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.)
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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.