Drop ship businesses

Aaron C Rescue

I have seen very little on these forums regarding the 'Dropship' internet business model. As there are an awful lot of them out there I think its about time we had a thread on it.

What is your experience of all thing 'Dropship'.

Rinske

Sorry, probably a stupid question, but what is the dropship business model for model?

You might think I have lived in a cave or so for the past couple of years, but I have not heard that term before.

AK002

Rinske wrote: »

Sorry, probably a stupid question, but what is the dropship business model for model?

You might think I have lived in a cave or so for the past couple of years, but I have not heard that term before.

Me neither and i'm young and hip lol!

deanshepherd

Small margins, lots of admin..

Works well for some though.

Aaron C Rescue

Dropship business model is essentially where someone e.g. a website, sells a product and asks a third party to ship that product direct to the customer. (similar to Amazon third party suppliers)

The original website takes card payments via their website/and or over the telephone, the customers order is then placed with the supplier who ships direct to the customer, and provides them with invoice containing the branding of the company the customer paid their money over to.

The profit is generated as you are selling the item for more than the dropshipping company are charging you... Simples!

So you although you are a 'shop' you never have to buy any stock, and your cash flow problems are derived not from bad debtors, but from how soon your Merchant Server chooses to deposit the payments made into your account.

Monsoon

Aaron C Rescue wrote: »

but from how soon your Merchant Server chooses to deposit the payments made into your account.

Which can be a month later in some cases!!

Rinske

I'm not old and dusty! Still 30 years young

Rinske

With regards to the dropship companies, I'd rather spent some time finding the cheaper supplier and buy it directly from them! Tight, maybe, but why pay more if you got the internet and can compare prices so easily nowadays.

Although Amazon has the benefit of being very well known as safe, if there are so many of them, I'd go with one I know to be safe for internet purchases or a direct seller.

blobbyh

Rinske wrote: »

I'd rather spent some time finding the cheaper supplier and buy it directly from them! Tight, maybe, but why pay more if you got the internet and can compare prices so easily nowadays.

But that's at the crux of Aaron's thread. The cheaper goods you're purchasing online might possibly be from a dropship supplier. Essentially they're just the brokers between yourself and the manufacturer, the latter shipping the goods directly to yourself rather than the middle man (the online seller). Because the seller you're buying from may never actually see the physical goods themselves, they never hold stock and thus avoid all the associated costs and risks of storage.

Even some high street retailers could anonymously use drop ship methods: for example, do you really imagine that Argos (just a fair guess) have actual physical stock of every single product in their catalogues? They'd need a warehouse the size of a small country to hold it all and a cash supply as seemingly limitless as that of a Labour government, so things like beds, sofas etc probably ship straight from the manufacturer using the drop ship method. They use your money once you've paid to buy the goods direct from the 'OEM', so their risk is actually quite low - unless the goods never actually turn up! Their cut is the difference between their cost price and the price you paid. Low risk, low investment. Great business model eh?

deanshepherd

When all goes well drop shipping is good. Problems arise when the customer is not happy with the goods as they will come to the seller who then has to liaise with the supplier for their return and/or replacement. Each supplier will have different returns policies, delivery times and standards of service so issues generally take longer to resolve and the small margin you make on each item can quickly evaporate.

Rinske

Ah getting there now!

Allthought the extra price for his margin is the bit I don't like to pay.

So I still don't think I bought stuff from a dropship company, other then amazon though!

It's a nice concept, I think! (Still learning), but I'm quite sure it's not something I would setup! Also I still think you can save money by buying from the manufacturer, depending on the discounts the dropship company gets and what their margin is.

deanshepherd

Rinske wrote: »

Also I still think you can save money by buying from the manufacturer, depending on the discounts the dropship company gets and what their margin is.

Not unless you have a warehouse the size of each dropship company you won't. The reason it works is that the dropship companies get bulk discounts that you can't get unless buying in the same quantities.

Rinske

deanshepherd wrote: »

Not unless you have a warehouse the size of each dropship company you won't. The reason it works is that the dropship companies get bulk discounts that you can't get unless buying in the same quantities.

Fair enough. Didn't think of that, as I would expect dropship companies to buy one when they receive an order, therefore randomly buying lots of small numbers at days, but not really bulks all at the same time.