What Exactly is Drop Shipping?

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Author: Norman Dreamer

Yes, you've seen those commercials on TV where they say we ship directly to your customers and you profit! Drop shipping is something that has been hyped on the internet for years. The theory behind it is that since you carry no inventory, there is no over head and it's easy to make money that way. So the story goes. Briefly explained, it works like this. You advertise the items from the drop shipper(s) on your website. When a customer pays for the item, you order the item from the drop shipper and they ship it directly to the customer with your company's name on it. For a small fee, they do all the work for you and you don't even have to carry the item in your store. Sounds almost too good to be true, right?

I've been running a drop shipping site for over a year now and I can tell you that it's not all roses, at least in the beginning.

There are some things you should be aware of:

1. You do need a reseller's license to be a drop shipper. That means you have to register with a federal tax ID in your state. The cost of the license is minimal, usually around $20-$25. The tax ID is free.

2. You have to deal with reputable drop shippers, as most sites have several. There have been many businesses that went out of business within a year because their drop shipper either did not deliver or were fraudulant.

3. There are many companies that will drop ship for you for a monthly fee. I usually avoid them and go with free drop shippers because then there is no financial risk.

4. You should be aware that cheap popular items at the drop shippers get sold very easily. I learned while I was on Ebay that sometimes that $20 mp3 player got sold out in 3 days at the drop shipper while I had it listed for 7 days on Ebay.

5. Beware of fraudulant orders. This usually happens when a customer orders an unusually large number of items, usually over seas. Over sea scams are common and large shipping fees over seas can eat up your profits very easily.

There are other things to consider, such as shopping carts with gateway which can easily cost $160 to implement and typically $30 a month,etc. I usually just use Paypal, Egold, or Alert Pay because it's free and it gives me time to test out the site. One final thing to think about is that to have a decent website could mean keeping track of 100's of items and keeping it up to date. Not an easy thing to do.

Statistics prove that over 50% of new businesses go out of business in the first 5 years. On the internet, 10% of websites do 90% of the business. As a small business you are competing with the big discount chains who have access to whole sale distributors and can offer discount prices. Conversion rate for a drop shipping site typically runs at about 5%.

Yes, drop shipping does work, although not a miracle solution for the would be entropreneur. Your best policy would be to do it at low cost, or no cost. In another words, keep your investment at the lowest manageable level.

In summary, drop shipping can be a learning experience for a would be business owner, and it may work for some, although not for all. But the theory still remains. Is it possible to make money in drop shipping? The answer is yes.