Running an online business based on drop shipping makes it possible to earn money online with a very small investment and little overhead. If you are not familiar with what drop shipping is, think of it as being an order fulfilment provider. You represent other distributors by offering their products in your store. When customers purchase those products, you place the order with your distributor and have it shipped directly to the customer.
Drop shipping is certainly not for everyone. Margins tend to be low and competition fierce, but it is a good business model for online retailers who do not want the hassle of setting up a business complete with large-scale inventory and all that comes with it.
As a Shopify user, a drop shipping business should be very easy to set up. You simply create your Shopify store just as you would if you were maintaining your own inventory. The only difference is that you turn around and place orders after your customers order from you. Having said that there are three things to watch out for if you plan to go the drop ship route:
1. Time Spent
One of the biggest drawbacks of drop shipping is the time it takes to both enter products into your store and fulfil orders. Without a good system in place, you could spend a tremendous amount of time entering, modifying, and deleting products. Remember this: time is money. If you are putting in 80 hours a week to earn less than you could get working 40 hours for someone else, you might want to rethink how you are doing things.
There are a small number of apps that help in this regard by offering you one-click product management from select retailers. The ShopifiedApp from AliExpress.com is just one example.
2. Shipping Requirements
A drop shipper working with multiple distributors may be subject to different shipping requirements. These requirements may not be an issue when customers order just one product or multiple products from the same distributor. But if you are dealing with multiple products from multiple distributors, the shipping requirements may vary within the same order. Sometimes managing them costs extra.
You obviously do not want to pass those extra shipping costs on to your customer, unless you don’t mind the risk of causing a problem. Otherwise, you will have to swallow the extra charges yourself in the end. Keep this in mind when setting your prices. Yes, margins in the drop shipping business are naturally low. Still, you don’t want to create a losing proposition by not charging enough to cover extra shipping.
3. Distributor Inventory
Drop shippers rely on distributors to fulfill orders in a timely manner. Inventory can be a problem, especially around the holidays, when working with smaller distributors. Therefore, it’s a good idea to establish relationships with major distributors to start with. Do not risk the short-term future of your online store by signing up with small or less reputable outfits that may not be able to fulfill orders.