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By Stephen Pope
Your customer sees a marvelous array of products on your
website. After thoughtful consideration, she purchases the
product she wants. Amazingly, you have never actually seen the
product. That is because your supplier shipped the order
directly to her.
1. Problems With Stocking Inventory
After deciding what products you will sell, you are
immediately
faced with many challenges.
First: "To stock my products, will I need to rent store or
warehouse space? I was hoping to sell by Internet, mail order,
or export, but I don`t have much storage space for inventory
at
home."
Second: "Will the supplier even deal with me if I don`t have a
retail location? I was counting on keeping my overhead down by
operating from home."
Third: "I know that many manufacturers and distributors have a
minimum order, sometimes in the thousands of dollars. I don`t
have that kind of money!"
Fourth: "Even if I did have the money, why should I tie it up
in inventory? How do I know if the product will even sell?"
Fifth: "I guess I will have to add extra insurance coverage
for
my inventory. Maybe I better upgrade my security system while
I`m at it."
Sixth: "The shipping charges are going to kill me. First, I
have to pay to get the goods here (freight-in). Then, I have
to
pay to ship the goods out to my customers (freight-out)."
Seventh: "If I expand and hire employees, how will I control
the inventory? How will I know if my employees are stealing
from me?"
Eighth: "How much time and money am I going to spend packaging
and fulfilling orders?"
These problems can be reduced or eliminated by drop shipping.
2. Drop Shipping to the Rescue
Drop shipping is a method of selling products without stocking
inventory yourself. You don`t need to stock inventory, because
you only order an item when a customer requests it.
With drop shipping, when you make a sale you contact the
manufacturer or authorized distributor and make arrangements
to
pay for the order at your wholesale cost. Your distributor
then
ships the product to the customer with your invoice and
shipping label.
For example, let`s assume that you have just sold a product to
a customer for $100.00 plus shipping charges of $15.00. Having
received the customer`s payment, you now need to fax or
otherwise send your order to your drop ship supplier. You will
need to pay your supplier, by credit card or other means, your
cost of $50.00 plus $15.00 shipping. This leaves you a $50.00
gross profit. Your supplier will now ship the product to your
customer.
With this arrangement of not having to stock inventory
yourself, there are many advantages.
You eliminate the high costs of holding inventory. There is no
need for you to rent expensive storage space, finance high
minimum orders, get stuck with goods that don`t sell, or pay
other expenses associated with maintaining inventory.
Indirectly, you do pay inventory costs. Your drop ship
supplier
must maintain his inventory and pay all associated costs,
including freight-in, storage space, insurance, accounting,
shrinkage, and so on. To make a profit, he must pass these
costs on to you.
The real advantage to this drop shipping arrangement lies in
keeping your costs variable. Instead of being stuck with these
expenses up front, whether you sell or not, you pay only when
you make a sale.
3. Profit From Drop Shipping
Many legitimate drop ship suppliers may not require you to
have
a retail location, but they will want to see evidence that you
are in business. They may require you to produce a resale
license or retail sales tax permit.
To be sure, there are pitfalls to watch out for in drop
shipping. For example, some suppliers claim to sell at
wholesale prices but are actually selling closer to retail.
Also, margins are very slim in some competitive areas, such as
electronics. However, with proper research and information,
you
should be able to avoid these problems.
Whether from your home, retail store, directly from your
website or through an online auction, you can arrange to sell
an item before you purchase it. That way you have nothing
invested in inventory and won`t get stuck with stock that
won`t
sell.
Rather than financing and stocking inventory yourself,
consider
drop shipping your way to wealth.
About The Author: J. Stephen Pope, President of Pope
Consulting
Inc., has been helping clients to earn maximum business
profits
for over twenty-five years. For more information about drop
shipping and other Work at Home Small Business Ideas, visit
www.yenommarketinginc.com/dropship.html
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