You look through a dropshipper's catalog to find products you want to sell on eBay. Then, you post the products as auctions or buy it now listings on eBay. If the product sells, you collect the payment from the buyer and forward the order on to the dropshipper, using your eBay customer's payment to fund the transaction. The dropshipper then send the product directly to your eBay customer.

The money you have left is your profit.

The profit is the difference in price between what you pay the dropshipper and what you sell the product for on eBay. So if your dropshipper sells the Nintendo Wii for $230 and you sell it on eBay for $250 have $20 in profit. However, to determine your actual profit you need to include and deduct your eBay fees, PayPal fees, etc. So your final profit is under $20 using the example given.

Why is dropshipping bad for my eBay business? Let me start by saying "bad" is an understatement. Dropshipping is not bad, it is deadly. Dropshipping makes no sense in the eBay marketplace... Just think about it!

Dropshipping is based on the concept that you can get just one of an item and pay near wholesale price. But if you just think about it, that doesn't make any sense. If we look at how the wholesale industry works it will be obvious.

The wholesale industry works on quantity. Wholesale is all about bulk. When a huge company, such as Wal*Mart, places an order it is in huge quantity (to fill all of their stores). I'll make you an example using dvd players...

Wal*Mart wants to order 5000 ZIP-ZAM DVD PLAYERS which retail for $105 each. Wal*Mart plans to sell them for a little under retail at $98 each. So, they contact their wholesale distributor who offers them a price of $86 each. Wal*Mart places the order and everyone is happy. But...

Using dropshipping you cannot expect to get that DVD player for anywhere near $86. The distributor offered Wal*Mart the $86 price because of the quantity they were agreeing to purchase. At the $86 price the distributor is only profiting $5 per DVD player. But that is ok. One sale of 5000 units to Wal*Mart is $25,000 in profit. But you want just one, and a $5 profit sale is not going to do.

You have to look at it from the dropshipper's perspective. If a dropshipper had a really hot product -- why would they sell it to some small businesses for very little profit? Anyone using dropshipping is not going to sell huge quantities (or they would use wholesale)... So what is in it for the dropship company? The dropshipper could even sell direct to the public and do much better. They could charge a higher price and probably sell more units. Wholesalers could do this too, but remember, they do not sell one item at a time. They have a completely different business model.

So, when you think about it even a little bit - WHY would any company sell you just one of an item for very little profit? WHAT would be the advantage?

The answer is simple. They do not. The exception to this would be companies that sell large items that most stores do not keep in stock but will special order or very unique specialty items. But in the real world; in the EBAY world, dropshipping will cost you much more than wholesale price. Since eBay is a low-price marketplace, this means that often the dropshipping price is MORE than the eBay price.

eBay is a very competitive marketplace and the profit margins with dropshipping are just too thin to allow anyone to actually make a good living with this method of product sourcing.

But even if you could find a good product with a high profit margin, you cannot use dropshipping's main advantage. You can no longer sell the item on eBay and then use that money to buy the item from the dropshipper.

You see, dropshipping is about getting paid first and then using that money to buy the product and have it shipped directly to your eBay buyer. So, you list an item on eBay then someone buys it. Then you use the money they paid you (though PayPal) to buy the item, which the drop shipper then ships directly to the buyer.

YOU LIST THE ITEM

YOU SELL THE ITEM

BUYER PAYS YOU FOR THE ITEM

YOU USE BUYER'S PAYMENT TO BUY THE ITEM FROM THE DROP SHIPPER

THE DROP SHIPPER SENDS THE ITEM DIRECTLY TO YOUR EBAY CUSTOMER

eBay's recent policy changes will make it nearly impossible to start with dropshipping. One of the major benefits of dropshipping has been obliterated by eBay. You can no longer use the buyer's money to pay for the product you are selling on eBay.

eBay has an new policy in place where they will start HOLDING FUNDS FOR 21 DAYS or UNTIL POSITIVE FEEDBACK IS LEFT! This applies to small sellers, new sellers, and sellers with less than stellar feedback.

Here are the details direct from eBay's website...

FROM EBAY'S POLICY CHANGE ANNOUNCEMENT:

Occasional holds on payment

27. Which sellers will have their payments held?

In a small percentage of cases where it has been determined the risk of dissatisfied buyers is higher, PayPal may delay release of the payment funds to the seller until the buyer has left a positive feedback or 21 days have passed without a dispute, claim, chargeback or reversal filed on that transaction.

To determine if a transaction may have a higher risk of dissatisfied buyers, eBay reports to PayPal a number of factors, including but not limited to:

Seller's % Positive Feedback in the last 30 days

Seller's Detailed Seller Ratings in the last 30 days

Final price for the item

Shipping & handling fee

Seller's eBay tenure as an eBay member

Seller's total number of Feedback

29. When will PayPal release the eBay item hold?

PayPal will release the hold when the earliest of the following occurs:

the buyer leaves positive feedback,

3 days after confirmed item delivery* or

21 days without a dispute, claim, chargeback, or reversal filed on that transaction.

* This applies to US domestic transactions that are shipped by USPS or FedEx and either (i) use PayPal shipping labels to ship items or (ii) upload tracking information to PayPal via the transaction details page.

So, now assuming you are a newer eBay seller (and if you're established why on earth would you be considering dropshipping) you can not use the money they pay you to complete the transaction as it will be held.

You must use your own money to complete the drop ship order as the funds will not be released for 21 days. Seeing as this "pay only after you sell" feature was one of the best things about the dropshipping method of product sourcing there is really no reason whatsoever to use dropshipping any more.

While this might have you upset. I think it is a blessing in disguise. This will undoubtedly put a dent in the business of the handful of dropship sourcing companies that have made a fortune preying on eBay business hopefuls.