Drop Shipping Profits

We've all seen the ads and ebay stories. Can you really make a living out of drop-shipping?

Many online sellers tout drop shipping for its ease; others dismiss it, arguing it leaves no room for profit. Like every other product sourcing method, drop shipping brings its own unique set of advantages and drawbacks to your E-Biz:

The Basics

Drop shipping is service some wholesale distributors provide that enables you to sell items on your web site without physically stocking them. The wholesaler warehouses large quantities of product, which you list in your web store. Your retail customers place their orders with you, and you pass them on to the drop shipper. The drop shipper sends the product directly to your customers, but remains invisible to them. The end result is that your small business appears much larger than it really is.

The Upside

According to Jason Sanchez, CEO of One Net Enterprises (OneInc.com), drop shipping presents your business with numerous benefits:

Lower Overhead
Says Sanchez, “The costs that go into warehousing and shipping individual items can be tremendous. It doesn’t become efficient to do so, until you do it on a large enough scale.”

No Inventory Investments
You don’t pay the wholesaler for an order until your customer pays you. And you can test new products without purchasing inventory that may not sell.

Recovered Time
The time you spent receiving and organizing inventory, printing labels, and packing and shipping orders is time you can now spend promoting your web site and providing faster customer service.

No Order Minimums
Your wholesale orders are based on your customers’ orders. You can order as many or few items as you need — even down to individual products.

Broader Product Selection
You can carry items in your product line-up that would be difficult to physically stock. You’re also able to offer large items, such as furniture, without the hassle of trying to ship each piece.

The Downside

Of course, drop shipping has limitations, as well — two in particular:

Thinner Profit Margins
Wholesale is a volume business — the more you buy, the better your price-per-piece. Explains Sanchez, “Although your drop ship prices are true wholesale prices, they are wholesale prices on one item.” You’re not receiving additional discounts for buying bulk, so your per-item-costs are naturally higher. You’re also paying a drop ship fee, either per container or per unique shipping location, to cover the extra labor and material costs the drop shipper incurs.

Occasional Delivery Issues
If your drop shipper is slow filling your orders, or does a poor job packaging them, it reflects badly on you and costs you repeat business. When using a new supplier, it’s always a good idea to test them out first and get an idea of what your customers will experience. Place an order with them yourself, and see how quickly and competently they handle it. If you order a few of your most popular items, you’ll also have them on hand in case your drop shipper ever runs short.

The Bottom Line

Particularly when you’re getting started, drop shipping is an easy, cost-effective tool for your E-Biz. That doesn’t mean you should limit yourself to using only drop shipping — the most successful retailers use multiple product sourcing techniques. Drop shipping provides a great complement to your other product sourcing methods, and should be one part of your overall product sourcing strategy.

Using a Drop Shipper is a great way to sell products on the Internet. A legitimate Drop Shipper is a manufacturer or a wholesale distributor who will send products one at a time directly to your customers for you, from the warehouse. You never have to buy inventory up front, and you never have to pack and ship products yourself.

All you do is place images of those products on your Auctions or Web Site, and you collect on every sale without ever touching the product.

Here at Worldwide Brands, our entire business is dedicated to making sure people have accurate, up to date information about legitimate Drop Shippers and Light Bulk Wholesalers.
As we warn throughout our site, there is one constant thing in Internet Drop Shipping that you need to watch out for.

Over and over again, you are going to see companies who do their best to make you think they are real wholesale drop shippers, when they are NOT. Companies who are NOT real drop shippers are middlemen whose sole business is to dip into your profits, by getting in between you and the real drop ship supplier.

Drop Shipping ‘Agents’ are a particularly interesting example of this. You see, they DO provide access to one, two, or maybe a few REAL drop shippers. However, they are STILL a MIDDLEMAN.

There are two problems with using Drop Shipping ‘Agents’.

They ARE middlemen. They charge you recurring monthly and/or annual fees that you should not have to pay in order to access the real drop shippers they provide access to. You should never pay a recurring fee for the ‘privilege’ of placing orders with a real drop shipper!

You’ll find the competition impossible to deal with. Most of these ‘Agents’ only give you access to one drop shipper. Even those ‘Agents’ who give you access to several drop shippers (and charge you more for it!) are doing something that can bury your business before it gets started. They are causing intense competition! They are going to advertise their service all over the Internet. Thousands, or even tens of thousands of people will pay for it. Guess what happens then? YOU, and all of those thousands of others are all trying to use the SAME small handful of Drop Shippers! The competition becomes way too intense, and you’ll never sell anything!

Let’s take a step back and go over the whole issue.

A real wholesale drop shipper ALWAYS owns their OWN warehouse. They have offices in, or attached to that warehouse. It’s a physical building, with walls, windows, doors, maybe a few trees outside on the lawn. There is a loading dock, where trucks back up and deliver pallet loads of products. They have people working for them in that warehouse. The people who run their web site peek their heads out of the office doors and say, “Hi, Wanda!” and, “Hey there, Mike!” to actual human beings who work there, receiving inventory from manufacturing plants, packaging orders for drop shipping, putting a new filter in the Coffeemaker, etc.

Drop Shipping “Agents” work very hard to make you think they own their own warehouses. There are some who are very good at that. They tell you that you can access thousands, or even tens of thousands of products from their ‘warehouse’, or from many of their different ‘warehouses’ in different locations. Again, here’s the first important part.

Drop Shipping “Agents” do NOT own their own warehouses. They are MIDDLEMEN.

No matter how many products or warehouses these people claim to have, they don’t have a single one. They’re just sitting in a house or a rented office somewhere, thinking up clever web site text and new ways to make you think they are the real thing.

Some of them are even more clever. There are ‘Agents’ out there who will actually TELL you that they ARE ‘Agents’. They’ll tell you that even though they ARE ‘Agents’, they don’t really make any money by acting as a middleman. Some of them want you to believe the do it out of the goodness of their hearts. Others will tell you that they make their money only from your ‘Membership Fees’. However they say it, they usually bury this information in their sites, hoping you won’t pay attention to it, and they sugar-coat it in such a way that it sounds really good to you if you DO realize what they are up to.

Here’s how they operate:

1. They go out on the Internet and find one, two, five, or maybe even ten real wholesale drop shippers.

2. They contact these real drop shippers, and say, “Hey, send us a list of your products and a bunch of pictures, and we’ll help you sell them online through OUR order system”. Most real wholesalers know better than to deal with something like that. However, there will always be some who will go along.

3. They create a web site that makes it look for all the world that they are the Universe’s Answer to Drop Ship Warehousing and Wholesaling.

4. The small ones simply have one group of products you can order. When you place an order, they will turn around and send that order to the real drop shipper, who will send it to your customer.

5. The bigger ones will tell you that they have a whole bunch of “warehouses” all over the place, with clever names. North Warehouse. South Warehouse. East and West Warehouses. Pink Warehouse. Blue Warehouse. Plaid Warehouse. You get the idea, right? They’ll tell you that you can order from any one of those “warehouses”, for a price. Some of them give you one or two “warehouses” for your initial ‘Membership Fee’, and then jack up the ‘Membership’ cost if you want to order from more of their “warehouses”. Again, these people don’t have any warehouses! Their “warehouses” only exist in cyberspace! Each “warehouse” is nothing more than a collection of product images that these middlemen got from a wholesaler that YOU should be working with DIRECTLY, instead of paying some ‘Agent’ a FEE for the privilege. When you place your orders, those orders will simply be turned around by the ‘Agent’ to the real drop shipper for fulfillment.

Some of these “Agents’ will tell you that it’s better to work with them, even though they ARE ‘Agents’ because they are “centralizing” your ordering and shipping. Believe me, we’ve been in this business a long time, and we’ve never seen an ordering or shipping issue that was enough of a problem to justify ordering through middlemen. Not ever.

Is this illegal? No. Is it a Scam? No, not usually. It’s just a very poor business idea, in our experienced opinion.

Think about it the second part of the problem again. These people are offering you an indirect (middleman) route to a small handful of drop shippers. They’ll promote that same small handful of drop shippers to tens of thousands of people like yourself. Do you really think you’ll be able to compete with thousands, or tens of thousands of others, who are all trying to sell the same products from the same small handful of drop shippers? Not a very pleasant thought, is it!

Would you say it’s a good business decision to take a middleman route to a very small number of drop shippers being used by a huge crowd of others?

The answer is obvious, of course.