Q: I'm starting an online specialty shop that sells gifts and home accessories. I want to be able to have items drop-shipped to customers through my site. I already have a Web site and a domain reserved, but I don't have a lot of money to get this going. Can you offer any insight?

A: Setting up relationships with companies who will ship merchandise directly to your customers for you--drop-shippers, as they're called--is an excellent way to start your e-business and, if done properly, doesn't have to be a costly endeavor. There are literally hundreds of companies out there that will drop-ship products for you, everything from gifts and housewares to power tools and furniture.

In a nutshell, here's how drop-shipping works. You set up an account with a drop-shipper (or multiple drop-shippers who offer different kinds of products) who provides merchandise that you can sell on your Web site. The drop-shipper typically supplies you with images and product descriptions that you can use to build your online store or feature on static HTML Web pages. (You can locate drop-shippers with my e-book The 2003 Guide to the Top 400 Dropship & Wholesale Companies, available for download at OnlineProfits4u.com.)

When a customer places an order for the product on your site, he or she pays you for the product. You, in turn, place the order with the drop-shipper and pay them for the product. The drop-shipper then ships the item directly to your customer under your company name. To your customer's knowledge, the product was shipped by you.

Drop-shipping offers many advantages to the shoestring online startup. You don't have to pay for an item until it sells, and your customer pays you, so your personal cash outlay for the product is zero. You never have to handle or warehouse the merchandise, as order fulfillment is handled by the drop-shipper. You can also offer a wide variety of items from multiple drop-shippers, and your end customer is none the wiser.

Drop-shipping does have its downsides. Since you do not actually stock the products featured on your site, you have no control over inventory management, product availability, order fulfillment, shipping processes and so on. Still, if you do your homework and establish a good relationship with a reputable drop-shipper, the problems you experience should be few.

Your goal should be to find a drop-shipper that will ship items one at a time instead of requiring that you purchase a fixed minimum number of items each time (single-unit purchases vs. minimum-order purchases). With this arrangement, you don't have to invest your limited cash reserves in inventory that might not sell (and that sits in your garage for months).

Thanks to the stiff competition the Web has created, many drop-shippers will now do business with you without requiring that you pay a setup fee or have a tax ID number. You simply set up a reseller account (you're the reseller) and start marketing the products on your site. Account registration can often be done online at the drop-shipper's Web site. With this process, you can literally be selling products within minutes of setting up your reseller account.

Be warned, however, that some drop-shippers are not as reliable as others. Also, be aware that some companies who claim to be drop-shippers are really middlemen who have positioned themselves between the online merchant (that's you) and the real wholesale merchandise distributor. These middlemen will eat into your profits and usually don't offer much in the way of customer support and service. They can actually hurt your business more than help it, so make it a point to do business only with--and directly with--established, reputable drop-ship companies.

Spend the time to research the drop-shippers doing business in your particular product category, and try to get feedback from their current customers. Remember that your customer doesn't know (or care) that the product they are purchasing from you really comes from a drop-shipper. If there is a problem, your customer will come back to you for resolution, not the drop-shipper, so make sure that the drop-shipper you use has a policy for resolving problems quickly.

Setting up an online store that offers merchandise from drop-shippers doesn't have to be expensive or time-consuming. However, this brings up the age-old question: If I build it, will they come? The age-old answer is: Only if you let them know you are there.

Tim W. Knox is the founder, president and CEO of four successful technology companies: B2Secure Inc., a Web-based hiring management software company; Digital Graphiti Inc., a software development company; and Sidebar Systems, a company that creates-cutting edge convergence software for broadcast media outlets; and Online Profits 4U, an e-business dedicated to helping online entrepreneurs start and prosper from an online, wholesale or drop-ship business.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.