How to start a successful Drop shipping Business

Drop shipping and E-Commerce

Drop shipping is a process of product fulfillment that occurs when items that are sold on an E-commerce and then are shipped directly from a third party business to the customers.

Customers place their orders on the company E-commerce, that after having received the payment, sends the order to a third-party manufacturer and supplier system, then the supplier ships the order to the customer while the owner of the e-commerce  the customers that the product has been shipped.

Orders are shipped with the e-commerce’ name, address, logo on the packing slip and invoice so that customers do not know that the seller is a drop shipper.

Drop shipping is a great way to test a new products and/or suppliers, but it has limitations as a viable long-term business model given that competitors can enter the market with similar products at lower prices.

Drop shipping is legal but there are some issues to be aware like the quality and legitimacy of the Drop shipping supplier. If the supplier is doing something illegal, such as violating a brand’s copyright, the drop shipper is legally liable for selling the counterfeit products.

Another issue is to check if drop shipping complies with the regulations while E-commerce like Amazon and eBay do not allow Drop shipping arbitrage, thus resulting in the removal of the Business Profile on the E-commerce platforms.

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3 Steps to Building a Victorious Online Drop Shipping Business

1) Research industry and niche market

Businesses will investigate what products they plan to sell while researching and targeting a small subsection of their larger market.

Important factors are to be considered like how to market the new products, price average, similar products, competitors, the target audience and to analyze the suppliers by testing them with multiple quotes to estimate the possible gross margin.


2) Negotiation with suppliers

When dealing with a potential supplier and manifacturer, the first discussion is  about pricing, the second one is about manufacturing quality and quantity and the third one is about the products, quality control, returns, inventory management, and customization; the fourth and last one is about drop shipping services.  


3) Market Strategy

Businesses now will decide how to manage the new product: to start a new segment of their established Business model or to integrate the new products with their existing products.

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Business Advantages of Drop Shipping

1) Low Starting Capital

Drop shipping can be integrated in the E-Commerce platform of every business, thus limiting capital expenditure; after the researching phase almost everything will be managed by the suppliers and manifacturers.


2) Research, development and Product validation

Before selling products online, Businesses research the products they want and after having tested the quality if meets their criteria as well as the criteria of the referent markets they can start the marketing.

In this way Businesses are limiting the risk and the investments entailed in creating a new products while testing the quality of a new supplier with sample thus reducing the capital expenses.

3) Easy Management

Businesses integrate the products into their E-commerce, so every process will be automated into the company system and connected with the supplier without having to manage the inventory and the shipping.

It is not necessary a new warehouse and storage space, no need of new machinery and manufacturing or to stress the company supplier thus increasing the costs because the product is entirely managed by a third party also no need to track the inventory.

Very few new employees are needed for operating the new business, usually the same departments and employees can manage the project.

drop shipping development business webstars web bureau in amsterdam
drop shipping development business webstars web bureau in amsterdam

4) Private label (when is possible)

Some drop shipping suppliers even allow to Businesses to follow the project and the status of an established brand through custom printing and on-demand production. E.g. when customer order, the supplier will start the production line and manufacture the products on demand.

Additionally some suppliers allow the customization of the products and the possibility to label them, or to ship products labeled and packaged with the company’s branding.

5) Profitable

You outsource a big chunk of your customer satisfaction. Someone else builds and sends the product. This is just a huge part of the overall customer experience. If anything goes bad with your supplier, the customer will still blame only you. In general, you lose quality control since you can't see or use the product before it goes to the customer.

6) Global

Drop shipping is for all small, one-person businesses, as well as for large businesses.

Products can be shipped worldwide and production is localized in different countries all over the world.

The business risks is with Customer support and Return management. Returns are based on the agreements that e-commerce owners have with their suppliers, sometimes customers return their orders to the retail business, but given that the products are not produced by the retail business can incur in problems.

The best solutions are to refund the customers or to ship a new identical item again to the customers.

7) No warehouse

Orders are finalized when Customers/Clients have paid, so that a warehouse or a storage is not necessary, the benefits are saving costs but the risk is that there is no control over the shipping

8) Scalability

Given that there is no manifacturing and R&D or other costs involved in the creation of a products, ramping up production and sales volume is easier, faster and cheaper.

Suppliers and manifacturers are doing all the work, retail Businesses’ job is to check the quality and the products are receiving are in line with their Business model.

The business risk in this case is the customer support because is up the e-commerce owners not to the suppliers in most of the cases.

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Find out Benefits of Drop Shipping Business

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