What exactly is dropshipping?

Simply put, dropshipping is selling something you don't own. While it may sound illegal, it's not. Dropshippers are companies that will ship the merchandise directly to your customer once you pay for it. Here is how it works:

1. Once you find a company that agrees to dropship, you list their merchandise on eBay, Amazon or your own website for sale, without first purchasing it.
2. When the item sells, you collect the selling price (retail) and the shipping cost from your customer.
3. Now you send the wholesale (lower) price + the shipping and handling fee to the dropshipping supplier.
4. The supplier then ships the item to your customer.
5. You profit from the difference between the retail and the wholesale price.

Advantages of Dropshipping

1. No upfront investment in products. When you sell dropshipped products, you don't pay for merchandise until it sells, which eliminates tying up money in inventory.
2. Elimination of risk. If something doesn't sell, you risk only losing your listing fees.
3. Product depth and variety. When you buy products to resell, you are limited by your amount of cash or credit. When you dropship, you can offer many more products for sale.

Disadvantages of Dropshipping

1. Lack of control. When you dropship, you are at the mercy of the shipper. They control the packing and shipping experience. If they pack the item improperly or take too long to ship, the customer will blame you, not the dropshipper. Poor service from a dropshipper can negatively affect your customer satisfaction ratings on eBay and Amazon.
2. No control over inventory. If a dropshipper fails to warn you about their low inventory level, you may sell an item that they cannot deliver. This puts you in a very bad position with eBay and Amazon. If it happens too often, you could find your account suspended or closed.

There are two types of dropshippers, and it's important to understand the difference:
1) Aggregators. Also known as dropship warehouse companies, these are basically middlemen. They advertise heavily on the web, claiming to have millions of brand name products you can sell online. Many of them also offer pre-made websites, loaded with these products. These companies list products in a virtual warehouse that other, real wholesale companies have in stock. Aggregators don't actually have any products in stock.

In general, these companies make their money from membership fees or handling fees. When you order something from them, they order it from the real wholesaler, mark up the cost, and/or charge you a fee. Because of this, it is very difficult to make any money. If you sign up with one of these companies, you will soon find that most of the merchandise they offer is already selling on eBay or Amazon for about the same price they are offering to you. I have been selling on eBay successfully for over ten years, and in my opinion, with a few exceptions, it is very difficult to make money on eBay with these types of sellers.

2) Manufacturers and Master Distributors. There are hundreds of actual manufacturers who will dropship. Some of them do it directly, while others use the services of a master distributor. When you work directly with a manufacturer or their master distributor, you receive the lowest price available. This is where you can make the most money on eBay or a website. Although not well known, there are thousands of manufacturers who will dropship for you. I currently work with three different companies who provide me this service. Several of these manufacturers are listed in the member's area of my website, www.skipmcgrath.com. You can also find dropshippers on WholesaleCentral.com and by attending wholesale trade shows.

 

Skip McGrath is a Top Rated Seller on eBay, and the author of numerous books about selling on eBay and the Internet. He is the publisher of the eBay & Online Sellers News, the oldest and largest free newsletter for home based business owners.