you call, simply ask to speak with someone about becoming a vendor
for their products. Once the switchboard puts you through to the right
person, they'll be able to answer any questions you have, including:
What is the wholesale
price they can offer you on their products?
You'll need to make sure that the wholesale price they offer is low
enough that you will be able to generate a good profit based on what
you will be able to sell their products for.
Do they charge a
handling fee for drop shipping? If so, how much?
Most companies who drop ship will simply add the cost of UPS or FedEx
shipping onto your wholesale price, but some will also charge you a
handling fee (generally between $1 and $5). This is to offset their
cost of picking, packing, and processing the order for you.
Do they have a monthly
minimum OR maximum of products they will drop ship?
Some companies will require that you sell a minimum dollar amount of
their products each month (usually around $100 per month). A few will
also have a monthly maximum of units they will ship for you. If you
think that you will be selling more than this number each month,
they'll refer you to one of their distributors.
How do they ship their
Almost every company that drop ships products will use a major
nationwide delivery service like UPS or FedEx. Ask them to include
tracking numbers with the order confirmations they send. This will save
you many potential problems when customers ask, "Where is my order?"
How do they bill you?
Most drop shippers will bill your credit card the wholesale price of
the product plus shipping and handling as soon as they receive an order
from you. With others, you may be able to set up a monthly billing
cycle where you submit payment for all orders at the end of each month.
How do they deal with
Be sure to find out what their policy is regarding returns. Most
reputable companies will offer some kind of guarantee or warranty on
their products and will deal with returns for you. This way, if a
customer contacts you with a return, you can simply tell them that the
manufacturer will be happy to speak with them directly. If your
manufacturer doesn't accept returns, look out! You will be the one
stuck replacing defective merchandise for your customers.
You'll also need the manufacturer to send you product information, such
as descriptions and images of the products for you to put up on your
web site. Many companies will simply tell you to take the images
directly from their own site. Others will e-mail you a link to their
product information. Companies with large inventories may want to mail
you a CD-ROM of their product images and descriptions.
When setting up an account with a distributor, ask lots of questions
about shipping and order fulfillment, as these are the two areas that
can potentially cause you the most problems. Make sure that they are
able to confirm your orders quickly, and that they can provide you with
tracking numbers. You need to be confident that you will be able to
deliver your customers' orders promptly.
Avoid These Common
Drop Shipping Scams
Wow, all of this sounds great, doesn't it? And the truth is, there ARE
lots of people making tons of money using the drop shipping model. But
there is also no shortage of crooks and scam artists just waiting to
take your money in exchange for the promise of "Instant Drop Shipping
Riches" or "Ready-Made Online Drop Shipping Stores."
Here are a few things to watch out for when you're researching drop
Companies offering to
sell you lists of drop shippers for $3, $4, $7. The old
saying about "You get what you pay for" applies here. Spend $4 on a
drop shipping list, and you'll get an e-mail listing 200 company names,
addresses, and maybe phone numbers. A few calls to out-of-service
numbers and you'll realize that the list is years old and basically
Companies charging you a
"monthly fee" to be your drop shipper. Think about it: Why
would a company charge you to sell you things? Answer: Because their
products are either worthless junk or they're marked up WAY too high.
In either case, they know your online store won't be able to sell any
of them, so they need to make their cash from you through a monthly fee.
Companies offering you a
turn-key online business, complete with web site,
wonderful products (that can ONLY be purchased from them), and a
merchant account that allows you to accept credit cards. The strategy
here is to get you to spend YOUR money advertising and selling their
products that they are buying from REAL wholesalers, marking up, and
selling to you. These companies usually also charge a one-time and/or
Here's the bottom line: No one is going to do your work for you. If you
want to set up a real online business, you're going to need to do some
legwork. Any company that seems to be making your job easier by
providing you with lists of products to sell or setting up your site is
just going to be eating into your profits! As always, ask yourself if
their offer seems too good to be true. If it does, you can be sure that
they'll be taking their cut!
Based on our research, I'm NOT going to recommend spending money on any
of the "drop shipping resources" that are for sale online; anyone
should be able to locate potential drop shipping partners by doing a
little research and making a few phone calls.
Common Drop Shipping
Problems -- And Simple Solutions
Of course, no business model is without disadvantages -- and drop
shipping your products can lead to some serious problems if you aren't
careful. Below are a few of the most common problems, along with some
tried-and-true solutions to help you save some serious time and money:
Problem #1: Shipping
Remember how I told you that the best thing about drop shipping is that
you don't have to worry about shipping your products? Well, this can
occasionally create issues.
Let's say you send an e-mail to your drop shipper asking them to send
an order to your customer, and it just so happens that they are sold
out of that item at the moment. The longer it takes them to let you
know that the item is unavailable, the longer it will be before you can
pass that information on to your customer, and the worse you'll end up
Insist on prompt order confirmation from your drop shipper. Ask them to
send confirmation e-mails or faxes to you when they've processed your
order, letting you know that the order has been shipped. If they find
that they're out of stock, make sure they let you know IMMEDIATELY.
Problem #2: Tracking
Your customer calls you up a week after ordering a product and asks
what the status of their shipment is. Unfortunately, since you didn't
ship the product, you have no idea what to tell them. And if your
customer is demanding a refund for an order that has already been
shipped, YOU'LL be paying for it when your drop shipper sends you the
Most of the nationwide delivery services (like UPS or FedEx) now offer
online tracking services. If a customer calls to check the status of
their shipment, you can instantly tell them where their package is by
entering their tracking number at the UPS or FedEx web site. Better
yet, include the tracking number in your confirmation e-mails to your
customers and let them track their orders themselves. Just be sure to
ask your drop shipper to provide you with tracking numbers once your
orders have been shipped!
Problem #3: Drop
Shipper Backs Out
Occasionally, a manufacturer or distributor will simply back out of
their drop shipping agreement with you. They may decide that the work
involved in packaging and shipping their products for you simply isn't
worth the trouble.
Unfortunately, you'll never really know how reliable your partners will
be until you've placed a few orders from them. When you are setting up
your agreements with your drop shippers over the phone, you should be
able to get a good sense of how reliable they are based on how they
answer your questions. This is one of those areas of your business
where you'll have to follow your instincts!
Problem #4: High
Finally, you can run into problems with shipping costs if you work with
a number of different manufacturers and distributors. For example,
let's say a customer orders 6 products from your web site, with each
one being drop shipped to them by a different manufacturer or
distributor. They'll have to pay shipping and handling costs on each
individual item, and that can add up to a lot of extra money. If your
customers see that they'll have to pay $40 to ship $80 worth of goods,
they'll abandon their order every time.
You'll avoid those abandoned orders by just using one manufacturer or
distributor on your web site. Keep in mind that many distributors deal
with thousands of products (usually related to each other), so you can
usually source all of your products with one distributor. Of course,
your site may never run into this problem.
If you take my advice and focus on selling one or two niche products
(like toasters), you can reduce the likelihood of customers ordering
more than one product in the first place. (Who needs six toasters?)
Drop shipping can be an easy way to get started selling online. Since
the manufacturer or distributor takes care of warehousing and shipping,
you'll be able to concentrate your efforts on building your web site
and marketing your products. And this is what most entrepreneurs are
As an experiment, we decided to contact several manufacturers to set up
a drop shipping arrangement. When asked, we told the manufacturers that
we had no previous experience running an online business. This didn't
present a problem to any of them. Basically, a company will be glad to
have a potential vendor contacting them... After all, it can only
increase their sales!
When searching for a product to drop ship, don't spend money on "drop
shipping directories." Think about it: Not only is their information
frequently out of date, but the companies listed in these directories
are the ones that everyone who buys the directories will be contacting.
That means more competition for the products you'll be selling.
And take the time to choose your products carefully. Make sure there
aren't already hundreds of sites selling these products at prices that
you can't afford to compete with. Products that are aimed at a niche
market will sell better online than products aimed at the general
population. And remember to ask yourself: Is this a product I would buy
Most importantly, remember that drop shipping isn't a magic formula to
make you rich. Building a business DOES take a certain amount of hard
work, and this is no exception. The real "magic" is that drop shipping
allows you to invest your money in marketing rather than inventory, and
a well-planned marketing strategy is what will ultimately help you
build a lucrative online income!
About the Author:
Derek Gehl specializes in teaching real people how to start
profitable Internet businesses that make $100,000 to $2.5 Million
(or more) per year. To get instant access to all his most profitable
marketing campaigns, strategies, tools, and resources that he's
used to grow $25 into over $40 Million in online sales, visit:
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Best wishes for your online success!
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