Learningly

Have you ever heard the term drop shipping?  Do you know what it means?  Drop shipping has absolutely nothing to do with dropping your Christmas packages in the mail.  This is a term which is employed in business on a more and more frequent basis.  This concept was perfected by Michael Dell and Dell computers.  This means that the company from which you are ordering something does not keep an inventory.  This is a highly profitable business practice, because it limits the overhead of the company making the sales.

Once your order is placed, the selling company forwards your order on to a wholesaler, or directly to the manufacturer for order fulfillment.  This in essence makes the company you are dealing with a middle man, but one who is very skilled at being a middle man.  Most of the time, when you are dealing with a company who does drop shipping, you do not even know.  This is also a common practice on websites like eBay, or with third party sellers on sites like Amazon.com, because they are able to list or auction an item at higher than wholesale value, and retain the difference when the wholesaler ships you the item you have purchased.

If you are running a business and are considering using a drop shipping method, make sure that you are aware of the risks involved.  The main risk in running a business using drop shipping is that there is not a guarantee that the item will be available from the wholesaler when your customer orders it.  This would lead you to have to purchase it for retail or more in order to keep your customer satisfied.  You cannot predict backorders at wholesale distributors.

The benefits of drop shipping far outweigh the risks most of the time.  This is because first, you don’t have to spend money on accumulation of an inventory.  Secondly, you do not need to have a storage facility for your inventory, which saves you rental costs, and utility costs.  If operated properly, a small drop shipping business can be run from one computer.

Drop shipping sellers are often beneficial to the customers, because they will have a slightly lower cost to the customer, due to their decreased overhead.  The drop seller, will have a cost slightly lower than the average retail cost, because they want to attract more customers and reap the most rewards from their chosen method of business operation.  Businesses are always seeking an edge over their competition, and drop shipping can be that edge if the business operators don’t get overly greedy in their practices.

Operating your business in this manner is a great idea, but you need to go about it in an ethical manner.  Customers are wary of getting taken advantage of, but also tend to be loyal to businesses who meet their needs and who operate honestly.  Working to meet your customer’s needs will allow you to have a successful business for the foreseeable future.