When running an ecommerce business, you need to figure out where to find products and how to get them shipped to your customers. Drop shipping allows you to sell items without having to store stock. Instead, the supplier delivers the order directly to the customer. This kind of business model offers several advantages:
- Lower startup cost - Setting up a traditional retail business requires a huge capital investment for purchasing and storing products. Drop shipping saves you the trouble of keeping inventory, thus lowering your startup costs significantly.
- Variety of products - Since you don’t have to worry about storage, you can offer a wider variety of products on your online store. This allows you to attract more customers, and subsequently enhance your sales.
- Ability to make products available instantly - Normally, retailers have to wait until an item has been shipped to them before they can advertise it on their site. However, drop shipping allows you to offer products on your site right away.
- Saves time - Handling, labeling, packing and shipping goods can be a very frustrating and time-consuming task. Drop shipping saves you all this trouble, thus allowing you to focus on other areas of your business.
However, drop shipping also has some downsides:
- Limited information - Since you don’t handle products directly, you might find yourself selling something which you know very little about. At times, the only information available could be the manufacturer’s product description, which might not even be sufficient. As a result, you are likely to find yourself unable to answer customer queries about product weight, dimensions and features.
- Difficulty processing orders - Different manufacturers and wholesalers have different regulations for order processing, packaging, billing and shipping. At times, things can get very complicated, thus resulting in a significant gap between the order and actual delivery.
- Customer service - Drop shipping leaves you with little control of your customers’ experience. For instance, once you send an order to the manufacturer or supplier, there is nothing much you can do to ensure that the product is delivered on time and according to specification.
- Competition - Regardless of the products you choose for drop shipping, you are likely to face stiff competition from other retailers in your niche. This could result in very low profit margins for your business.
So, how can you conduct drop shipping effectively?
1. Focus on niche products
Many people think that they have to sell the same ‘hot merchandise’ as other traders to succeed. However, when there is too much competition for the same product, the prices are likely to drop significantly. As a result, you are not likely to make a significant profit margin. Instead of being a copy cat, it would be advisable to select a unique niche product. One of the best things about using the drop shipping model is that you can choose from a wide range of products. Find a unique, specialized product which is not readily available in other online stores.
2. Don’t just compete on price
Competing only on the basis of price is a common mistake made by many retailers. To enhance your chances of success, there must be more distinguishing you from the competition besides price. Customers are not just looking for low prices, but for products which will give value for their money. Therefore, rather than offering the lowest prices in the market, find out how you can add value to your products. For instance, you could offer free shipping or free after-sale service.
3. Take advantage of seasonal merchandise
Seasonal merchandise refers to goods which are only in demand during certain times of the year. This could be holidays such as Christmas and Thanksgiving, seasons such as winter, fall, summer and spring, or special days such as Valentines or Mother’s Day. Since there is no risk of being left with unsold stock, online retailers can enjoy great profits from such seasonal products. Therefore, you should make plans to sell specific products ahead of every holiday or season.
4. Offer product bundles
If you sell related products, you could consider bundling them together in a package. This enables you to lower your shipping costs considerably, especially if all the items are coming from the same supplier. In return, this allows you to offer more favorable prices compared to the competition. Check your range of products and find out what can be bundled together. For instance, if you sell laptops, you could bundle them together with external hard disks and external speakers.
5. Sell what you’re familiar with
One of the best ways of succeeding in drop shipping is by selling products you are very conversant with. Besides being an expert on the products, you should also understand your target audience. This will enable you to write persuasive product descriptions, package your products appropriately and offer excellent customer support. However, this does not mean that you must have some formal training to be an expert. Your knowledge could be based simply on your interests, passions and hobbies.
Learning how to drop ship effectively could take some time. However, by following these guidelines, your chances of success will be significantly enhanced.
Image: Flickr, CATS Hill Web Design