June 15, 2019 0 Comments Business, Careers, Education, Finance, Industrial/Construction, Tech

What is Drop Shipping and How Can You Build a Business From It?

If you use social media then you may very well have ran into some sponsored content from people who have found success in drop shipping and wish to pass on their knowledge to you. For many the term drop shipping is something which they haven’t heard about before so we wanted to clear up some of the confusion which exists around this term. When done right drop shipping can be very profitable and it is a business model which will suit many people who want to create their own company. Let’s have a look at what exactly drop shipping is, and how you can create your own drop shipping enterprise.

In a Nutshell

The most basic explanation drop shipping is that it is a business which sells products without having to house these products prior to sale. The art of good business is to be a good middleman and this is where drop shipping takes its position, a business sells products from its website and processes the order, but it is the manufacturer who completes the order and delivers the product to a customer.

Where Is The Profit?

Let’s say that you want to sell health products and you find a manufacturer who will sell a certain type of supplement at $15 per unit. You will then set up an online store which sells this particular supplement at $24 per unit, the customer orders directly from you and then you pass on the customer information and shipping details to the manufacturer who completes the order. In this situation you’ll make $9 on each unit sold, from which you’ll deduct any costs and overheads which you have. In some cases drop shipping retailers make a deal with the manufacturer to take a percentage of each sale, these are the two methods by which drop shipping companies make their money.

Win-Win Situation

As you can see by the example this is a business model in which everyone wins, the customer gets their product, the wholesaler makes sales without having to market their products and the drop shipping company will make money for putting the two ends of the supply chain in contact with one another. Something we are seeing more and more of is retailers making deals with manufacturers, so that the packaging and labels on the products feature their own logos and information, when this happens the retailer will of course pay a cost for the service.

Setting Up

Because of the fact that the retailers is not required to handle or store goods, it greatly brings down the cost of any overheads such as rental of warehouse space. To set up your own drop shipping business you need to create a beautiful looking website and market hard, as well as putting deals in place with the manufacturers of your products. This is not an easy business to put in place and you’ll have to work hard to get the best quality products at the lowest prices. Once the business is set up however it can be extremely successful and can bring in significant revenue.

Be aware when you are reading online information about drop shipping because many use the allure of a ‘work from home business’ as an opportunity to scam people who are looking for something new. This is a great business opportunity but it isn’t easy and it won’t make you a millionaire overnight.