How Drop Shipping Works

There are many different types of online retailing businesses. The first type is run by people who are marketing the products that they make or manufacture themselves. The second type of online retail business is run by people who don’t carry an inventory, but who instead market products manufactured by other companies. This type of retailer is known as a drop shipping retailer.

What a Drop Shipper Does

A retailer who is also a drop shipper will make arrangements with a variety of manufacturers to market their products in exchange for a commission on each sale made. The retailer then creates and markets an online storefront that features the products manufactured by their business partners. Customers visit the storefront and select items that they want to buy. The drop shipper takes the orders and processes the payment. They then contact the manufacturers and place an order for a specific item. However, instead of having the product shipped to the retailer, the shipment is usually sent directly to the customer.

Pros and Cons

While drop shipping is a great way to offer a variety of items to your customers without having to maintain a large inventory, there are a few risks involved in this type of retail business. The biggest problem that faces drop shipping businesses is the back order. Back orders can impair your ability to ship orders to your customers in a timely manner, and if it is happening all of the time it could even hurt your store’s reputation. If your wholesale supplier is continuously out of stock of your most popular items, then you may want to look for a new supplier.