Tweet me!Drop Ship
by Jim B. Cantrell, This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Procedure Some drop shipping retailers may keep "show" items on display in stores, so that customers can inspect an item similar to those that they can purchase. Other retailers may provide only a catalog or website.
Retailers that drop ship merchandise from wholesalers may take measures to hide this fact to avoid any stigma, or to keep the wholesale source from becoming widely known. This can be effected by "blind shipping" (shipping merchandise without a return address), or "private label shipping" (having merchandise shipped from the wholesaler with a return address customized to the retailer). A customized packing slip may also be included by the wholesaler, indicating the retailer's company name, logo, and/or contact information.
Obviously, this list of documents is not representative of all drop ship programs - however, it dies cover a significant portion of them.
Small business Drop shipping can occur when a small retailer who typically sells in small quantities to the general public receives a single large order for a product. Rather than route the shipment through the retail store, the retailer may arrange for the goods to be shipped directly to the customer.
Online auctions Many sellers on online auction sites, such as eBay, also drop ship. Often, a seller will list an item as new and ship the item directly from the wholesaler to the highest bidder. The seller profits from the difference between the winning bid and the wholesale price, minus any selling and merchant fees from the auction site. A seller is permitted to list items that are currently not in his/her own possession, provided that he/she follows eBay's policy on pre-sale items.
Custom products A new emerging trend in the drop ship business is private label drop shipping, in which a manufacturer produces a custom item for a retailer and drop ships it. The range of private label drop shipped items varies from simple key chains and t-shirts with custom logos or pictures to customized formulations for vitamins and nutritional supplements.
Benefits The two main benefits of drop shipping are - no upfront inventory to purchase and a positive cash flow cycle. A positive cash flow cycle occurs because the seller is paid when the purchase is made. The seller usually pays the wholesaler using a credit card or credit terms. Therefore, there is a period of time in which the seller has the customer's money, but has not yet paid the wholesaler. Often web retailers starting their own business will confuse drop shipping services with those offered by a fulfillment house.
Risks As in any business, some risks are involved in drop shipping. For example, back ordering may occur when a seller places a shipment request with a wholesaler, but the product is sold out. Back ordering may be accompanied by a long wait for a shipment while the wholesaler waits for new products, which may reflect badly on the retailer. A good wholesaler will keep retailers updated, but it is the business owner's job to be aware of the quantities that the wholesaler has available.
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