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What is drop shipping?

May 16, 2009   //   by Shlomi   //   Retail Marketing  //  No Comments

retail customer experience 300x256 What is drop shipping? Drop shipping is when the product distributor takes care of all the shipping for you. Rather than ordering stock in bulk, the stock remains with the distributor. Then, when you make a sale, you send an email to the distributor and they pack up the item and send it straight to the customer with your company label on the box.
Drop shipping is a very popular option with sellers because it takes a lot of the grunt work out of selling on eBay. However, there are some major downsides to drop shipping – especially for new sellers.

Here’s a list of the pros and cons of drop shipping so that you can make the right decision for your business.

Drop shipping Pros

  1. No storage room required
    You don’t have to fill up your living room with stock and packing materials! This is particularly useful if you are selling large items such as kit-sets, furniture, sporting goods, and so on.
  2. No shipping costs getting stock delivered from the distributor
    Drop shipping means you don’t have to pay a carrier to bring stock from the distributor to your own storage area, which can mean big savings in the long term.
  3. Spend more time on other areas of your business
    You don’t have to organize the packing and postage system, nor do you have to drive to the post shop each day to post your packages. This gives you a significant increase in time to spend on other tasks such as marketing and communicating with customers.
  4. No packaging required
    You save money by not having to order and store packaging materials.

Drop shipping Cons

  1. Can be Costly
    You have to pay for the cost of the labor and materials involved in drop shipping. Generally this is between $2 and $5 per item. Many new sellers find that the additional costs of drop shipping greatly reduce their profit margins and sometimes nullify the whole operation. This is the main reason why drop shipping is not a viable option for some sellers.
  2. You are still responsible for any shipping problems
    So the item arrived damaged? Was there a shipping delay? You’ll get the flak for anything that goes wrong with the shipping even though it is technically out of your control.
  3. Hard to find a distributor who will do it and do it well
    Many distributors will not drop ship because of the extra paperwork involved. Then there is the matter of checking up on quality standards to make sure your items are being packed correctly.
  4. Low stock levels may cause unhappy customers
    Your drop shipper won’t necessarily tell you when they are running low on stock. If they run out and have to do a back order, you may end up spending a great deal of time placating a bunch of unhappy and impatient customers.

Drop shipping is a very appealing prospect for many sellers; however it is not always a realistic one. Despite the hassle, ‘doing it yourself’ can often be a more sensible option financially, especially for new businesses.

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