How to Make Money With an Online Drop Shipping Business
When starting an online business, one of the key elements is having products to sell. So how do you get products, where do you find them, how do you know if they’ll sell, and how do you get them to customers?
In the vast world of internet entrepreneurship, there are many answers to all of those questions. You could create your own products—but that can be a long and time-consuming process. Or you could buy in bulk from a manufacturer and then ship out products to your customers as they buy. But that is an expensive solution, and you have to take the risk of investing that money in buying stock, storing inventory, and not having sales, which can be particularly troublesome if you're dealing with perishable goods to trendy items.
There is a solution that allows you to sidestep all those hassles. And it makes the whole startup process for your online venture that much easier. It’s called drop shipping. And it has taken the online business world by storm. A drop shopping business is one of the fastest, easiest, and most low-risk ways to get started with an online business.
Take a look at how to start a drop shipping business, how the drop shipping business model works, and the key things you should know before going into it.
The table below can help you with your decision-making process, and it provides an overview of the advantages and disadvantages of starting your own drop shipping business.
- Sell almost any products, in any niche
- Use a proven business model, which is even used by large retailers such as Amazon
- No need to store any inventory
- No need to pack or ship out products
- No requirement for up-front capital
- Expensive handling or drop-ship fees that eat up profits
- Not all companies are willing to drop ship
- Drop shippers must give you accurate in-stock numbers so you don't sell items if the drop shipper goes out of stock on them
- Some drop-ship suppliers have inconsistent service, slow ship times, or difficult return policies
Starting a Drop Shipping Business
Estimates vary, but industry watchers have found that between 20 percent to 30 percent of online retailers use drop shipping. So it's a proven business model, and you’ll be in good company if you go this route. Even big retailers like Amazon use drop shipping.
With drop shipping, you can sell just about any product in any niche. Considering that just about any product can be bought on Amazon.com - if it's for sale on Amazon then you can probably sell it with your own drop shipping business as well.
The benefit of drop shipping someone else's products means that you don't have to deal with the hassles of traditional businesses, such as:
- storing your products (it can be very expensive to buy massive amounts of inventory and rent warehouse space)
- packaging or shipping products, preparing orders and boxing them up multiple times a day and heading to the post office
- having to put down your money upfront to buy products wholesale to resell, that you aren’t sure will sell
When you run a business through drop shipping, you avoid those issues and the potential loss of any up-front capital investment.
In addition to all of the benefits above you don't have to worry about building or leasing commercial space, hiring employees and having a large payroll, or having to be in a physical location stuck during normal business hours.
Now that you have taken a look at the benefits of a drop shipping business, here's how the business model of drop shipping works.
How Drop Shipping Works
With drop shipping, you work with a wholesaler or distributor that offers this service. Not all manufacturers and wholesalers offer drop shipping, but many do.
You handle all the marketing for your business. This means that you set up your website with a shopping cart (or set up a virtual storefront on Amazon), write your blog, do social media and email marketing, and any other way you can contact your prospects and customers. You will tell them all about the products and use your marketing and selling skills to tell them how the products will enhance their lives. Essentially, you do all of the marketing, advertising, and promotion to get the customers and make the sale.
When it comes time to actually send out the product and fulfill it, this is where the drop shipper takes over. The drop ship company has the inventory in its warehouse. You send your drop shipper the orders that come in, paying the wholesale price for each order.
This can be done by email, submitted online, or through a spreadsheet file—it depends on the drop shipper. In many cases, this process can be fully automated taking you out of the equation and saving you time so you can focus more on the marketing of your business and less on the operations of your business. The drop shipping company puts the order together and ships it directly to your customer, without including any pricing details or information about the supplier, so that the customer thinks the package came directly from you.
Drop ship companies do charge a fee for this service. Each company is different, but usually, it’s about $2 to $5 per item or order and is often called a handling fee or a drop ship fee. That’s on top of the wholesale price for the product itself and the cost of shipping, which does add up.
However, you can still make a profit as a drop shipping business, despite the thinner margins. If you want to increase your profits you can raise your prices—at least as much as your market will bear. You can also sell more volume. And you can always contact your drop shipper to negotiate a lower handling fee.
Another strategy is you can do what's referred to as white labeling or private labeling the products you sell, meaning you put your own name or brand on them so that you can distinguish yourself from all the competitors selling the exact same thing. This allows you to avoid competing just on price.
Remember though, that you aren’t risking your money upfront. You are only paying these fees if you actually sell a product.
What Products Can Be Drop Shipped?
As with any online business, you want to be in a market that is “hot” and where there is a large number of people ready to buy the products you sell. In the best-case scenario, the niche you specialize in should also match one of your personal interests.
If you have a passion for a certain market or type of product, that enthusiasm will make your marketing efforts, and by extension your business, stronger. Not only that, but you'll actually enjoy what you're doing which will make your work feel more enjoyable.
Fortunately, there are drop shipping companies that work with just about every market, niche, and type of product. This includes baby items, yoga clothes, electronics, clothing, art, books, beauty supplies, supplements, home and garden items and more.
A great place to check for hot niches is big online e-commerce platforms like Amazon and eBay. Whatever items are on the bestseller lists there could be a great fit for a drop shipping business. But also keep an eye on trends you see on Facebook and other social networks. Also, look for products that are in the news, and listen to the products your friends and family are talking about.
During the holiday season, football season, back-to-school and other special times of the year, related products can do very well.
A big mistake a lot of people make when starting any type of business, drop shipping included, is that if they see other people doing it they think it's too competitive and they can't make any money in it. Nothing could be further from the truth. if you see a lot of competition that's the sure sign of a big, healthy, profitable market.
Keep in mind, while you can sell products that are trendy and/or seasonal, you'll also want to make sure you are selling products that are "evergreen", meaning there will always be demand for them and the sales will be more consistent.
Picking a Drop Shipper
Before you start working with a drop shipper, go through the order process yourself from a customer’s point of view. It's important to see how easy it is to order the product, how long it takes to ship, and how the drop shipper deals with any returns or problems.
Ask potential drop shippers how they will notify you of their in-stock levels for each product. If you sell an item to a customer but the drop shipper has gone out of stock, this can cause a huge dilemma for you and create angry customers.
This will also give you the chance to also see the quality of the product. Make sure the products are at the level of quality you’ll be proud to offer your customers. In some cases, drop shippers will be willing to send you a complimentary product for evaluation or at least sell it to you at their cost.
If you are into a niche and have used other products that are similar, you can test the product yourself. Use it, study it, and see if it does what is promised. Is it made of quality material or ingredients? Check the reviews of others online to see if your experience matches up.
If you’re not into the niche, have a friend or family member try the product. Also do your research by thoroughly checking online reviews, and forums in that niche to see any comments from users, and any related Facebook groups. Knowing the product will also help you sell it, making your marketing that much more authentic and effective.
Here are some of the top drop shippers and drop shipper directories operational today:
You can also do a Google search for "drop shipper" or "(niche) + drop shipper" to find other drop shipping companies.
Key Questions to Ask a Potential Drop Shipping Partner
Partnering with a drop shipper is a great way to start an online venture with minimal risk. By not having to lay out a bunch of cash to buy products wholesale, you're not risking your money. You don’t have to store any inventory, and you don’t have to worry about keeping up with shipping products out to customers in a timely manner.
But that doesn’t mean you should hand off those important elements of your business to just anyone. Working with a bad drop shipper—and they are out there—could sink your business before it ever gets off the ground.
You don’t have to go into the process of finding and negotiating with a potential drop shipping partner blind. Here are some key questions that can help you determine if they are the right fit for your business.
- Once a customer has placed an order, how long will it take to be processed and shipped out of their facility? (Remember you can also "secret shop" them to verify this as well)
- What methods of shipping the products are available? This is especially important if they are located overseas and are shipping internationally. Do they use services like UPS and FedEx? Can a customer overnight an order? Do they rely on the U.S. Postal Service only?
- This is a big one: Do they have a tracking system so that you and/or your customers can see the status of each order easily? This is one the biggest things customers want to be able to do.
- How do they deal with issues like lost shipments? You don’t want customers to get frustrated with issues you can’t control. And keep in mind that as the seller you are ultimately responsible for customer service. Will lost shipments cost you money?
- Do the products they offer have warranties/guarantees? What happens if the customer isn’t satisfied with the product—what’s the return policy? Does the drop shipper guarantee the product? What happens if the product fails in some way?
- Make sure the drop shipper's policies match up with your customer-service philosophy. If a customer feels that they’ve been taken advantage of you can’t point to the drop shipper and blame them, because you are the one that sold the customer the product.
It’s also a good idea to check forums, blogs, and social media for comments about the drop shipping company from other online entrepreneurs. Drop shippers who have a bad reputation or have bad business practices will quickly be exposed, often in detail, so you can avoid them.
Drop Shipping Is One of the Easiest Online Businesses
An online drop shipping business is a quick, easy, and low-risk way to start selling online. You won’t have to put up a bunch of money upfront on inventory that might not sell, your drop shipping partner will handle all deliveries to your customers.
Pick the right niche market and product, and you could have a profitable venture on your hands. You could even expand into other niches and sell other products, too.