Start Up A Drop Shipping Business

WHAT YOU NEED TO KNOW ABOUT RUNNING A DROP SHIPPING BUSINESS

What is drop shipping?

A drop shipping business is actually what it says it is – a business which has “dropped” the shipping part of selling products. So, you run a website selling products and, instead of the traditional business (where your business would retain stock and organise shipping to the buyer) you reach an agreement with the drop shipper (who warehouses/manufactures products) so that they deliver products directly to the buyer. You collect the money from the buyer and pay the drop shipper.

Are there problems with drop shipping?

This may sound like a dream business because

–  there is no outlay on stock for your business

– the drop shipper is responsible for obtaining, insuring and delivering products

– you count the profit.

Sadly, like almost everything else in life, it’s not quite that straightforward. From the customer’s point of view, you, as the website owner, are the seller. This means that

– you are responsible for the quality of what you are selling and making sure it does what it says it will (difficult when you may never actually have seen it)

– you must ensure that the buyer’s rights are met. For example, a consumer in England and Wales has the right to change their mind and cancel the order. The drop shipping agreement is between you and the drop shipper who are both businesses so you don’t have the same rights – i.e. customer cancels and you have to refund the buyer and so could end up paying the drop shipper for the product using your own money – you retain ownership of the product, of course

– you can end up selling something which is not available (drop shippers often have problems maintaining an accurate inventory)

– unless you are working with only one drop shipper (most businesses work with several) you will end up managing a minefield of different electronic sales and inventory systems

Can I do anything to rectify the problems?

(1) Clear agreement

First of all, make sure that you have a robust agreement with the drop shipper so that you are really clear who is responsible for what and what happens if the customer has a problem

(2) Select your drop shipper carefully; don’t just take price into account.

For example, if you have particular products in mind which are available from several drop shippers, make sure that you research the experience of other businesses first. A potential saving of 50p on a product could end up as a loss of profit to the value of the whole product if the drop shipper is unreliable.

(3) The process

Ensure that your drop shipper has an automated sales process and that your website is compatible with this (if you intend to keep track of things manually it is likely to become an impossibility unless your sales numbers are so low they are almost non-existent)

Drop shipping can work well but, like any business, make sure that you are well researched and well prepared.