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Drop Shipping Inventory Basics

When starting an e-commerce business there are a couple of different ways to go about stocking and shipping your inventory.  Drop shipping is one of those ways.  Drop-shipping is basically buying product from the vendor and having the vendor ship the product directly to your customer.  This has several benefits that are nice for people just getting started and not having the time or willingness to work out the logistics/cost of shipping their products.

Less up Front Capital

One of the benefits of drop-shipping is that you don’t have to purchase a large quantity of products up front before selling them.  You place orders with the vendor as customers order from you.  Most vendors have minimum order amounts when buying in bulk to get better prices.  This allows you to do a lot of marketing and hopefully get enough customers, and collect their payments, up front before placing the order with the vendor.  This means you don’t need as much start-up capital as if you were having the product shipped to you from the vendor.


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Logistics

Another big benefit of drop-shipping is not having to figure out the best way to get the product to your customer yourself.  It is up to the vendor to ship it out.  This is also beneficial cost-wise because even though you have less control over shipping, the vendor ships more quantity than a starting merchant would and probably gets better shipping rates from the shippers it works with, which it can pass back to the merchants it works with.  Also, when your business is bringing in enough revenue, if you wish you can switch from drop-shipping to shipping yourself.

Branding

There are a couple of caveats with drop-shipping a merchant should be aware of as well.  The first is branding.  When working with a drop-hipper, a merchant will want to make sure they can provide packing slips with their own branding on it so the customer doesn’t know the merchant isn’t shipping the product themselves.  This also keeps the merchant’s company in the mind of the customer instead of the customer wondering what random company is sending them things.

Different Order Methods

Until a merchant develops a real relationship with a drop-ship vendor over time, drop-shippers have their own ways of accepting orders and don’t give the merchant much choice.  In most cases merchants will work with more than one drop-shipper to either get the best price for the product or extend the line of products they are selling.  Examples of ways to order are an online order form, a text file upload, or a faxed purchase order.  It can be a challenge to manage these different methods, especially if the orders become large.  A merchant might want to consider a robust purchasing application that can handle sending a purchase order with a variety of methods and/or have the possibility of customizing one to work with a drop-shippers online system if they have one.

Overall there are many more benefits than detriments to drop-shipping products, especially for new merchants.  Not having to deal with the logistics leaves more time to focus on marketing and growing the business and a customer base.  What are your experiences with drop-shipping?  Are there any other pros and cons you’ve come across?

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  1. Pingback:The Benefits of Fulfillment Centers | BizAmmo

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