Though many have heard about the advantages of drop shipping, it still confuses many people who don't understand exactly how the process works or what it is.
So before we get into dropship sources and dropship companies and talking about how to do it ourselves, it's important to understand what it is and how it works.
Shall we begin?
Drop shipping is simply where you sell a product and the distributor or drop ship manufacturers ships the product to your customer. With drop shipping, you just set up shop, take the order for the product you are selling, pass it along to the wholesale dropship company, and they send it out for you. Some drop ship distributors will even send you ad copy and pictures to help you advertise their products. They can even put your return address on the package so the customer thinks that you shipped them the product.
To understand drop shipping, you first have to understand wholesale product distribution itself.
Let's say ABC Company makes a red widget. This widget manufacturer does not sell directly to the public or supply the retailers who ultimately sell the widgets to the end user. (example - Joe's retail store).
They simply make the widget so they need distributors who will take the widget and distribute it to places that will sell it
What happens is the manufacturer sells the blue widgets by the truckload to the distributor or dropshipper wholesaler for $15.00 per widget. But the distributor doesn't sell to the public either. They distribute it to companies who do - Joe's retail store. So what happens is the distributor sells cases of the widgets to the Joe's retails stores and charges $15.00 per case. When the widgets are placed on the shelves in Joe's retails stores, each one is individually priced at $2.50. If there were 10 widgets per case, you have a total retail cost of the case at $25.00. The customer comes in and buys a widget for $2.50 each. So if Joe's retails store sold all of the widgets, they make a $10.00 profit.
That's it. Basic product distribution in it's simplest form. The manufacturer sells to the distributor, the distributor sells to the retailer, and the retailer sells to the customer or end user. The manufacturer, the distributor and the retailer all make money because the customer is willing to spend money for the product. (As a side note however, it is not unusual for the manufacturer and distributor to be one and the same. Sometimes they are and sometimes they're not.)
When you drop ship, in the manufacturer / distributor / retailer relationship, YOU become the RETAILER in that relationship. The distributor who purchased the red widgets from the manufacturer then becomes the actual drop ship source. So instead of sending the widgets to your retail store, they fill orders on your behalf as you sell them to your customer.
What happens is you order the red widgets from the distributor as they are sold (usually one at a time). When the distributor receives the order, the distributor then ships the widget directly to your customer. So for whatever price you sold the widget for, that will determine your profit. In other words, you set the price you sell it for.
Remember with drop shipping, you are not the dropshipper, but the company who supplies the products to your customers is the dropshipper. You are simply a retailer who doesn't carry any stock! Cool huh?
The dropship suppliers can supply you with images and descriptions of the products you want to sell and post them on eBay or your internet Store. When you sell the item, you email the order to your supplier along with your customer's name and address. The drop shipper sends the product directly to your customer, with YOUR name on the package.
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Dropshippers charge you the wholesale price of, say, $10.00, plus shipping. You sold the item for $20.00 so you made a $10.00 profit. The customer is paying the shipping cost. You didn't have to buy a whole bunch of product to stock. You didn't have to pay to have it shipped to you, and then pay to ship it to your customer.
You never touch the product because the drop shipper sends the product right to your customer's door. All you did was send an email to your dropship supplier. YOU set your Retail Price, and pay the supplier the Wholesale Price, and the goal is to profit every time. It's a great way to start an Internet business for VERY little money.
Now that you have an understanding of what drop shipping is and how it works, is dropshipping something you should consider for your auction business?
Wholesale dropshipping is a great business model when selling online with an internet store or website. However, if you're just trying to auction off drop shipped products, you may find it to be a little rough. Items on ebay often sell for far lower than the wholesale cost. Since you'll be obtaining dropshipped products at wholesale prices, if you're even able to auction your drop shipped item on ebay above wholesale, you may find that you'll be making very little profit or no profit at all.
BUT… don't let that discourage you from using drop shipping in your auction business. Drop shipping can still be a very nice boost for your business. Now that you have a better insight to what dropshippers are, you can become a profitable dropshipper today!
Hi Chad,
