If you are interested in launching an online store but are concerned about start-up funds, have you considered drop shipping?

Drop shipping allows you to sell merchandise without ever handling it. The products offered on your e-commerce website come from one or more wholesalers, who will ship the purchased products directly to your customers. For example, Business A is an auto-parts wholesaler with a wide variety of replacement parts for vehicles of different makes and models. Business B specializes in car stereos. You decide to start a business to offer all sorts of car-related merchandise from one easy website and partner with both A and B for their specialties. You forward your customers' parts orders to Business A and the stereo orders to Business B. When the orders are ready, Businesses A and B then ship the goods directly to your customers.

Key advantages

  • Simple to start — You can start a drop shipping business from any location with an Internet connection. You don't have to worry about the hassle of stocking inventory or shipping orders.
  • Lower costs — You don't need to buy merchandise or rent space to store inventory.
  • Bigger product selection — Because you don't need to acquire any inventory, you can offer anything your wholesalers sell.

Potential challenges

  • Low profit margins — Heavy competition in this popular arena drives prices down, reducing your revenue. You may want to focus on higher-margin niche products or greater volumes with products where the margins are slim.
  • Layered billing — If you deal with many wholesalers, you may need to combine various shipping costs, even in a single order, along with drop shipping fees and the markup for your services.
  • Customer service issues — You'll need to develop processes for providing service to customers (order tracking, payment, FAQs, etc.), and a smooth system for returns or exchanges.

Finding suppliers

You will need to register your business and decide what to sell before contacting suppliers. Although many wholesalers offer a wide array of products, you may want to stick to a specific niche to focus your marketing efforts.

Find drop shippers by contacting wholesalers and manufacturers. Tradeshows and supplier directories are good sources as well. Generally, suppliers do not charge you a monthly membership or service fee to do business with them.

Find out more about how to price your merchandise, and get started on your new drop shipping business!