Ecommerce | Ecommerce News

Drop Shipping - The Good, The Bad, and The Ugly

What is Drop Shipping?

Drop shipping refers to a situation in which a wholesaler or distributor will ship individual items directly to customers on behalf of a retailer. Basically, a customer purchases an item and the retailer sends the shipping information to the drop shipper. The drop shipper sends the item to the customer using either a blank or generic return address. The package typically contains no invoice, although some drop shippers will insert a flyer for the retailer.

The Good

The main advantage to drop shipping is that it can save you alot of money. How much, you ask? Well consider starting an online retail site. If you go the traditional route you may need to spend anywhere from a few thousand to hundreds of thousands of dollars up front for inventory. With drop shipping there is no inventory - no up front inventory costs and no long term warehousing costs.

Drop shipping also puts you on a positive cash flow cycle. That is you get paid before you have to pay your supplier (the drop shipper).

The Bad

If drop shipping is so great, why doesn't everyone do it? While it is a great model, it doesn't work for all products - there are some companies that will not drop ship. Also, it may be difficult to integrate products from multiple drop shippers on one site (each drop shipper is going to charge for shipping). Finally, many drop shippers charge a small fee for handling an order (usually in the $2-$5 range).

The Ugly

There are currently alot of drop shipping scams running on the Web. Some of these offer to sell "exclusive" lists of drop shippers. Note, most of these lists are just about useless. In addition, there are legitimate drop shippers who have set up "review" sites. Since the drop shipper runs the review site you can imagine which one comes out on top.

The bottom line is get educated before you begin your drop shipping business.