Drop shipping refers to when a seller sells a product before buying it from a supplier. After the product is sold to a customer, the seller purchases the item from a third party seller or manufacturer and asks that third party to ship the product directly to your customer. In the instance that the seller was able to sell the product at a higher price point than it was purchased for, then profit has been generated.
There are pros and cons of drop shipping, and sellers should carefully examine what works best for their online business. There may be different characteristics to eBay drop shipping, Walmart drop shipping, and an Amazon drop shipping business, so be thorough and learn about each marketplace. Using a drop shipping management platform gives sellers the competitive edge by providing product insight tools to help sellers effectively position your products in the marketplace.
Drop shipping pros:
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- Logistics made simple. As a business owner, you always have distractions and bureaucratic matters to manage. As a drop shipper, you can benefit from no longer needing to oversee the logistical burdens of handling packing and shipping inventory.
- Logistics made simple. As a business owner, you always have distractions and bureaucratic matters to manage. As a drop shipper, you can benefit from no longer needing to oversee the logistical burdens of handling packing and shipping inventory.
- Low cost of entry. With Amazon drop shipping, sellers can avoid required to purchase inventory or pay fees for warehouse storage while still successfully managing and shipping products to customers. Drop shipping allows online sellers to dip their toes into the world of selling without any significant investment.
- The number of products. Drop shipping allows for more flexibility in the amount and variety of products a seller can manage, adding great diversity of products to a seller’s store.
- Testing new products before purchasing. Some sellers combine drop shipping and buying the products themselves. First, sellers sell products using drop shipping. Once the seller understands the market demand and performance for that product, they only start looking for suppliers. This is an excellent trial and error and helps to lower risks.
- Products with history. Most products have sales histories. To check the level of demand, price, and expected expenses you incur in the sales process of a particular product, you can use different tools, like Algopix’s Amazon product research tool, obtain this relevant information.
Drop shipping cons:
- Depending on a third party. Drops hipping implies trusting someone else. Maybe the third party cannot ship it in time, or only in a week. You also cannot be sure the product is in the condition as described, if it’s not you can suffer from disgruntled customers and bad reviews.
- Low cost of entry. Low-cost entry can be positive, but there are also some disadvantages to it. Due to the simplicity of entering the market as a drop shipping, it’s just as simple for a competitor to enter as well. Sellers can end up competing with many drop shippers and therefore, should differentiate themselves from the rest. This can be done through effective market research, the more that’s known, the better- from where it is sold, what is the most profitable market and what are the expected expenses related to selling this product in different markets.