Drop Shipping Business: How To Do It Right And Avoid Getting Scammed

Picture this. You sell a product that you don't ever have to store. You set your retail price and every time you sell, your wholesaler ships the product for you to your customer's door in your name and you keep the profit. How is that possible?

It's called drop shipping. Simply put, a drop shipper is a distributor that will ship products in single units directly to your customer in your name. The purpose of this article is not to convince you to start a drop shipping business but to give you pointers on how to start right and avoid common pitfalls.

The Beauty of Drop Shipping

One of the greatest challenges for people interested in starting a home business is where to find products to sell. If you don't have thousands of dollars to invest in products and storage and want to avoid the hyper-competitive business of information products, or the dreaded multi-level business, drop shipping might be the answer.

The most obvious advantages of drop shipping include: you never have to deal with the headaches of warehousing, packaging and shipping, and you don't tie down your limited financial resources in inventory.

Other advantages are: no leftovers, you can change or add products easily and instantly, and no limitations as to what you can sell. Plus, you get to use your customers' money to run your business and "carry" brand-name products and look big. Is this cool or what?

The Dark Side of Drop Shipping

Beware. While drop shipping business may be simple, finding a true, reliable drop shipper is not. Scam companies lurk, ready to relieve you of your hard-earned money, or profit from your hard work.

For starters, some "drop shippers" are just middle-men who contact the real drop shipper when you place an order. They use you as their salesperson, so you use your money and time to find customers, and cut into your profit.

Others are fly-by-night operations. They will take your money and disappear. In short, scam.

Once I responded to an impressive full-page ad in a business magazine. The advertiser claimed to be drop shippers, and even promising help through support and business advice. To cut a long story short, the "drop shipper" rarely delivered my orders as promised and in many instances I had to re-order elsewhere and absorb the losses to avoid disappointing my customers.

Later I found out that the company was not the real drop shipper, when I discovered their source.

A few years ago, an eBay™ Powerseller (someone who sells a lot on eBay™) was in the news. Having sold a number of high-ticket items at an online auction, he then paid a drop shipper to deliver them. Imagine his agony when the company suddenly closed down without delivering his orders, or refunding his money!

I once paid a $100 "dealer fee" to another "drop shipper". I received a pretty catalogue, but which probably cost pennies a copy to mass-print. When I went back to order, the website had disappeared without trace. At least all I lost was the dealer fee. Others might not have been as "lucky".

Back-ordering is another big concern in this type of business, especially with hot items. If you are selling a product quickly and easily chances are, someone also else is. Since it's a hot item, you and others are ordering several at the same time. Soon the product runs out of stock and you have to wait for the next shipment. Meanwhile your customers are screaming for their orders.

Okay, But Can You Make Money with Drop Shipping?

Can you make money with drop shipping? Yes and no. What do I mean? Well, as with any business, drop shipping will only work if you work and apply age-old principles of service, common sense, knowledge and a dose of wisdom. It is not a magic pill to make your money problems disappear. Sorry if I just busted your bubble.

Some eBay™ Powersellers, Internet marketers, and top mail order companies operate on drop shipping and are selling like crazy and making six-figure incomes, even multi-millions. Drop shipping works, big-time.

It is simple (and I don't mean easy). Find the right drop shipper(s). Decide what products to sell, find a way to let people know what you have to offer (examples; through eBay™, running ads, building a website etc.) and you could be on your way to an enviable lifestyle.

It does take some homework, and that word that gives most people the creeps: testing. But you must have right product supplier(s) to start with.

Finding a Good Drop Shipper

There's a hard way and an easy way to find a good, reliable drop shipper.

The hard way is, do your own research. Attend trade exhibitions and/or call or write manufacturers and distributors, and negotiate drop shipping terms. Used to large-scale buyers, most will just not be interested.

You could also use search engines and/or trade publications. In both cases you may have to weed through the dozens or hundreds of companies one at a time. Fine, if you have the time (and patience).

The easy (and quicker way) has two options. First option: talk to a friend who does it and who is willing to tell you his/her secrets and possibly become a competitor.

The second option and one most favored is to find the research done and ready for you to use, for a nominal fee. Where to find this?

The answer is, a reputable drop shipper's directory. Why?

Because, with a reputable drop shipper's directory, you get a large database of verified, updated and tested drop shippers, all ready for you to use. Also, you get a wide selection of products to choose from, so you can pick a line of products to specialize in and avoid hyper-competitive ones.

What to Look For in a Drop Shipper

When shopping for a drop shipper, look for one who will ship small orders, especially if you're just starting out as you will likely not have many orders.

Also important is the experience of the drop shipping company. One more reason for going with a reputable drop ship directory as they likely will have some history and user feedback about their listings.

Of course, you don't want customers to know that you use drop shippers, or find out your source. Therefore the drop shipper must use your name and address on package labels as well as invoices.

Instant updates on inventory would be additional advantage as this helps avoid or lessen problems of back-ordering. Top-rated drop shippers will almost certainly have this benefit.

What to Avoid

Avoid drop shippers that require you to pay a monthly fee, unless they are a known franchise. Why should you pay a monthly fee to help sell their products unless they know that you're unlikely to make sales?

Also, don't accept offers for free websites or "turnkey business". There are exceptions, but most free websites are nothing but electronic catalogues. Your website will look exactly like hundreds of others, and you can only sell products from that company.

And oh, steer clear of those cheap drop ship directories you'll find all over the internet, in business opportunities magazines and online auctions. You will simply get a bunch of non-working phone numbers, broken or dead internet links and scam companies.

The company's physical address should be clearly displayed (check the "contact us" or similar page) on their website. If it's a PO Box, tread carefully. If no address, run!

Look for a working phone number. If they are as big as they claim to be they should be able to afford a business phone and someone to answer it. Call and insist on talking to a real person. Ask questions: they should be happy to answer questions from a prospect and if not, be very suspicious.

Avoid companies with an exclusivity clause in their terms as you can only sell that company's products unless, of course, the company is a known franchise.

All costs must be disclosed before you commit. Watch out for companies that appear to have very low prices but sneak in exorbitant shipping and handling costs or "drop shipping charges".

Setting Up Drop Shipping Accounts

Some distributors will require that you have a tax ID number in order to set up an account. Others (not all) may require that you pay a dealer fee or place cash deposit. These, mainly, are measures to ensure that you're serious and not just another curiosity seeker or bargain hunter.

With stiffer competition, rules for setting up accounts are getting more relaxed.

Some distributors will mail you a wholesale catalogue and price a list. One company sends three price lists: one with lower than wholesale prices, so you can sell in wholesale, another with wholesale prices and a third with suggested retail prices. Others will send you a CD or let you access pictures and prices through their website once you sign up.

Conclusion: Drop shipping is a high-profit, low-cost business with unlimited potential, that can be run successfully from home. Drop shipping is one of greatest business innovations ever. With reliable drop shippers, your little home business is ready to sell brand-name products worldwide just like the big guys.