While listing on marketplaces or setting up your online store, one of the prerequisites is ‘stock’ of the product you want to sell. Isn’t it?
However, did you know that you could start selling online without stock? Yes, you can. Not joking! Dear sellers in fact, you know many such entities that are successfully running their online business with no inventory. Still confused?
How these big companies are doing it? With the help of sellers like you. You can do the same.
Drop Shipping, anyone?
If you wish to sell with no inventory, warehouse and (limited) money then Drop Shipping is the way to go.
The definition of drop shipping is ‘provide (goods) by direct delivery from the manufacturer to the retailer or customer.’ It is a fulfillment method where sellers list and accept orders through their own store or marketplaces but third-party vendors/drop-shippers supply the product and ship it to the consumer directly on seller’s name/label.
How does it work?
- Seller zeroes down on a product that he/she wants to sell and a wholesaler/drop-shipper who can supply the stock on-demand
- List the products on online stores
- Once order received, seller forwards the details to wholesaler/drop-shipper
- Wholesaler ships the order directly to buyer
You might say, isn’t drop-shipping just a fancy name for a distributor? Well, it is not.
A distributor has to buy inventory whereas in drop-shipping you never buy/own the inventory but just resell it. Got it?
Perks of Drop Shipping
If you are just starting out then you will find following features of drop shipping alluring:
- Tried & tested business model
- No or little starting up cost
- No heavy investments
- No inventory issues
- No storage maintenance cost
- No shipping hassle
- You can wholly focus on marketing, operations and maintaining service standard
- Flexibility of running a business from anywhere
- Don’t have to deal with unsold stock
- Reach more buyers
Finding right suppliers/drop-shippers
A seller will be able to get all the benefits related to drop shipping only if he/she partners with a reliable manufacturer/supplier. Inability to do so will result in various problems, which will make the online selling journey an unpleasant one.
You can start your search for the right partner on:
- B2B & B2C marketplaces such as Alibaba, IndiaMart, Shopclues, Amazon, eBay where you can find many wholesalers
- Wholesale supplier directory
- Drop Shippers like Seasonsway, Printrove
- Look around in the local wholesale market or small retail stores
- Personal/professional contacts
- Trade & business magazines, online business publications
- Knowledge-sharing sites like Reddit, Quora
Your goal is to find a trusted supplier/drop-shipper. So if you decide to collaborate with a remote supplier then scan his/her credentials very carefully. That means read reviews and ratings cautiously. Ask them to furnish business documents that have establishment details as a proof.
If you narrow down on a local one, then check his inventory, set-up and sales performance over the years. Get all the terms related to damaged products, returns, shipping, inventory promise, and pricing in writing, signed & stamped.
Biggest challenges and how to tackle them
Drop shipping isn’t easy. This fulfillment model comes with inherent challenges. Some of them are:
Meeting delivery timelines
Online marketplaces run on tight delivery timelines to stay ahead in competition. When it comes to drop shipping, a seller has to rely on third-party to ship the products carefully and on time.
Therefore, don’t rely on one supplier, when you are starting out. Opt for at least two, if not more. Cut ties with those who fail to deliver their promise.
The online selling industry is already crowded. With no inventory, investment and cost, you will find many competitors doing the same.
The only way you can stand out if there’s a product or service differentiating factor. Focus on marketing, content management and add value to your service.
Low profit margins
Marketplace will take its cut from the selling price. Drop-shipper/wholesaler will also take its cut. Add to that shipping, returns and other costs. If you are working with multiple suppliers from different areas/cities then shipping charges will vary.
So keep you profit margins expectations a little low unless you come across a manufacturer who is unaware of his product’s worth in the online market. If not, then price correctly.
A consignment if not packaged well and handled with care leads to high returns. And high returns rate is detrimental to any business. Since, you are the face of the business; the blame of supplier’s error will fall on you.
Prepare shipping guidelines and share with suppliers. Sit with them and talk in clear terms the kind of service standard you expect for order fulfilment.
Is it for you?
Drop Shipping is an excellent medium for online sellers with limited funds. New sellers can learn the basics of online selling by dabbling into this fulfilment model before finding their niche and moving onto an inventory-based model. It is a great training ground to learn the ropes when it comes to ecommerce.
If you love experimenting, then this is a great way to sell unique & quirky products and test the waters as well. You can diversify and offer a range of products without owning & managing inventory. Who knows, you might strike gold?