There are many different online gurus that encourage starting an online business based on drop shipping. Drop shipping certainly has several great benefits. The premise of a drop shipping business is that you can sell more expensive products without having to stock the merchandise. That means that you have much lower overhead, which translates into much higher profit margins. If you can build a solid website, and drive the traffic to it, you will be able to make a tidy profit from this type of business! Another option is to find a product that will sell well on an auction site, like Ebay, and have it drop shipped to your customers.
However, there are some challenges that must be overcome if you plan to make a drop shipping business into a profitable venture. If you are going to be successful in this aspect of online business, you must be creative, and find profitable ways to overcome these roadblocks.
(1) Wholesale Prices. There are many companies on the internet who specialize in what they call “wholesaling.” Unfortunately, they are not true wholesalers, but in reality, warehouses. The difference is a big one. These warehouse companies act as middle men, taking products from true wholesalers, marking them up, and then reselling them at a price that is still less than retail. You can certainly make a little money from these type of sites, if you can sell the products at retail. On the web, however, very rarely can you sell anything for the suggested retail price. Web buyers are looking for a good deal, and so they will shop around. You have to be competitive, or you will not be able to sell much online. So, the key is to find the best wholesalers. The best source for true wholesalers is World Wide Brands. You can join their site with a one time fee, and then have access to thousands of different wholesalers in just about any market. In the end, you will be able to get lower wholesale prices, which will make it easier to compete in your market.
(2) Drop Ship Fees. Once you have your wholesalers lined up, you have to figure out what your overhead will be. There are several fees that must be taken into consideration to make sure you don’t get shortchanged when you sell a product. The first fee that you need to be concerned about is the drop shipping fee charged by the wholesaler. Most will charge an extra fee for the service of shipping your product, often with your company name and information on the box or invoice. This fee is a small price to pay for this convenience. However, some companies will charge an exorbitant fee for this service. For most products you should not have to pay more than $5 to $10 more than the actual shipping. And, of course, you have to know exactly what your shipping fee and drop shipping fee are for each product you sell so that you know how to price your items.
(3) Shipping Fees. Shipping fees can easily get out of hand. You need to make sure that you find wholesalers that have reasonable fees. Sometimes, it may take some shopping around on your part to find the right wholesaler for your needs. High shipping fees can quickly cut into your profit margin. You should be able to find wholesalers that charge actual shipping. They are making their extra money from drop ship fees, so there is no reason for you to have to pay them extra shipping fees. Make sure to add all shipping fees to the drop shipping fees to ensure you charge enough to cover all your expenses.
(4) Paypal and Ebay Fees. If you are going to sell on Ebay, you must account for the Ebay and Paypal fees that will be accessed on each sale. There are also listing fees that must be paid when you list your item. If you are going to be serious about selling your items, you must have a Paypal Business Account. This will allow you to take credit and debit cards, which will help to increase your sales. Both Paypal and Ebay have different equations to figure fees. You can find fee schedules for each on their websites.
(5) A Niche Market. The key to having a successful drop ship business on the internet, either through Ebay or on your own website, is to have a true niche. You will probably not be able to compete with stores like Wal-Mart or Target when it comes to products like large electronics. But, if you can find a nice niche, with products that are not readily available, you will be able to draw attention to your products and be able to sell them to people searching. Remember, if there is a product out there, then there are thousands of people looking for it! Your profit comes by driving the people that are looking for products in your niche to your site. If you can offer them good products at good prices along with good information, you will make sales.
If you can overcome these challenges, you will be successful in an online drop shipping business. You must be able to overcome all the fees that are associated with this type of business to be able to make a significant profit. That will mean being diligent about book keeping–you must keep up with all costs associated with getting your product “out the door.” You must also have a strong niche that people are searching for. Conquer those challenges, and you will be one of the few people who have a truly successful online drop shipping business!
Reference:
- Ebay Fee Schedule
