Drop shipping has been around for a long time in one of the oldest retail business models - catalogue sales. What has changed is drop shipping is fairly new to the ecommerce world and has proven to be one, if not the, easiest ways for a new entrepreneur to break into the game.



How It Works

There are several variations to the basic process and you can learn them all over time. Keeping this simple, we'll begin with running eBay auctions where you sell the goods but have a drop shipper fulfill the order.

1.You place an auction on eBay for a DVD that people want to buy from the comfort of their home.

2.The customer places the winning bid and instantly sends ?7.95 to you.

3.You provide the drop shipper with the DVD order information, customers name, and address.

4.The drop-shipper goes into the warehouse to package and address the shipment.

5.You pay the drop-shipper ?1.95 and make a ?6.00 profit (selling price - wholesale price).

6.The customer is happy, the drop-shipper is happy, and you are happy.

What you did for the profit is:

Place the eBay auction

Forward the order and pay the drop-shipper

What you did not do is:

Spend money renting a warehouse

Purchase and hold inventory

Hire staff to package and ship the product

Here is an example of how simple the profit margin is to calculate when drop shipping.

Besides the very little amount of work needed to make a good profit, let's look at other key reasons drop shipping is the beginning entrepreneur's best friend. The extreme low cost is at the top of the list.

No or Low Startup Costs

This is a big one. You do not need to invest in a large inventory or any inventory at all before you begin selling at a profit. That is only the beginning of the costs that you will save. Other eliminated costs include:

"Rent

"Gas

"Electricity

"Water

"Warehouse staff

"Packaging

The benefit goes well beyond only saving costs on these items. You will not have to mange all of these headaches. No staff to hire and manage. No checks to write every time payday comes around. No new utility accounts to open and pay every month. No need to keep track of your packaging materials and make sure you reorder in time to avoid running out.

Why the Customer Thinks You're a Big Business

Although you never touch the goods, do any packaging, and never make a trip to the post office, the customer believes you are running a large, highly professional business.

The drop shipper doesn't include anything that identifies them on the order. The receipt the customer receives shows your business name and logo. It's only your company's brand they see.

You can have the drop shipper include additional marketing materials bearing the name of your business. This can be a simple "thank you" note asking the customer for a repeat order in the future. Or it can be a discount coupon that encourages that repeat order.

A marketing flyer showing your other products can be included. Capture the customer's attention with a flyer of information they will be interested in. Something like: "Others that bought the DVD you bought were also interested in?."

Another reason the customer thinks you are a well established business is because in the rare occurrence that something goes wrong, they will be looking to you to correct the problem. Now you take on the role of customer service to make sure the customer is fully satisfied. Because the customer has no idea the drop shipper is part of the transaction, they look to you for a resolution.

In addition to running the auction and placing the order with the drop shipper you will need to establish a professional "return policy" one time.

With that done, you will be established in the eyes of your customers as a respected and established online retailer.

How You Can Quickly Grow Your Business

Another beauty of the drop shipping business model is how simple it is to grow the business, again without investing large amounts of money.

There are various channels you can use in order to sell your products online. Some drop shipping retailers prefer to use websites like Amazon and eBay, which already provide a large customer base you can market to. Others prefer to have their own websites, which gives them more control. Many drop ship users use a combination of the two.

Certainly, you can run simultaneous auctions for the same or different products. You can expand into many types of products and brand them separately from each other. This will create different groups of customers that don't even need to know you are running multiple businesses.

With drop shipping it is practically effortless to create multiple income streams for a minimal amount of work and almost no outlay of your own money.

Many beginning entrepreneurs find drop shipping to be nearly a perfect startup business model.