An Introduction to Drop Shipping
Is your company diversifying its product line? Or are you launching a new business? Perhaps you want to guarantee that stock will always be in place?
If you answer positively to these questions, you will need to put some investment capital aside for new inventory. However, the procurement of inventory uses up multiple resources including time, money and effort from managers.
This presents a massive risk to any business. In some cases, it will only be worth it if you did not need to buy inventory up front, and only pay for what is sold. But is anyone able to do deals like that?
Actually, some people are. They call it drop shipping. This article is an introduction to drop shipping.
What we refer to as drop shipping is a process for fulfillment whereby merchants purchase goods from vendors who ship the items straight to the customer, who bought the items from a merchant.
The major players in this process are:
Wholesalers & Manufacturers
Manufacturers make products and usually then sell them on to wholesalers. Wholesalers usually buy products in bulk from the manufacturer, then add their own mark up and sell to merchants who require smaller quantities.
Merchants sell directly to the consumer at a price that is a lot higher than the cost of production.
How Can Merchants Use Drop Shipping?
Merchants will utilize drop shipping in a way that makes it the most effective process for fulfillment of customer orders.
This is how it works:
• Merchants establish and develop relationships with vendor companies who have products that they want to sell. If they are selling in smaller quantities, merchants will buy from wholesalers depending on their demand. Merchants who run bigger operations will be able to buy from manufacturers at a greatly reduced price, provided they meet any requirements for a minimum purchase.
• Merchants offer the products, usually via websites or other online marketplaces.
• When the customer has placed an order, a vendor is notified and will then charge the merchant for the wholesale price they need for the product.
• It is then the vendors responsibility to ship the product to customers.
What’s great about this is that the vendor appears completely invisible to the customer, and this is made possible by drop shipping.