Answers to 4 Common Questions About Drop Shipping
Drop shipping has become an integral part of business for many e-commerce companies. For some, it’s what makes business possible. But what is drop shipping? How does it work, and it is something your business can use? Here, we answer some basic questions about drop shipping to help you decide if drop shipping is something your business needs.
1) How Does Drop Shipping Work?
Drop shipping, put simply, is when a retail outfit outsources the handling of inventory and shipping to another company. When the retail company makes a sale, they then purchase the item from a warehouse or manufacturer, who then ships the inventory to the customer. Sometimes the arrangement is made with a logistics firm. In this case, the order of operations is the same: the retailer makes a sale, then buys the product from the logistics firm, who then ships the product to the customer.
In either arrangement, the purpose is the same. The retailer handles the sales, while the warehouse or manufacturer handles the logistics.
2) What Are the Benefits of Drop Shipping?
There are a number of reasons a firm might use drop shipping. Here are a few:
- It saves on storage, management, packing, and shipping of inventory
- It frees the retailer to work from any location
- It enhances scalability in response to a growing customer base
- It decreases initial investments and other startup costs
3) What Does Drop Shipping Cost?
This depends on your business model. For a company that buys and sells very large quantities of product, it’s probably not cost effective to drop ship. For instance, if you’re selling millions of units, you’re probably missing out on some wholesaling discounts (among other benefits) by having someone else stock your goods. That said, not everyone is selling millions of units.
For smaller outfits, the benefits can be significant, as you only incur an expense when you make a sale. A business that is just getting started can offset some common costs that way, making it easier to make a profit in the early days, when customers can sometimes be scarce. So where you are in the lifespan of business can have a huge impact on the cost of drop shipping for your business.
4) Should I Use a Drop Shipping Company?
This has a similar answer to the previous question: it depends on your business. If your business is:
- New to the market
- Selling small quantities
- Dealing with a small startup budget
- Looking to get off the ground quickly
Then you may benefit from using a drop shipper.
If you have further questions about drop shippers, or you want to know how a drop shipper can get your business up and running, contact Elite Ops to learn more.