If you’ve ever dipped a toe in the shallows of online business, you might have heard the term “drop shipping” thrown around. But what does it truly mean and what is involved?
What is drop shipping?
Simply put, drop shipping is the process of shipping goods directly to your customers from a third-party supplier or “vendor”, without an intermediary step (like storing the goods at your physical business location).
How does it differ from a regular e-commerce store?
Here’s an example of a normal business model without a drop shipper :
Your business routinely orders product from a supplier to maintain inventory on hand.
Your business stores the products until a customer orders them.
You process each customer’s order, package the goods, and ship them to the customer yourself.
When a drop shipper is involved, the process looks a bit different:
A customer orders products from your business.
You pass the order info along to your drop shipper.
The drop shipper packages the goods and ships them directly to the customer.
How does it work?
After you receive an order online you send the supplier the customer’s order and the supplier will ship it directly to the customer.
The product is packed and shipped for you by the supplier. In most cases, you never even see the product itself even though you made the sale.
Any profits remaining between the cost of the product from the supplier and what you charge the customer are kept by you.
That’s pretty much it!
(A quick note on terminology: "Drop shipping" is what you do as the store owner. The "drop shipper" is the supplier providing the product, packing it and shipping it to your customer.)
What are the benefits of drop shipping?
Drop shipping eliminates the need to keep inventory on hand, freeing your business from the (time, labor, and monetary) costs of keeping your goods on hand and maintaining your own warehouse property to store them. Even if you only drop ship some of your goods, you’ll be freeing up resources for the items that need particular attention. It even allows you to offer items that would normally be impossible to ship due to your location’s limitations, like extremely large or perishable goods. You can be based anywhere in the world, and your items will still reach customers right on time!
Another benefit is that your drop shipper takes care of the entire physical process of packaging and shipping your products. Because drop shippers are often large businesses dealing with many orders a day, they may even have negotiated shipping rates that are lower than the ones your small or medium business can get. Those savings get passed on to you, and your customers benefit in turn! Drop shipping can also reduce losses from damaged product, since shipments take a more direct route from warehouse to customer.
In addition to eliminating the need for the physical inventory storage, drop shipping can prevent logistical headaches and customer service woes. You don’t have to worry about overstock or shortages on your end, nor is your company as susceptible to the risk of shifting trends that cause certain products to suddenly fall in or out of favor. And if you ever need to expand your selection to new items, many drop shippers have a wide variety of goods to offer, from extremely niche items to popular or classic sellers. Between the ability to expand and the flexibility to choose your company location, drop shipping naturally promotes scalability!