Ecommerce | Ecommerce News

How Drop Shipping Can Save You a Small Fortune

Starting an online store, or any business venture, can be a scary prospect - especially if you need to come up with a large amount of money for that initial inventory purchase. Drop shipping removes the axiety and the big inventory bill. So, what is drop shipping and how does it work?

Product wholesalers usually only deal with retailers - shipping them products in bulk quantities. However, many wholesalers will now ship directly to the end customer - this is drop shipping.

What this means for online retailers is that they do not need to keep any inventory in stock. When a customer places an order, the retailer forwards the order to the wholesaler. The wholesaler ships directly to the customer. A good drop shipper will ship with a generic return address label or even the retailers label and inserts. Some drop shippers will even handle returns!

Let's consider an example. Suppose you want to start a site that sells women's shoes. If you had to stock inventory just the initial purchase might run something like $50,000 (consider all of the sizes and styles you would need to stock). And that number does not even consider the warehouse space and labor involved in picking and packing. So, you would be $50,000 in the red before your first order.

If the same company uses drop shipping, they would establish an account with the drop shipper. The drop shipper might even supply a data feed and stock photos - greatly reducing the amount of time required for site development. Here's the great part - the retailer would not purchase even a single shoe. Once an order comes in the details are sent on to the drop shipper, who fulfills the order. The retailer gets paid and does not have to pay the wholesaler until the end of the month (using a credit card or net credit terms).