Drop-Ship Business, How Does it Work

Ever thought about starting a business but don’t have anything of your own to sell? Maybe you thought about starting an online business but you don’t know what to sell or you know what you want to sell, you just don’t have the money for warehouse costs. A new business model is catching on quick and you can be a part of it. It is called drop-ship.

What is drop-ship? Drop ship is a simple way for people to start a business when they have no product to sell. I have no doubt you have seen drop-ship products for sale. Maybe you have even bought one. There is nothing wrong with that. All you are doing is helping the economy.

Drop-ship is when a business owner, such as yourself go into an “agreement” with a supplier or distributor. All you do is advertise and sell the product for the supplier. The consumer purchases the product off of you for the price you set. Once the order has been made you forward the order to the supplier along with what the price is you are purchasing the product for. The supplier ships the product directly to the consumer. You never see the product. You are a middle man so to speak.

Still confused? If you are don’t worry, I was too when I first learned about drop-ship. Have you ever ordered something from say Sears, or JC Penney for delivery and they say “it will ship directly from the manufacturer?” Well that is drop-ship.

“But how do I make money from drop-ship”? That was the question I asked myself. So I decided to give it a shot and see what happened. Here is how it worked when I tested drop-ship. I would put up an auction on eBay for product XYZ. I set the product price at $9.95. Shipping was set at $4.95. That meant total price was $14.90 the consumer would pay me. Now for product XYZ my cost from my supplier was $1.95 plus $7.95 for shipping. I was paying $9.90 to my supplier. This left me with a $5.00 profit for each sale.

I know you are probably thinking the same thing I did, “Five bucks, big deal”. Five dollar profit isn’t much. But if you have your own website and can generate enough traffic to sell 10 XYZ (that is $50 profit a day) what would you say then? At $50 a day with 30 days in a month, basic accounting calendar, that is $1500 a month. For most of us that is not enough for us to live off of. For most though it should be enough to make a house payment.

Drop-ship is one way to get into business. You must be cautious if you begin looking for a supplier to use the drop-ship business model. Your good name will be attached to that supplier. If the supplier does not make good on his end of the business transaction the consumer will be looking to you to fix the problem or refund them their money. Plus they will smear your name all over the internet. Ever notice everyone likes to write negative reviews and not many positive reviews? It will happen though. Picking a supplier is just like buying a new car. Shop around and talk to the prospective suppliers before you commit. It could save you big dividends in the long run.

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