I believe it's a wise move to investigate all the options you have in executing your online business. You may quickly dismiss many of these options for any number of reasons, but you might also find just that one perfect little advantage that sets your business apart from your competitors and propels you to success.
Drop-shipping could become your business "ace in the hole" so to speak, but there are many dangers in this industry so you need to be cautious and thorough in your research about the drop-shippers that you employ, their reputation for quality products and service, their fee structure, their policies, and your rights as the selling agent.
Drop-shipping refers to a retail model that has been employed by many businesses lately as a cost-saving measure.
The retailer sells a product to his customer and then sends the shipping details and a portion of the sales proceeds to the drop shipper (wholesaler) who keeps the product inventory and packages and sends the goods to the customer directly.
Obviously, by employing this sales model, the seller doesn't have to stock expensive inventory or worry about handling and shipping products. He pays for this service by passing a significant portion of the sales proceeds on to the wholesaler (the seller keeps the difference between the drop-shippers price and his retail sales price).
If you're thinking that this model is the answer to all your business worries, think again. There are some inherent problems with drop-shipping that you may not be aware of. Here are my cautions:
1. There are many reputable drop-shipping companies and many that aren't. The difficulty is in knowing which is which. Beware of folks selling lists of trusted drop-shippers online. Many of these lists are out-dated and worthless pieces of expensive paper. Do your own research, talk to companies and manufacturers, contact trade associations, do whatever it takes to satisfy yourself that you are dealing with a reputable company.
2. Many businesses on eBay and other online marketplaces employ drop-shippers. That means the competition for the specific products the drop-shipper deals in may be severe.
3. Many drop-shippers advertise a wholesale price for their goods; but in reality, you are paying much more for the products than if you purchased them directly from the manufacturer. Check the prices of similar products on eBay. If you see the product selling for the same or a lower price than the wholesale price the drop-shipper advertises, ask yourself "How am I going to make a profit with this type of price competition?"
4. Ask the drop-shipper for a list of business references and satisfied customers - then contact them. Check the Better Business Bureau for complaints filed against the company. Check for trade association endorsements. A fly-by-night company will have a hard time passing this scrutiny. Don't allow for exceptions to these tests. If a company says it's just new in the business and can't provide references, excuse yourself and look elsewhere.
5. Do what you can to talk to other users of the drop-shipping service. Don't contact direct competitors who may not be truthful. Look for retailers of products in non-competing niches. Ask them about the drop-shipper's integrity, speed in sending out orders, willingness to deal with dissatisfied customers directly, policies for returns and money-back guarantees, history of raising prices, quality of the product lines carried, etc. Find out all you can about the company - chances are pretty good that products in your niche will be treated with the same care and execution as those in other niches.
6. Try to find drop-shippers that deal exclusively with legitimate companies. You don't want your drop-shipper to be selling to consumers as a way to augment their own business. Be wary of drop-shippers that charge a membership fee or don't require a federal employer tax ID number (EIN). These guys may be nothing more than a consumer "co-op" or membership buying service. They won't give you true wholesale prices.
7. Remember that your business reputation with your customers is on the line. Chances are, the buying customer may never know that your business uses a drop-shipper. You will be held accountable for on-time and safe product delivery, you'll be blamed for shipping delays and foul-ups, and you'll be expected to cover all the loses, even though you've already paid the drop-shipper for his service.
In essence, you are turning a part of your business execution over to a company you have little control of. Just be sure that you are willing to trust your good name to your new partner!
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