Every business wants to see big demand for its services. But when you’re running a small eCommerce business, big demand can often spell disaster if you lack the capacity to fill and ship out orders. After all, it’s hard to secure enough capital to invest in a whole load of inventory you aren’t confident you can sell, and it takes a lot of time and energy packing and shipping orders all over the place.
That’s precisely why more and more small businesses are experimenting with drop shipping.
What is Drop Shipping?
Simply put, drop shipping is a retail fulfillment method in which a business does not keep the products it sells in stock. When a drop shipping arrangement is put in place, a store will sell a product online. Then, the business will purchase the item it has sold from a third party, and have that item shipped directly to the customer.
Bearing that in mind, drop shipping means that the merchant never actually touches the product being sold.
Why Do Businesses Use Drop Shipping?
Drop shipping isn’t for everyone, but it does come with a clear set of advantages for certain businesses.
First and foremost, choosing to drop ship items means that you won’t need as much capital to get up and running. If you launch an eCommerce store using the drop shipping method, you don’t need to invest up front in any inventory whatsoever. In fact, you won’t need to purchase a single item until you’ve already sold it to a customer.
Likewise, small eCommerce businesses tend to drift towards the drop ship model because it has exceptionally few logistical constraints. By drop shipping, you won’t need to worry about managing a warehouse or renting space, shipping your orders or handling returns.
That means lower overhead, flexibility in terms of location and the ability to offer a huge selection of products of all shapes and sizes. This makes scaling up a whole lot easier, which can increase your bottom line substantially.
That being said, it’s worth pointing out that drop shipping does come with a few disadvantages, too. Margins are usually pretty low — and because you’re relying on the competency of suppliers and third parties to fulfill your orders, drop shipping takes a lot of business elements out of your control.
How Can I Use Drop Shipping for My eCommerce Business?
First and foremost, you’ve got to do your homework. If you run an existing eCommerce business, it’s worth conducting some extensive market research in order to figure out what you stand to gain or lose from striking a drop shipping agreement with a third party.
If you feel that drop shipping is right for your business, there are plenty of options to explore. There are a wide range of drop shipping companies that specialize in imports, exports and every niche product you could possibly think of — and they all come with their own fee structures, terms, pros and cons.
If you manufacture your own products, or are trying to free up space you currently occupy in a warehouse, eCommerce platforms like Amazon offer their own fulfillment services in which you can use their space and resource to store, sell and ship your inventory.
Just remember: Rome wasn’t built in a day, and you might experience some trial and error in terms of finding the right drop shipping partners and a sustainable level of integration. But if you truly think drop shipping could bolster your eCommerce business, it’s definitely a possibility worth exploring.
Drop Shipping Photo via Shutterstock
This article, “What is Drop Shipping and How Can I Use It In My eCommerce Business?” was first published on Small Business Trends