Drop shipping has grown to become a huge industry in recent years, driven from a growing demand in a number of areas. It provides a low risk business model, and a way for businesses with limited resources to focus their efforts on other areas of their business, instead of on fulfilment and logistics.
What is Drop Shipping?
As a business model, drop shipping is a set up where an organisation runs an online store to sell products that they do not hold in stock. In many cases, they may not even own the title to the products until they are sold. When a sale is made through the online store, the drop shipper places an order with their supplier, who in turn ships the product(s) directly to the customer.
This means that a business is able to offer a much wider range of products without being exposed to the risk of investing in products. It can be a way for businesses to test new products before making a longer term commitment to them, or the way the entire online store operates. It allows a business to sell products to its customers without ever touching a single unit.
By never having to touch a product, businesses are able to benefit from low start up costs, low barriers to entry and the opportunity to build an automated business. In the context of drop shipping, an automated business works by creating a system where the business owner doesn’t need to manually intervene when a customer makes a purchase. Instead, the software will automatically pass this order to the drop ship supplier, who will in turn fulfil the order from their warehouse.
What Products Can Be Drop Shipped?
Any. You’ll find drop shipping businesses selling mobile phone cases, clothing, gift cards, cosmetics, computer parts, and more. There is no limit to what can be sold on a drop ship basis.
Who Can Drop Ship?
Organisations with large, established brands can use drop shipped merchandise to build a community and promote brand loyalty. These stores may make a profit directly by selling products, or indirectly by providing products to customers as a reward for spending a certain amount of money, or for being a customer for a certain length of time. An example of the latter is the PokerStars “Star Rewards” programme, where customers can earn “StarsCoin” from playing games, and then spend them on clothing products, books and chocolate in the Rewards Store.
In contrast, YouTube creators frequently use drop shipped clothing products as an additional revenue stream. This has become more common over the last few years, as YouTube has begun to demonetise videos that it deems to be controversial or not “advertiser friendly”. YouTube creator “BeatTheBush” is one such entrepreneur. He regularly promotes his “Infinite Vacation” t-shirts in his videos, the t-shirts feature a honey badger, which is the mascot of his channel. These t-shirts are sold through the website Bonfire, which provides a platform for businesses to to drop ship clothing products direct to their customers.
Drop Shipping Downsides
Drop shipping brings many benefits to businesses looking to sell products online. There are, of course, drawbacks to this business model. The biggest of these is that drop shipping generally provides lower profit margins for businesses as they aren’t able to benefit from economies of scale. One solution to this can be using a fulfilment service, like Amazon’s “Fulfilment By Amazon”, where businesses can purchase products in bulk and ship them to Amazon, who will store them in their warehouses and ship them direct to customers when an order is placed. This allows businesses to benefit from larger profit margins on the products, but exposes them to the risk of being stuck with stock they can’t sell.
Which to Choose?
There is no set answer as to which option is best for businesses. The best solution will depend on the business’ appetite for risk, the type of product being sold, and the resources the business has available. If you are an entrepreneur with a startup business or YouTube channel, a 100% drop shipping method may be the best solution. Whereas, if you are an established business with a large customer base, it is more likely that you will be able to sell products that you buy in bulk. In that case an outsourced fulfilment option may be the best solution. What is clear, is that drop shipping is attractive to many, and will therefore likely grow for the foreseeable future.
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