By Tim Knox
Dropshipping is a topic that I first addressed in my column
back in April, 2003, which is decades ago in Internet years.
with the continuing growth of eBay and it's positioning of
itself as a viable way for anyone looking to launch an
ebusiness, the topic of dropshipping is now hotter than ever.
It is also now more misunderstood than ever.
Dropshipping has been around since Sears first started selling
goods from its mail order catalogs over a hundred years ago.
However, the idea of dropshipping still confuses many people
who don't understand exactly how the process works.
By definition, dropshipping is a method of selling and
distributing goods wherein the distributor or supplier of the
product (the dropshipper) ships the product directly to the
user (your customer) on the retailer's behalf (that's you).
The process of dropshipping involves three parties who take a
product from manufacturing to market. They are a manufacturer,
a distributor, and a reseller.
Let's use a blue widget as a sample product to demonstrate the
* Blue Widget Manufacturing (manufacturer): This is the
that manufactures blue widgets. Blue Widget Manufacturing does
not sell directly to the public or supply the retailers who
ultimately sell the blue widgets to the end user. They prefer
to use distributors to handle the task of taking their blue
widgets to market. Blue Widgets sells blue widgets by the
truckload to distributors who pay $5 per blue widget.
* A1 Distributing (distributor/dropshipper): A1 Distributing
the company that purchases blue widgets in bulk from the
manufacturer and supplies them to resellers at a cost of $7
each. The distributor does not ship blue widgets to the
reseller, but ships orders directly to the reseller's
as the widgets are sold.
* Big Bob's eBay Widget Store: Big Bob sells blue widgets to
the public from his eBay store. Bob orders the blue widgets
from A1 Distributing as he sells them (usually one at a time)
and has A1 ship the blue widget directly to his customer. Bob
sells blue widgets to the public for $10 each, which means
for every blue widget sold he nets $3.
How The Process of Dropshipping Works
Here are the seven steps involved in starting a dropship
* STEP 1: Choose A Product To Sell The very first step in any
sales process is deciding what product to sell. There are many
factors that should be considered before deciding on a product
to sell, but for now let's say that you decide to sell CD
players on eBay.
* STEP 2: Locate A Supplier Who Will Dropship For You Using a
research tool like Google, Thomas Register, or an
industry-specific resource like The Ultimate eBay Dropship
Power Pak. You search for and find a company who will dropship
CD players for you. The company offers you a 35% mark up over
cost, which means that they will supply the CD players to you
for $100 each and you should be able to retail them for $135.
You make sure that the dropshipper has a good stock of CD
players on hand so you don't end up selling a product that
* STEP 3: Set Up An Account With The Dropshipper You contact
the company that can supply the CD players and set up a
reseller account with them. This can often be done online or
phone, but some companies will require that you complete and
return a reseller application to open an account. Some
companies may also require a tax ID and business license.
* STEP 4: Advertise The Product For Sale On eBay Now that you
have your supplier lined up and know that the product is in
stock, it's time to make a sale. You advertise the product
using an eBay auction. Since you know what you must pay the
dropshipper for the product, you know what the minimum amount
you will take for the product. In this case you start your
auction at $100 since that is your cost. If you are confident
that you can get more than $100 for the product you can start
with a lower price, but remember that if the product goes for
less than what it costs you to fill the order, you will lose
money. Also remember that the dropshipper will charge
so you should figure that into your sale.
* STEP 5: The Product Sells Great news: your CD player sells
for $135 and your customer pays you with a PayPal instant
payment. I highly recommend that if you are selling on eBay
use PayPal or some other online processor to accept instant
payments. This allows the customer to pay you faster, which
lets you place the order with the dropshipper faster, which
gets the product to your customer faster.
* STEP 6: Place The Order With The Dropshipper After your
customer pays you, you should contact the dropshipper
immediately to order the product on your customer's behalf.
dropshipper then ships the order to your customer under your
company name and address.
* STEP 7: Follow Up After The Sale This is where many new
ebusiness people drop the ball. Just because your customer has
paid you and you've placed the order with the dropshipper does
not mean that you are out of the loop. Quite the contrary, if
there are problems with the order you are the one that will be
held responsible in the eyes of your customer.
Be proactive in your customer relations. Follow up with your
customer to let them know that the item has been shipped.
yourself as the personal contact for any
Many people are afraid to use dropshipping as a method of
due to the horror stories that fill the Internet about
unscrupulous dropshippers who take the money and don't fill
orders, merchandise that is eternally back ordered,
middle men posing as dropshippers, etc. Make no mistake, the
dropshipping industry - like most other industries - does have
its share of shady characters who would rob you blind given
chance, but there are also hundreds of honest dropshippers who
can help you build a profitable eBay dropship business.
About The Author: Tim serves as the president and CEO of three
successful technology companies and is the founder of
DropshipWholesale.net, an online organization dedicated to the
success of online and eBay entrepreneurs.