A few months ago, when starting establishing my home based business, I came across the concept of drop shipping as an alternative way to sell merchandise in the more original formats, such as from a retailing shop or a retailing website. It took me a little while to get the gist of it, as it meant virtual business pushed to the limit as far as old fashion me was concerned. But once I got the hang of it, my next question was: can you really make money drop shipping?
Drop shipping, how it works
The difference between running a retailing business and a drop shipping one is in the fact that the retailer does not hold stock, but order the merchandise directly from the wholesaler or manufacturers to be delivered directly to the customer or purchaser. There are tons of advantages to this form of retailing. The first that may spring to mind is reduced costs. But I shall cross that bridge a little later.
When worded like this, drop shipping will sound ideal for those of us that want to specialise their home based business in buying and selling goods online. And particularly if you trade through auction based platforms such as eBay. Nevertheless, it is deemed that drop shipping is also used by smaller businesses or retailer who only have room in their retail units for one or two samples to display – the customer can view the item and appreciate its quality, but when the retailer has enough orders, he will place a buying order directly from the wholesaler or from the manufacturer at a discount rate, for the goods to be delivered directly to the customer (credit of Wikipedia).
When you think of it, the applications of the drop shipping business model can be truly endless!
Advantages of drop shipping
As mentioned at the beginning, the most resounding advantage to drop shipping is in the fact that the retailer saves money by not having to purchase stock that may not sell, nor to have to find (and sometimes rent) room to store the stock of merchandise.
Going back to the online auction platforms, the seller here often advertise the item with a reserve price which will include or surplus the buying price from the wholesaler as well as the selling fees, in order to ensure that, when the item is shipped from the wholesaler to the highest bidder, a profit is guaranteed . In principle a lot of auctioning platforms do not recommend drop shipping. In the case of eBay, their policy is based on the principle that the merchandise should have been owned by the seller before being sold over. However, it appears that drop shipping is tolerated by eBay, so long as the seller keeps receiving positive feedback.
One of the dangers of drop shipping online is that your customer may realise they have been overcharged when receiving delivery of the merchandise directly from the wholesaler. In that case, it will be your responsibility to ensure that the goods are shipped from the wholesaler with a ‘private label’ which may show only the retailer’s details as seller and as potential return address.
Disadvantages of drop shipping
Drop shipping may sound very appealing when it comes to the possibility to reduce costs and increase profits. Nevertheless the biggest disadvantage of drop shipping is in the fact that, as a retailer, you remain responsible for the faulty or malfunctioning merchandise.
If you benefit from added profits, as a drop shipper you are the one who ultimately will have to deal with the complaint part of the business transaction as well. If you went and bought a radio from a shop or from the local supermarket and you went home to find out the radio is not working, you would take the radio back to the shop where you purchased it in first instance, and you would ask for a replacement or for a refund. And if not satisfied with the service, as a customer you would be more than entitled to post a negative review on one of the many feedback sites online!
As a seller, you represent to the customer the same as what a red scarf represents to a wound up bull: you are liable for all the troubles they have endured since purchasing the item from you!
The difference is that, if as a shop retailer you may have been able to see the merchandise before selling it, or you may witness to the fact that it is malfunctioning once the customer returns it to you, as a drop shipper you never get to see the merchandise.
As the merchandise gets shipped directly from the wholesaler, you cannot ensure it is in working order. Likewise, and unless arranged for the returns to come to you with a private label, you may not be able to verify whether the goods are truly malfunctioning. In other words, you may be prey of SCAMS from both the wholesaler and from the customer alike. You are the middle person, and this makes you double vulnerable.
As a buyer from wholesaler, you may become victim of some wholesalers who advertise a product from their catalogue or online catalogue as brand new, when in fact the product is a knock off or imitation of an original brand. And likewise, you may be lead to believe you are buying from a wholesaler when in fact you are buying from another middle person, who charges you over-priced figures, hence leaving you with very little or no room whatsoever for profit.
Finally, you may want to watch out for those primarily online based companies who yes give you access to a marketplace of wholesalers who deal in drop shipping, but demand that you pay a monthly membership fee. Most of these companies will be genuine and legit: you pay for the privilege of being introduced to a vast plethora of legit drop shipping wholesalers. Nevertheless, before you commit to paying monthly fees, you want to ensure that you your profits will cover the expense.
Hands up: have I tried drop shipping yet? No, not yet. And that is for two reasons.
The first reason is that, as mentioned, I only sell the odd second-hand items online whenever I do not need something anymore or if I come across an old unwanted Christmas present, or if I find old and quirky goods at the local booth sale. But the second reason – and call me a coward if you wish – is in the fact that I do not like unnecessary risks. And, as far as I am concerned, drop shipping is too risky for someone as naive and still relatively inexperienced as me.
The truth of the matter is that I find affiliate marketing much more profitable and definitely less risky. And that is the direction I have take for my home based online business.
As an affiliate marketer, I can review merchandise, goods or services positively or negatively, but the purchase is still made directly from the selling company. If things do not go to plan therefore, the customer will contact the seller directly for complaints and for liability. I will get my commission when goods are shipped to the customer, or my commission will be cancelled if the customer decides to return the malfunctioning merchandise. But nothing more will come of it as far as I am concerned.
Not only that, but with affiliate marketing, you do not need necessarily to have a retail website or to advertise specific items. A website blogger or the owner of any other form of website content can benefit from joining affiliate programs, as often programs will pay you a commission for the sale of goods or for generating leads to their site.
==> I learned all about affiliate marketing from Wealthy Affiliate. Do you want to know how? Find out from Wealthy Affiliate University.
Have you sold merchandise on a drop shipping arrangement with your wholesaler? And have you ever experienced a negative outcome? Share your thoughts with us, leave your comment below. Your advice and recommendations are valuable to us!