Drop shipping has become a popular business model thanks to the ease and accessibility of online transactions. Drop shipping occurs when a seller takes orders online and passes them on to the manufacturer or wholesale supplier for fulfillment. The drop ship supplier then ships the product to the customer and bills the seller.

The difference between the drop ship supplier's price + shipping and your sale price make up your profit.

Why do sellers prefer this arrangement over the traditional ways of buying and selling wholesale products? Here’s why.

Advantages

• You do not need to store inventory, which reduces risks like overstocking, unavailability of product due to understocking, losses from unsold stocks, damage to stored items, and so on. You do not need to hire warehouses to stock items, and you do not have to handle shipping or packaging. Start-up costs are low because as a seller you don't need to store inventory.

• You do not have to track shipments. Also, the seller does not have to take the trouble of packaging products and shipping them to customers.

• You can sell as many types of products as you like, because you are not bound by inventory.

For all of its advantages, drop shipping can turn into a bad experience if you do not deal with certain issues before starting your business.

Suppliers

Finding dropship wholesalers is key to a successful dropshipping business. Online drop shippers should be investigated before using them, as dropship fraud is common. Watch out for these signs of drop shipping fraud:

• Fees To Supply Your Customers With Product: Genuine drop shippers do not ask for any fees. The only payments you make are the product and shipping costs.

• Little-Known Shipping Companies: You need reputable couriers who will handle the consignment in a professional manner and assure timely delivery. The seller may lose its reputation if the products arrive at the customer’s doorstep in a poor state. Therefore make sure your drop shipper uses well-known delivery companies, and resist the temptation to go with drop shippers who use unknown, inexpensive shipping companies.

• No Return Or Exchange Policy: This can leave you as the seller in the lurch, particularly if there are multiple instances of substandard product. Before signing up with a manufacturer, ask about their return policy.

• Poor Reviews: A simple online search will help you uncover drop shipping fraud. There are websites dedicated to reviewing drop ship manufacturers and suppliers who sell products at wholesale prices. If these suppliers have been given poor ratings, avoid doing business with them.

Supplier-related problems include getting a desired wholesaler interested in doing business with you and maintaining a good relationship with the supplier:

• Experience: Many manufacturers are not interested in drop shipping. They prefer to do their own marketing and sales, and to sell in bulk. You should look for large manufacturers who would rather focus on manufacturing than on sales and promotion. The seller brings them customers and, in return, he or she gets to make a profit on the products sold through the manufacturers on a drop shipping basis.

• Business Relationship With Suppliers: many manufacturers or wholesalers may have grievances against sellers wanting to do business on a drop shipping basis. They may feel they are asked to take unfair risks by drop shipping products at reduced prices to a customer base that is already accessible to them, and can therefore consider your services as a referrer superfluous. Manufacturers may claim that drop ship resellers are not serious about their business, because they are unwilling to invest in stock holding and thus bear little risk. Due to this lack of risk taking, many manufacturers receiving requests to drop ship their products will consider your requests not worth their time investment in setting you for such an arrangement. You need to build a workable relationship with the manufacturers and convince them why partnering with you on a drop shipping basis is a good idea.

Creating an Online Presence

The only way to expand an ecommerce business is to create an online presence that will get your business noticed. The Internet is an inexpensive tool to promote business, if you choose the right channels. A lot of sellers start out by selling via eBay or Amazon.com. These sites provide access to millions of buyers, and also feature profiles of online drop shippers you can get supplies from. Drop ship directories are also useful; they list drop shippers for every kind of product, whether it is cosmetics or baby products or electronic goods. They have forums where new drop ship agents can find advice and business leads.

If your eBay business takes off, the next step is to create an ecommerce website. Website hosting is cheap, but you may have to spend anything from $500 to $2000 on professional site design and development. If you want developers to maintain the site and offer regular technical support, you have to pay them in addition to the price for site development. Usually, the cost is worth it only if your business leaves you no time for handling technical or development issues of the website. A credible, professional-looking website that people know about it draws in more customers. It is also easier to convert leads if your site or landing page is well structured and offers relevant information.

By choosing the right suppliers, avoiding drop shipping fraud, and using online tools to advertise and carry on business, drop shipping can be a very lucrative work-from-home business experience.