What Is Drop Shipping and How Does It Work?

What Is Drop Shipping and How Does It Work?

what is drop shipping

If you’re unfamiliar with drop shipping, it’s not too late to get into the game. This article will detail what drop shipping is, how the process works, and how you can utilize it for your eCommerce business.

What is Drop Shipping?

It’s really quite simple. Drop shipping is when you’re selling a product that:

  1. you haven’t purchased
    and
  2. isn’t in your possession

Essentially, you’re listing the drop shipper’s (aka the manufacturer’s) items on your websites and marketplaces and then they’re shipping the item directly to the customer – and billing you.

How Does the Drop Shipping Really Work?

  1. List the drop shipper’s items
  2. Grab quantities as often as their back-end systems allow
  3. Apply a buffer to their quantities
  4. Update the quantities to your marketplaces
  5. Sell the items
  6. Send the orders to the drop shipper
  7. Ensure that items are shipped out without delay, in accordance to your agreement
  8. Acquire the tracking number and update it into the system, so that it will notify the customer

These steps can be pretty cumbersome (especially if you sell high volumes of drop shipper product, or if you have multiple drop shippers, or if you sell high volumes of multiple drop shippers’ product which can get crazy) so I do recommend setting up a custom system to integrate with your current back end systems – but only after it’s been tested for a few weeks manually. The benefit of testing it manually first is that it not only ensures that the drop shipper can ship on time and accurately, but that the product will sell. Custom integration is expensive – make sure that your drop shipper is worth the cost.

illustration of a forklift operator drop shipping packagesThings to Find Out / to do Before Drop Shipping

International drop shipping

  • Not all drop shippers will ship internationally – make sure you know where they stand on this issue. If the drop shipper doesn’t ship internationally but you’d like to deal with them regardless, you can either:

    1. Choose not to sell those items internationally
    2. Preferably, you can have them ship all international orders to you a few times a week, and send them to your customer yourself.

    If you choose to handle international orders in this manner you will want to ensure that your listing states there will be a few days extra processing time for international orders.

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  • Agree on time frame for shipping orders

    The key to a successful drop-ship relationship is to make sure that your agreement with them clearly states the amount of time they have to get orders shipped. It’s absolutely not worth it to start using a drop shipper, only to have them ship orders late. Late orders will only damage your feedback on your marketplaces – and any drop shipper that’s hurting your overall sales and rankings is not one you want to keep working with.

  • Stay on top of your drop shippers

    Even with an agreement you’ll want a way to monitor and alert them when items have not had a tracking number returned in the agreed upon amount of time.  If this is consistently happening, or you aren’t getting a good response when you attempt to contact them, you may want to consider “turning it off” until further notice and you feel more comfortable that they can ship on time.  Some drop shippers have trouble keeping up during the holidays, so it may make sense to discuss peak seasons with them before it gets too busy and try to assess if they will be able to handle it.

In short: drop shipping can be very lucrative. It has a very low, upfront cost since you’re not actually purchasing the items until after you have sold them. Virtually your only cost is listing, customer service, and automation – none of which should be too costly if you’ve got a good warehouse management system. A good drop shipper with good product will yield a worthwhile and beneficial relationship that makes both parties money for years.

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