Traditional Wholesale Trading Vs Drop Shipping

by WilliamKing

Drop shipping differs from traditional wholesale trading in that it is a form of ‘just in time’ shipping. Basically, drop shipping means that the online seller will order the product from the wholesaler as and when customer orders are received. The seller simply receives the order and passes on delivery information to the wholesaler for delivery. The customer pays the seller, the seller pays the wholesaler and the seller earns the profit from the difference between the sale price and the cost price. So, the product does not pass through the hands of the seller at any time, and goes directly from the wholesaler to the customer in the drop shipping model.

The traditional wholesale trading method implies that the seller orders a stock of the product from the wholesaler and maintains this stock to service customer demand. The physical possession of the product is the differentiating element. This clearly has a cost associated with it. Firstly, there are storage costs, which can be daunting if the product occupies a large amount of space. Secondly, there will be shipping costs from the wholesaler to the seller. Additionally, there is the cost of carrying unsold stock for a long period of time that eats into profits from sold goods.

So suddenly, drop shipping seems like a great idea. But drop shipping has its drawbacks too. In most cases, especially if you are a small business, you will pay the full MSRP, which will squeeze your profit margins. Additionally, you may have little or no information on the status of your order from the wholesaler, affecting customer service levels. Since you are essentially passing on the cost of carrying inventory on to the wholesaler, you will be charged for it. But, on the upside, you will only need to pay when you receive customer orders.

Reliability is an issue when drop shipping – as a seller, you will be able to control and track your product’s delivery much better if you hold inventory. In case of drop shipping orders, the seller relies on the wholesaler’s delivery system, which may be surprisingly lax. Finding a reliable wholesaler is a critical task on its own.

If you are worried about the label on the box that is shipped to the customer, you may be pleasantly surprised to find that many wholesalers will include your packing slips and labels when they ship to your customers.

A couple of hybrids exist that are useful to know about: Buying from local wholesalers and hiring fulfillment houses. An alternative to carrying inventory and drop shipping is to buy from nearby wholesalers when you receive an order and ship it out immediately. Amazon started this way, but it works best for small start up businesses. The other option is to make a deal with a fulfillment house. This is an intermediary service that offers to maintain small amounts of inventory, assemble, order fresh stock, pick, pull, pack and ship out your product in accordance with your instructions and using your packing materials. A fulfillment house may provide a shopping cart online and customer call center, depending on the scale of operations. They will charge a fee based on various factors – amount of storage capacity etc, and may charge a small percentage of commission on sales. This model may work best if you are a seller of high margin items.

William King is the director of UK Wholesale Drop Shipping Supplies Directory, Wholesale Drop Shippers Trade Supplies, Wholesale Drop Shipping Directory, and Canadian Wholesale Drop Shipping Directory. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.

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Quick Start Your Online Business With Drop-Shipping

by Jenny Harvard

You plan to start you own business and decide to sell your products online. After doing some market analysis, you decide a range of products to sell. Things just get started, there are many others factors to consider before you can start running your online business. After deciding what products you will sell, you are immediately faced with many challenges:

First: “Where to store my products? I want to sell my products online and operate my business from home. I do not have much storage space for inventory at home, should I need to rent a store or a warehouse for this purpose?”

Second: “Since I do not have a physical retail shop because I operate my business from home, are the suppliers willing to deal with me?”

Third: “Many suppliers and distributors have a minimum order requirement if I want to purchase at wholesales price, it may cost thousands of dollars, but I don’t have that much of money, do I need to apply for a loan from bank to purchase them? What if these products not sell well, Will I tie up with debt for the money I owe to bank? Why should I tie it up in inventory?”

Fourth: “I will have to upgrade or install security system at my home as I keep my inventory here. And I may budget out my money to buy extra insurance to cover for my inventory to avoid heavy losses which may due by theft, fire, flood or twister”.

Fifth: “Shipping cost is another thing to worry. I need to pay the shipping cost for buy my products and I may need to pay to delivery goods out to my customers if I want to offer free delivery service to customers.”

Six: “How much do I need to spend in packaging and fulfilling orders? Will I need to hire employee to do the packaging job?”

Wow! There are so many things to take care before I can start my online business. Is there a shortcut for these? The answer is “Yes”. These problems can be reduced or eliminated by drop shipping.

Drop shipping is a method that enabled you to sell your products without the need of stocking your inventory, your drop-ship partners will take care of packaging, shipping and handling of your orders and they will directly delivery the orders to your customers.

First of all, you need to open a reseller account your selected distributor which can provide you with drop-shipping service, the distributor will become your drop-ship partner. Normally, some fee involve in reseller account set up. Once your reseller account has been set up, you can start your online business right away.

When you make a sale, your customer will pay you at your selling price plus shipping charge, you will route your order to your drop-ship partner and make arrangements to pay for the order at your wholesale price plus shipping charge. Your drop-ship partner then ships the product to your customer with your invoice and shipping label.

There are many advantages of using drop-shipping partners in your online business:

You eliminate the high costs of holding inventory at your place
You don’t get stuck with goods that don’t sell
You don’t need to pay for other expenses associated with maintaining inventory.
You not need to worry about packing, handling & shipping to fulfilling your customer’s order; your drop-ship partner will take care of it.

In Summary

The real advantage to 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. With drop-shipping arrangement, you can set up your online business fast & easy.

Jenny Harvard is author from onlinebusiness.studykiosk.com. Get More information on drop-shipping and wholesales from Drop-Shippers & Wholesalers network.

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By Mikal E. Belicove: Director, Community & Education - Doba

If you and I were to decide to go into business together, and we chose to open up a brick and mortar store on Main Street, there’s no way we’d sign an 18-month lease, order display furnishings, install carpet, hook up a phone line, and hire employees without first knowing what we’re going to sell.

Yet, online retailers–or, more accurately, casual sellers who want to become successful online retailers–do it every day.

Without giving much thought to a company name, product line, or business or marketing plan, new online sellers sign up for services like Doba, work with a third-party vendor to build a webstore, and only then get around to asking, “Hey, what should I sell?”

They head to eBay, see what is selling, and then decide to sell the same products–usually consumer electronics–for slightly less than the competition. They end up being disappointed, mainly because their profit margins are so low.

The problem is that…

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Dropshipping is like any business and the most important thing when starting out on any venture is to do your market research FIRST…

When you open a store in your town, you wouldn’t open it without doing your market research first. The same thing applies if you are going to sell something on the internet as a dropshipper. Not only are there billions of web pages out there that could be selling competitive products, the net changes so fast that you are obsolete as soon as you have gotten started.

If you are going to set up a dropshipping business you want make sure that the product that you choose can be easily sold. And you want to know how many competitors you have. And you want to stay as up to date as possible. Selling products on the Internet is easy. Hundreds of thousands of people do it every day online on auction sites such as eBay. The most difficult part of internet sales is getting the products delivered to the customer, otherwise known as order fulfillment.

You must have an efficient fulfillment system. One of the reasons that brick-and-mortar stores are so slow on the uptake when it comes to online business, is that supplying retail stores is done with pallet-sized orders usually. But internet sales requires an entirely different kind of fulfillment system. Selling on the internet is essentially mail order, with shipments going out in small parcels to end users.

Few brick-and-mortar retailers have a thriving mail order business to draw from. An inefficient fulfillment system can lose for you the advantages in good customer service that holding the inventory gained for you. And running a fulfillment system is a full time and trying job.

One of the simplest order fulfillment models to use is the drop ship model. Drop shipping does have its advantages and disadvantages. The most important being you don’t have to pay for anything until after you sell it.

You also don’t have inventory costs. Having to purchase inventory to ship to your customers can be expensive not to mention risky. In addition to the out-of-pocket costs, you need a place to store the inventory.

Finally you have to pick, pull, pack, and ship the products once the order is placed. Having the distributor or manufacturer take all these costs and responsibilities lifts a real burden off your shoulders.

Ideally a drop-shipper should be transparent. With most of your drop shippers, especially those with whom you do a regular business, you can send them labels and forms so their package looks like it is from you. Your customer probably won’t know that your hands never touched the product. The customer will think that you have a warehouse.

You can sell many more products than you could if you had to buy and store them yourself. Drop shippers give you a wide choice of products so you can sell a lot more.On the Internet some categories of products are very price-sensitive. If you are selling computer hardware, for example, and using the drop shipping model, you may find it hard to be competitive price-wise and still make a profit. The difference between making money and losing it may be only a few percent. So be sure to pick a product that makes sense to drop ship.

You will be using third party customer service so you will not have full control. Drop shipping is really outsourcing your order fulfillment services to a third party. You will be dependent on your drop shipper to have the products in stock, to deliver on time, and to properly pack and ship your products. So pick your drop shipper carefully.

At the end of the day, however, drop shipping exists because it works. And the largest catalog companies and web sites use it. And savvy small web sites and auction site sellers use it. Drop shipping is simply an arrangement between you and the manufacturer or distributor of the product you sell whereby the manufacturer or distributor — NOT YOU — ships the product to your customers.

There are a few huge advantages to this model. First, it SAVES YOU THE COST of building your own inventory. If you’re like most people starting a small business, you don’t have much capital with which to play with. The last thing you want to do is tie up your cash in inventory that you may or may not be able to sell.

Not having inventory also means no leftovers. If the product you sell suddenly becomes outdated, obsolete, or just plain un-trendy, you aren’t the one with a house full of stock that nobody will buy. Many online retailers find themselves having to offer deep discounts — and taking huge losses — on old products just to get them out of their homes to make room for more inventory!

You’ll also don’t have to deal with shipping your products. Unless you’ve already set up a shipping account with someone like FedEx or UPS, you’ll be heading down to the post office every day to buy stamps and mail out your products. And you’ll be able to ADD NEW PRODUCTS ALMOST INSTANTLY. Since you don’t have to worry about ordering inventory, you can add products to your web site within a few hours.

If you find that your customers are eager to buy a certain product, you can have that item up on your site in almost no time. Finally spend time researching different kinds of products that you might want to sell. The products you choose should be in demand but not widely available online. As usual, I highly recommend targeting a niche market rather than trying to find a product that EVERYONE wants to buy.

Once you’ve found a product that you think may be the right one for your business, you’ll need to do a little “competitive analysis.” This simply means finding out what potential competitors are charging for the products you want to sell and calculating how much of a profit you’ll be able to make. When it comes down to it…its all about ‘Testing, Testing, Testing!’

Good luck!

Thomas Griffen is the CEO of Urbanload. Do you want to make easy money on eBay? Over 2000 resellers can’t be wrong. Urbanload offers you a free startup ebay online dropshipping business. Visit Urbanload.com to start our eBay Dropshippers reseller program.