Drop shipping

If you have an idea for a catalogue or online store but don't have the funding - or storage space - for large consignments of products, drop shipping may be the answer.

What is drop shipping?

  • If you start a drop shipping business, you essentially become the middle-man connecting the supplier and the customer without ever needing to hold the goods in stock. You then make a profit on the difference between the wholesale and the retail prices.
  • Drop shipping wholesalers can help you hide the source of your products by creating customised packing slips with your name, logo and contact information, and even creating a customised return address for you.
  • Drop shipping is popular among online auction sellers who don't have the space to store items. The seller will send the item directly from the wholesaler to the highest bidder, making money from the difference between the wholesaler's price and the winning bid.

Advantages of drop shipping

  • If you're a small business with a tight cashflow, you drop-shipping means you don't have to take a gamble by buying up large quantities of stock which may then sit in your stock room, waiting to be sold.
  • Drop shipping helps you maintain a positive cashflow by making sure you are paid before you buy the item - protecting you from late payment and allowing you to invest in more stock earlier in the cycle.
  • If you generally sell your stock in small quantities but receive a large order for a product, drop shipping can help you meet demand quickly, without you needing to find space for large  quantities of a product.

Disadvantages of drop shipping

  • Drop shipping has been subject to scams, which involve organisations offering you great 'work from home' opportunities, then introducing you to a 'wholesaler' who is, in actuality, another middleman with no product of their own, who will then charge  high prices and extraneous fees.
  • If the wholesaler you choose sells out of a product without letting you know, you will either need to refund your customer or back order the product, which could incur heavy delays. This means drop shipping can be unreliable.
  • Because you are buying products in single units, you won't be able to take advantage of the knock-down prices retailers who buy in bulk get from wholesalers, decreasing your profit margin.
  • Your drop shipping wholesaler might ask you to pay a sign-up fee or pay for support materials, such as brochures. Be wary of these payments - check with other clients before you sign a contract.

How to find a drop shipping wholesaler

  • Trade shows are often good sources of drop shipping wholesalers. See Exhibitions.co.uk for a comprehensive listing of all the trade shows held in major UK venues.
  • There is no official trade body for drop shipping wholesalers, so ask for recommendations from your industry trade body.
  • Online forums, such as the Smarta Q&A section or the one on Startups.co.uk are great sources of information and advice from others in similar situations. You can also use the internet to check the wholesaler you want to use is reliable. Use forums and social media to find other clients of the wholesaler.

Resources

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