Dropshipping is a means by which a company or individual can obtain wholesale prices on a large variety of products without the hassle or having to warehouse or ship anything. Basically, you are a selling agent for a larger company, and you are making the difference between what they sell the item for, and what you sell the item for.
The Benefits of Dropshipping.
o Large product lines.
o Professional worry free shipping.
o No upfront costs.
o No inventory management issues.
o No warehousing.
How Dropshipping Works.
Working with a dropshipper is much easier than it sounds. After you have found a dropshipper, or shippers, you wish to work with, it is as simple as deciding which products to sell, and finding a platform to sell them on.
An example of a dropshipping strategy follows:
Dropshipper XYZ offers a wide range of flatscreen TVs at wholesale prices. After deciding which flatscreens you wish to offer, you list them at a price higher than what the dropshipper is selling them to you at.
42 inch Sony HD flatscreen plasma TV available from the dropshipper at $1400. Shipping to anywhere in the lower 48 states is fixed at $25.
As the seller, or middleman, you offer the TV at price above the wholesale price offered to you, say $1600. Additionally, you mark up the shipping to $40.
The difference between the wholesale price plus shipping, and your price plus shipping is $215. This is your profit margin.
While a $215 profit for virtually no work seems too easy to be true, this is exactly how dropshipping works.
However, there are several factors that you must consider before finding a product line that you can make a profit on. Use the following check list to see exactly what kind of profit margin a product has built into it.
o What is the difference between the wholesaler’s price plus shipping, and the retail price of the product?
Never trust the wholesaler’s suggested retail price. This price may in fact be substantially higher than the actual retail price of the product. Using our example above; if the TV is available to you at a wholesale price of $1400, but Wal-Mart offers the same TV for $1350, then the dropshippers price does not offer any incentive for a buyer.
o Is the market flooded with sellers offering the same product?
Competition is a good thing for buyers, but not for sellers. You want as close to a monopoly as you can get. Stay away from crowded areas.
o Can you get in front of a trend?
If you are the first person to market with a hot new product, you can command higher prices, and achieve greater sales. Knowing how to identify trends is one of the most important aspects of selling merchandise online.
o Will the platform fees you incur leave you any profit after the sale has gone through?
If your platform is Ebay, what will your profit margin look like after your listing fee, final valuation fee, and paypal fees? If your profit margin is $30, and your fees total $35, you are actually losing money.
o What is the dropshippers current inventory on the item you are looking to sell?
If the dropshipper only has 2-3 items available, you should give real consideration to passing on the product. Dropshippers work on a first come, first serve basis. If you sell the item, and later learn that it has gone out of stock, you now have to refund the buyer potentially creating bad will, and possible incurring auction fees.
While this is certainly not an all inclusive list, these certainly cover the most important questions you should be asking yourself prior to listing an item for sale. You want to set yourself up to win, not to lose.