Opening your own online store? Consider drop shipping

July 6, 2015 - Tags: Startup Sales

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!


Comments

Posted by Canada.ca on November 9, 2016
Hello Rae,

Thank you for contacting Canada Business. We are always happy to help you with questions about starting or growing your small business in Canada.

Different GST/HST rules apply for businesses that import or export goods or services. There are certain rules that apply to drop shipments as well. Some goods and services have GST/HST applied to them at a rate of 0% (they are zero-rated), while others are entirely exempt. You can visit the Canada Revenue Agency (CRA) page, "Taxable supplies - How the GST/HST applies in different situations", as well as the section, "How does the GST/HST apply to imports and exports?", which offers information for import, export, and drop shipping, and allows you to select the situation that applies to you in order to get more details. If you have further questions about this, you can contact CRA.

For more information on how and when to charge sales tax for the goods and services you sell and supply to your customers, visit our page "Overview of charging and collecting sales tax".

If you have questions about starting a business in Canada, please contact us. Thank you.
Posted by Rae on November 8, 2016
Good advice! The only question I have is if you are Canadian and your Customer is Canadian, but your drop shipper is from out of the country, and the product will be drop shipped directly to the customer. Do I the seller need to charge Sales Tax?
Posted by bill on November 7, 2016
very interesting information!! dropshipping is my life!!! [...]
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