One of the keys to small business success during difficult economic times is finding the right balance between doing things in-house and outsourcing those tasks. Small business owners looking to keep their inventory stocks low and their cash flowing may want to consider using the services of an outside drop shipping company.
Drop shipping allows retailers to take customer orders and direct them to a drop shipper, or wholesaler, who then ships the merchandise directly to the customers. The retailers profit by charging customers more than the wholesalers charge the retailers.
Drop shipping clearly has advantages over traditional retailing. For one, business owners don’t have to lay out money to keep items in stock. In addition, the business owner can maintain a positive cash-flow cycle: the seller is paid when the customer makes a purchase, but he or she can delay paying the wholesaler by paying with a credit card. Moreover, the retailer saves on shipping costs, because one warehouse packs and ships all the merchandise.
Like all business trends, drop shipping has potential pitfalls. Here are a few quick tips on how to effectively use drop shipping in your business:
- Do some research before agreeing to work with a particular drop shipping company. Drop shipping attracts some of the biggest scammers on the web. Some people who claim to work as wholesalers are essentially middlemen who connect you to actual wholesalers. These swindlers then retain most of the profit. Avoid this trap by using good sources, such as trade shows, to find wholesalers. You can also check out worldwidebrands.com and salehoo.com for up-to-date lists on verifiable wholesalers.
- Safeguard your own reputation. The drop shippers represent you. Poor customer service and sloppy packing reflect poorly on your business. If the drop shipper back orders products for a lengthy period of time, impatient customers might cancel their orders and never return to do business with you. Before using a drop shipper, check the policy on back orders and returns.
- Assess your profit margin. Of course, you pay the drop shipper for the service. Determine whether the price differential between what you charge the customer, and what you pay the shipper, is enough to warrant outsourcing your business’ inventory management and shipping.