What is Dropshipping?

  • 09 Sep 2017

Have you ever dreamed of owning your own retail business, but you can’t imagine raising the start-up capital, let alone the hassle of running a physical store, managing inventory, shipping, employees and other major costs? Welcome to the wonderful world of the web and dropshipping companies. Today’s technology provides a wealth of opportunities for almost anyone to own their own online retail biz at a fraction of the capital it used to take to launch and maintain a brick and mortar storefront. Dropshipping is an integral ingredient in this equation, but what is dropshipping and how does it work?

What is Drop Shipping?
Dropshipping is a service offered by wholesalers, suppliers and other companies that already have inventory in stock and handle the shipping for retailers. Some dropshipping companies offer a wide variety of products, everything from electronics to apparel, while others have more scaled-down inventory. You can find almost any type of product to sell have drop shipped based on the scope of your online store.

We will get into the details on how to find the best drop shipping companies in a little bit, but we recommend looking for a drop shipping company that offers a directory.
Our recommendation is the drop shipping directory Worldwide Brands, Inc.

How Does DropShipping Work?
Working with drop shipping wholesalers is a relatively easy process for online retailers. Once you find the dropshipper that has the products you want to sell, you sign up, and they’ll grant you access to their merchandise images so that you can post them on your website to sell online. When a customer orders the product from your website, you, in turn, order the product from the wholesaler and they ship it to your customer. This model allows you to sell a variety of merchandise without having to worry about stocking any inventory and getting it to your customers. Dropshipping is an excellent alternative for home-based or small online retailers.

What Are the Pros and Cons of DropShipping?

Low start-up costs to launch your online business.
Low overhead to run the inventory piece of your business.
Wider product variety.
Flexible location to run your business.
Little to no inventory management or costs — no need to rent warehouse space, deal with packaging and shipping, tracking and managing inventory, or handling returns.

Harder to stand out — many other sites will be selling the same products, so competition can be fierce.
Customized packaging is limited — most reputable wholesale dropshippers accommodate business-specific labeling, but if you want personal touches in the packaging, you’re severely limited.
Inventory issues and supplier errors — dropshipping suppliers can run out of inventory and make mistakes.
If you’re using multiple drop shipping wholesalers, shipping rates can get complicated (and high).
Tight profit margins — you’re not selling unique products, making it difficult to compete with product pricing.

How to Start a Dropshipping Business
Starting a dropshopping business is easier than you might think. What do you need to do and how much will it cost? Here are several no- or low-cost requirements in the U.S. and some basic recommendations

Request an EIN number from the IRS (free).
Incorporate your business with your state (averages $150 to $300).
Request a sales-tax ID from your state (typically free).
Open an account with a drop shipper (free).
Create your own ecommerce website (Averages $10 to $50 per month).
Set up a merchant account if you want to accept credit cards through your site (averages $10 per month).

What Fees do Dropshippers Charge?
Although reputable dropshippers allow you to sign up for free, there are still certain fees you’ll encounter. Each dropshipping company differs in the way they charge fees. The most common you’ll see include the following.

Per Order Fee
Many dropshipping companies charge a per-order fee, averaging $3, to cover the expense involved with packaging and shipping an individual product.

Monthly Fees
If a drop shipping company tries to charge you a monthly fee, be wary. Most reputable dropshipping companies don’t charge monthly fees. Look elsewhere.

Purchasing Minimums
Some reputable drop shippers require a minimum purchase size (some on your first order; others on a monthly basis); otherwise you’ll incur a fee. Why do some require minimums? To weed out retail business owners who aren’t serious about their business and aren’t worth the cost associated with fulfilling their orders.

What Else Do You Need to Know?
There are several other factors you should consider before launching a dropshipping business.

Who handles customer service?
As the retailer, you handle all customer service, including marketing to your customers and managing issues and problems as they arise.

How do you send orders to your dropshipper?
The best drop ship companies allow you to submit orders online, via email or phone.

Who pays for shipping?
Most dropshipping suppliers use their own UPS, FedEx or USPS accounts to pay for shipping, but they include those shipping costs in your overall billing costs. You’re 100% in charge of determining how much you charge your customers on your website for shipping.

How do customer returns work?
Most dropshipping companies restrict certain products than can’t be returned. You need to find out this information from your dropshipper so you can include it on your retail website. For returnable items, most drop ship suppliers will send you a Return Authorization (RA) number. Give your customer this RA number and the supplier’s warehouse address. When the supplier receives the return, they’ll send you a notification and a credit invoice. Then it’s up to you to refund the customer.

Who pays for return shipping?
You, the retailer, are responsible for return shipping fees, even with a defective product. It’s up to you whether you incur the return shipping costs (recommended for defective products as a good business practice). Many drop shipping companies will pay to ship a replacement product for a defective product.

How Do You Find the Best Drop Shipping Companies?
Finding the best dropshippers can be one of the biggest challenges with starting a dropshipping business. Why? There are hundreds out there, and often it’s difficult for the novice to tell which ones are reputable and which ones aren’t. Here are some tips to find the best drop ship companies.

Doing a Google search likely isn’t your best route. It’s a starting place, but you’ll have to weed through a lot of less-than-stellar results, spammy listings and companies that aren’t trustworthy. Obviously, this will take a lot of time and hassle on your part.

Contact the Manufacturer
Once you’ve determined the product or products you want to sell, contact the manufacturers. They may be able to steer you to certified or authorized drop ship wholesalers or suppliers.

Go with a Directory
There are a number of dropshipping directories online, and most of them charge you a subscription fee to access their database of legitimate and reliable drop shipping companies. The best drop shipping directories have certified companies for best practices. All of the companies we set up sites for dropship.  You can also purchase our New Age Retail list that has 100"s of dropshippers listed