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"Use Drop Shipping To
Set Up A Successful
Online Store Selling Name Brand Products...
Without Spending A Dime On Inventory!"
Let's face it: Not everyone wants to develop, design, and manufacture
their own products. You may be more interested in finding great
products that already exist and then using your online marketing
know-how to build a successful business.
But what if you DON'T want the hassles of things like tracking
your inventory, setting up warehouse space, and maintaining a confusing
shipping/receiving infrastructure? Wouldn't it be great if there
was a way to set up a business online WITHOUT having to deal with
all these issues?
Well, there IS a way to avoid these headaches: a technique known
as "drop shipping." This model lets you...
SELL QUALITY, BRAND-NAME PRODUCTS ON YOUR WEB SITE FOR A HEFTY
PROFIT
... and the drop shipper takes care of fulfilling the order. They
warehouse the stock, pack the orders, and ship them out to your
customers.
But be warned: There are both advantages and disadvantages to this
model. Keep reading, and I'll tell you how to STEER CLEAR OF THE
SCAM ARTISTS and identify great partners who will ship brand-name
products for you... on your behalf... all while generating solid
profits for you!
HOW DROP SHIPPING WORKS:
"Drop shipping" is simply an arrangement between you
and the manufacturer or distributor of the product you sell whereby
the manufacturer or distributor -- NOT YOU -- ships the product
to your customers.
Here's an example: Let's say Mary wants to set up a site that sells
skin care products. Instead of filling her basement
with cases and cases of stock, and then going downstairs each time
an order comes in, Mary puts together a drop shipping arrangement
with a manufacturer who ships the products to her customers directly.
And the best part is that the manufacturer will happily ship the
products using shipping labels with Mary's company name, address,
and logo instead of their own. The product arrives at the customer's
house a few days later, and they never know that the product wasn't
shipped directly from Mary's warehouse!
Let's say Mary has a product called the "Total Skin Care Package,"
priced at $97. A customer visits her site, places
an order, and is billed $97 plus $11 for shipping and handling.
Mary then sends the manufacturer an e-mail with her customer's
order and shipping information. The manufacturer packs up
the customer's order, puts Mary's shipping label on the package,
and mails it out via UPS or FedEx, usually within 48 hours.
The manufacturer then bills Mary for the WHOLESALE price
of the "Total Skin Care Package" -- in this case
$64 plus $11 for shipping and handling. Since Mary has passed the
shipping and handling fee on to her customer, she has just netted
a profit of $33. AND ALL SHE HAD TO DO WAS SEND HER MANUFACTURER
AN E-MAIL!
DROP SHIPPING ADVANTAGES:
There are a few huge advantages to this model. First, it SAVES
YOU THE COST of building your own inventory. If you're like
most people starting a small business, you don't have a ton of extra
money lying around. The last thing you want to do is tie up your
cash in inventory that you may or may not be able to sell.
No inventory also means no leftovers. If the product you sell suddenly
becomes outdated, obsolete, or just plain un-trendy, you aren't
the one with a house full of stock that nobody will buy. Many online
retailers find themselves having to offer deep discounts -- and
taking huge losses -- on old products just to get them out of their
homes to make room for more inventory!
You'll also be able to SKIP THE HASSLES of shipping your
products. Unless you've already set up a shipping account with someone
like FedEx or UPS, you'll be heading down to the post office every
day to buy stamps and mail out your products.
And you'll be able to ADD NEW PRODUCTS ALMOST INSTANTLY.
Since you don't have to worry about ordering inventory, you can
add products to your web site within a few hours. If you find that
your customers are eager to buy a certain product, you can have
that item up on your site in almost no time.
CHOOSING THE PRODUCT:
Have you ever noticed that there are literally hundreds -- if not
thousands -- of sites selling huge mish-mash selections of inexpensive
gift items... things like plastic gnomes and porcelain figurines?
That's because there are a few HUGE drop shipping companies
that import these items and then recruit web sites to sell them
on their behalf. These companies have massive product inventories
and make it very easy for people to get started selling their products
for them.
Unfortunately, this is NOT the way to go if you are getting started
with drop shipping. There are already a ton of these giant gift
sites out there -- and way too much competition for you to reasonably
expect to be successful at it.
Instead, spend some time researching different kinds of products
that you might want to sell. The products you choose should be in
demand but not widely available online. As usual, I highly recommend
targeting a niche market rather than trying to find a product that
EVERYONE wants to buy.
Once you've found a product that you think may be the right one
for your business, you'll need to do a little "competitive
analysis." This simply means finding out what potential
competitors are charging for the products you want to sell and calculating
how much of a profit you'll be able to make.
CHOOSING YOUR DROP SHIPPER:
So how do you go about finding a reputable drop shipper for your
business? Well, here's where doing your homework will pay off. Whenever
possible, you'll want to set up drop shipping arrangements directly
with the manufacturers of the products you want to sell. The fewer
middlemen you have to go through, THE BIGGER YOUR PROFITS WILL BE!
Let's say you want to sell wooden toys on your web site. After
spending some time combing through the search results for "wood
toys," you'll have come up with a list of manufacturers of
wooden toys that you might want to carry. From there, you'll
want to contact the manufacturers directly and ask them if
they drop ship their products.
Some will let you know right away that they are set up to drop
ship for you. Others will tell you that they simply don't
offer drop shipping. Smaller manufacturers may never have heard
of the concept!
If the manufacturer of the product agrees to drop ship for you
-- GREAT! You can be fairly confident that you'll be
getting the best price possible. However, if they don't offer drop
shipping, you'll have to keep looking for another
alternative. This usually means tracking down a distributor.
(A distributor is simply a company that maintains a large inventory
of another company's products and distributes
those products to smaller companies.)
The best way to locate a distributor is to simply ask the manufacturer
of the product to recommend one. Most manufacturers have established
relationships with at least a couple of distributors, and they should
be happy to put you in touch with one of them.
Another great way to find a distributor for the type of product
you wish to sell is by looking through related trade magazines.
You'll often be able to find listings of manufacturers and
distributors advertising in the back of these publications.
To find listings of trade magazines, try: http://www.smallbusiness101.com/trade_ctr/trademagazine_ctr.htm
... or do a search at Yahoo! for "trade magazines."
In addition, Drop-Shipping-News.com sells a "Consumer Products
Source Directory" that claims to provide listings of dozens
of trade magazines at http://www.drop-shipping-news.com
You may also be able to find distributors and manufacturers using
the Thomas Register at http://www.thomasregister.com
They provide listings for thousands of companies broken down by
product, brand name, and company name. It takes some time to get
used to navigating through this site, but it can be a great resource.
WHAT TO EXPECT FROM YOUR DROP SHIPPER:
Once you've tracked down a few manufacturers and distributors,
you'll need to get on the phone and contact them directly. Before
you start dialing, though, you'll need to have a few things in order,
including your official business name and your Tax ID or Resale
number.
-- NOTE: Your Business Name and Tax ID Number --
Take the time to set up your business as a legal entity before
you get started. The U.S. Government's Small Business Administration
maintains a web site that has all the information you need to get
your company up and running and explains how to apply for a Tax
ID or Resale number in every state. You can search for the requirements
in your state at http://www.sba.gov/regions/map/#region10
The process of setting up your business legally is actually a
LOT easier than most people think. In many states, you can get all
the paperwork done in about a day, and it shouldn't cost you much
more than a few hundred dollars if you do everything yourself.
Of course, there's no shortage of lawyers and accountants to help
you incorporate your business if
you'd rather not deal with the paperwork.
Some companies will also ask for a credit reference... but don't
panic! A manufacturer will probably only require a credit reference
from you if they will be billing you monthly. Since most manufacturers
will bill you at the time of purchase, this shouldn't be a problem.
If they do require credit references, though, you can usually just
provide them with the name and telephone number of your bank.
IMPORTANT NOTE FOR NON-U.S. BUSINESSES
Drop shippers based in the U.S. are generally NOT willing to drop
ship internationally. There are simply too many hassles with customs
-- especially since September 11th. Also, companies like FedEx and
UPS charge a fortune to ship internationally. The cost of the shipping
can often be more than the cost of the product!
If your target market is in Australia, for example, you'll want
to locate manufacturers or distributors based in Australia
so that you can avoid the hassles of international shipping. You
-- and your customers -- will end up with a LOT fewer headaches
this way!
QUESTIONS YOU'LL NEED TO ASK:
Most companies that you contact will be more than happy to speak
with you -- after all, you are going to be selling
their products for them. When you call, simply ask to speak with
someone about becoming a vendor for their products.
Once the switchboard puts you through to the right person, you'll
want to ask all of the following questions:
1) WHAT IS THE WHOLESALE PRICE THEY CAN OFFER YOU ON
THEIR PRODUCTS?
You need to make sure that their wholesale prices are reasonably
lower than the prices you'll be able to sell
the products for -- to ensure that you're left with a fair profit
margin.
2) DO THEY CHARGE A HANDLING FEE FOR DROP SHIPPING?
If so, how much? Most companies who drop ship will simply add
the cost of UPS or FedEx shipping onto your wholesale price, but
some will also charge you a handling fee (generally between $1 and
$5). This is to offset their
cost of picking, packing, and processing the order for you.
3) DO THEY HAVE A MONTHLY MINIMUM OR MAXIMUM OF PRODUCTS
THEY WILL DROP SHIP?
Some companies will require that you sell a minimum dollar amount
of their products each month (usually around $100). A few also have
a monthly maximum of units they will ship for you. If you think
that you will be selling more than this number each month, they'll
refer you to one of their distributors.
4) HOW DO THEY SHIP THEIR PRODUCTS?
Almost every company that drop ships products will use a major
nationwide delivery service like UPS or FedEx. Ask them to include
tracking numbers with the order confirmations they send. This will
save you many potential problems when customers ask, "Where
is my order?"
5) HOW DO THEY BILL YOU?
Most drop shippers will bill your credit card the wholesale price
of the product plus shipping and handling as soon as
they receive an order from you. With others, you may be able to
set up a monthly billing cycle where you submit
payment for all orders at the end of each month.
6) HOW DO THEY DEAL WITH PRODUCT RETURNS?
Be sure to find out what their policy is regarding returns. Most
reputable companies will offer some kind of guarantee
or warranty on their products and will deal with returns for you.
This way, if a customer contacts you with a return,
you can simply tell them that the manufacturer will be happy to
speak with them directly.
If your manufacturer doesn't accept returns, look out! You will
be the one stuck replacing defective merchandise for
your customers.
You'll also need the manufacturer to send you descriptions and
images of the products you'll be selling for your web site.
Many companies will simply tell you to take the images directly
from their own site. Others will e-mail you a link to their product
information. Companies with large inventories may want to mail you
a CD-ROM of their product images and descriptions.
When setting up an account with a distributor, ask lots of questions
about shipping and order fulfillment, as these are
the two areas that can potentially cause you the most problems.
Make sure that they are able to confirm your orders quickly,
and that they will provide tracking numbers. You need to be
confident that your customers' orders will be delivered promptly.
AVOID THESE COMMON DROP SHIPPING SCAMS:
Wow, all of this sounds great, doesn't it? And the truth is, there
ARE lots of people making tons of money using the drop shipping
model. But there is also no shortage of crooks and scam artists
just waiting to take your money in exchange for the promise of "Instant
Drop Shipping Riches" or "Ready-Made Online Drop Shipping
Stores."
Here are a few things to watch out for when you're researching
drop shipping:
- COMPANIES OFFERING TO SELL YOU LISTS OF DROP SHIPPERS
FOR $3, $4, $7. The old saying "You get what you pay for"
applies here. Spend $4 on a drop shipping list, and you'll
get an e-mail listing 200 company names, addresses, and maybe phone
numbers. A few calls to out-of-service numbers and you'll realize
that the list is years old and basically useless.
- COMPANIES CHARGING YOU A "MONTHLY FEE" TO BE YOUR DROP
SHIPPER. Think about it: Why would a company charge you to sell
you things? Answer: Because their products are either worthless
junk or they're marked up WAY too high. In either case, they know
your online store won't be able to sell any of them, so they need
to make their cash from you through a monthly fee.
- COMPANIES OFFERING YOU A TURN-KEY ONLINE BUSINESS,
complete with web site, wonderful products (that can ONLY be purchased
from them), and a merchant account that allows you to accept credit
cards. The strategy here is to get you to spend YOUR money advertising
and selling products that they are buying from REAL wholesalers,
marking up, and selling to you. These companies usually also charge
a one-time and/or monthly fee.
Here's the bottom line: No one is going to do your work for you.
If you want to set up a real online business, you're going
to need to do some legwork. Any company that seems to be making
your job easier by providing you with lists of products to sell
or setting up your site is just going to be eating into your
profits!
As always, ask yourself if their offer seems too good to be true.
If it does, you can be sure that they'll be taking
their cut!
Based on our research, I'm NOT going to recommend spending money
on any of the "drop shipping resources" that are for sale
online; anyone should be able to locate potential drop shipping
partners by doing a little research and making a few phone calls.
COMMON DROP SHIPPING PROBLEMS -- AND SIMPLE SOLUTIONS:
Of course, no business model is without disadvantages -- and drop
shipping your products can lead to some serious problems if you
aren't careful. Below are a few of the most common problems, along
with some tried-and-true solutions to help you save some time and
money:
PROBLEM #1: SHIPPING DELAYS
Remember how I told you that the best thing about drop shipping
is that you don't have to worry about shipping your products?
Well, this can occasionally create issues.
Let's say you send an e-mail to your drop shipper asking them to
send an order to your customer, and it just so happens that they
are sold out of that item at the moment. The longer it takes them
to let you know that the item is unavailable, the longer it will
be before you can pass that information on to your customer, and
the worse you'll end up looking.
SOLUTION: Insist on prompt order confirmation from your drop shipper.
Ask them to send confirmation e-mails or faxes to you when they've
processed your order, letting you know that the order has been shipped.
If they're out of stock, make sure they let you know IMMEDIATELY.
PROBLEM #2: TRACKING SHIPPING STATUS
Your customer calls you up a week after ordering a product and
asks what the status of their shipment is. Unfortunately,
since you didn't ship the product, you have no idea what to tell
them. And if your customer is demanding a refund for an order that
has already been shipped, YOU'LL be paying for it when your drop
shipper sends you the invoice!
SOLUTION: Most of the nationwide delivery services (like UPS or
FedEx) now offer online tracking services. If a customer calls to
check the status of their shipment, you can instantly tell them
where their package is by entering their tracking number at the
UPS or FedEx web site.
Better yet, include the tracking number in your confirmation e-mails
to your customers and let them track their orders themselves. Just
be sure to ask your drop shipper to provide you with tracking numbers
once your orders have been shipped!
PROBLEM #3: DROP SHIPPER BACKS OUT
Occasionally, a manufacturer or distributor will simply back out
of their drop shipping agreement with you. They may decide
that the work involved in packaging and shipping their products
for you simply isn't worth the trouble.
SOLUTION: Unfortunately, you'll never really know how reliable
your partners will be until you've placed a few orders with
them.
When speaking with potential drop shippers over the phone, you
should be able to get a good sense of how reliable they'll be based
on how prepared they are to answer your questions.
This is one of those areas of your business where you'll have to
follow your instincts!
PROBLEM #4: HIGH SHIPPING COSTS
Finally, you can run into problems with shipping costs if you work
with a number of different manufacturers and distributors.
For example, let's say a customer orders 6 products from your web
site, with each one being drop shipped to them by a different manufacturer
or distributor. They'll have to pay shipping and handling costs
on each individual item, and that can add up to a lot of extra money.
If your customers see that they'll have to pay $40 to ship $80
worth of goods, they'll abandon their order every time.
SOLUTION: You'll avoid those abandoned orders by just using one
manufacturer or distributor on your web site. Keep in mind that
many distributors deal with thousands of products (usually
related to each other), so you can often source all of your products
with one distributor.
Of course, your site may never run into this problem. If you take
my advice and focus on selling one or two niche products (like toasters),
you can reduce the likelihood of customers ordering more than one
product in the first place. (Who needs six toasters?)
FINAL THOUGHTS:
Drop shipping can be an easy way to get started selling online.
Since the manufacturer or distributor takes care of
warehousing and shipping, you'll be able to concentrate your efforts
on building your web site and marketing your products. And this
is what most entrepreneurs are good at!
As an experiment, we decided to contact several manufacturers to
set up a drop shipping arrangement. When asked, we told the
manufacturers that we had no previous experience running an
online business. This didn't present a problem to any of them.
Basically, a company will be glad to have a potential vendor
contacting them... After all, it can only increase their sales!
When searching for a product to drop ship, don't spend money on
"drop shipping directories." Think about it: Not only
is their information frequently out of date, but the companies listed
in these directories are the ones that everyone who buys the directories
will be contacting. That means more competition for the products
you'll be selling.
And take the time to choose your products carefully. Make sure
there aren't already hundreds of sites selling these products
at prices you can't afford to compete with.
Products that target a niche market will sell better online than
products aimed at the general population. And remember to ask yourself:
Is this a product I would buy myself?
Most importantly, remember that drop shipping isn't a magic formula
to make you rich. Building a business DOES take a certain amount
of hard work, and this is no exception.
The real "magic" is that drop shipping allows you to
invest your money in marketing rather than inventory, and a well-planned
marketing strategy is what will ultimately help you build a lucrative
online income!
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ABOUT THE AUTHOR: Corey Rudl is the owner of four highly
successful online businesses that attract more than 1.8
million visitors monthly and generate over $6.6 million
each year. He is also the author of the #1 best-selling
Internet Marketing course online.
To check out his site that's JAM-PACKED WITH THE EXACT
INFORMATION YOU NEED to start, build, and grow your very
own profitable Internet business, I highly recommend
visiting http://www.marketingtips.com/tipsltr.html
This guy really knows what he's talking about!
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