Should you use drop shippers?

By Charles Hopkins Published 04/7/2006 | Business and Finance
There are two clear functions involved in an e-business. The first is setting up a website and attracting traffic; the second is setting up a supply chain and ensuring deliveries. You cannot get away from the first but you can surely find a drop-shipper to do the second.  Drop-shipping is an arrangement between you and a third party under which the third party ships all orders placed on your website by your customers. This third party can be a distributor, a manufacturer or an independent service firm specializing in shipping e-commerce products. The biggest advantage of drop-shipping is that it saves you the bother of warehousing and shipping logistics. You can focus your entire attention on building your website, driving traffic to the website and adding new products to it. When a visitor orders a product, you just transfer the order to the manufacturer or the drop-shipper who packs the product, pastes the address and ships it.  Since drop-shipping does not require stocking goods, there is no worry regarding leftovers, wastage or stock clearance. Your money also remains free and does get blocked in maintaining stocks. You can also drop a product whenever you sense a drop in demand for it. However, it is important to choose a reputed company as your drop-shipper. This is the area that requires research and groundwork. You must avoid middlemen. First, they cannot be trusted fully; second, you are not sure of the kind of service they will provide; and third, they may ask for a commission that may shrink your profits dramatically.  It is better to deal directly with the manufacturer or distributor.  Track down the manufacturers and distributors; compare terms and conditions, negotiate commission before finalizing a deal. You can find distributors in your area by writing to the manufacturers or going through the related business magazines or yellow pages. The questions you need to ask the company you wish to deal with are significant. First, the wholesale price offered should be low enough to keep a good margin for you. Second, who will bear handling charges? If they pass the handling charges to you, then your profit margin is reduced.  You also need to know everything about their delivery system. Each shipment must have a tracking number for the customer to track its progress. Similarly, you need to finalize the billing system. It is better to opt for a monthly payment cycle.  Also, check what warranty or guarantee they offer, and their policy on returns. If they do not accept returns, then you are the loser because you will have to refund the money to the customer.  You should avoid companies that demand a monthly fee from you for drop-shipping their products. Choose a product that is not over-burdened and for which there is a heavy demand. Choose for the exclusive rather than the general market. These are a few precautions to take when starting off. You need to review the drop-shipping arrangements regularly, and make adjustments as and when necessary. If done properly, drop-shipping can be a good way to improve your business.