Considering Drop Shipping

You may wonder how I plan to make money on Funtober.com.  At least that’s one of the first questions that my parents and friends ask about the website.  It’s a legitimate question.  In the past, I’ve generally used affiliate marketing offers to generate revenue on my websites.  But I’ve convinced myself that it is time to operate the shopping cart myself.  So this will be my first ecommerce website.  The obvious next question is how I will be fulfilling the orders since this is a one person operation without a lot of money in the bank to buy merchandise to resell.  The answer is simple: dropshipping.

Dropshippers buy inventory from the manufacturer and store it in a warehouse.  They receive orders from online retailers and then send the product directly to the consumer.  There are a number of benefits to signing up with a drop shipper rather than purchase the merchandise at wholesale myself.

1. Low initial cost/risk – If I were to order the comstumes myself, I would have the upfront expense of paying for the merchandise.  By using a dropshipper, I don’t have to worry about funding the inventory.  I can order only what my customers have already purchased.  I’ll have zero extra inventory at the end of the Halloween season regardless of whether I sell 1 costume or a 1000.

2. Extensive product selection – Using a drop shipper gives me access to a larger selection of customers than I would have if I were to buy and store the costumes myself.

3. Storage and Shipping – If I were to buy the costumes up front as a wholesaler, I would have to get a storage facility to house them.  I would also be responsible for packing them up and shipping them out.  So instead, I would probably pay an order fulfillment company with a warehouse to manage storage and ship directly to my customers.  A drop shipper takes on this role for me. Once they have my order, they pull the merchandise from their inventory and ship it out to the costumer address rather than my own.  It greatly simplifies the sales process for me.

Dealing with a dropshipper isn’t as easy as I’ve made it sound so far.  It has the potential for some pretty serious problems.  I won’t have as much control of product selection, inventory, and shipping as I would if I were managing the process directly.  The major drawbacks and pitfalls I’ve read about online are:

1. Profit margin – Since there is another company between the manufacturer and consumer, this cuts into my potential profit.  Even if I find a drop shipping company that doesn’t markup the price of goods from wholesale, there will be fees involved.  So it will be more expensive on a per costume sold basis.

2. Competition – Other companies and websites will have access to the same products that I do.  I expect that this competition between online retailers will make the profit less than if I were selling exclusive/unique products or ones that were not stocked by drop shippers.

3. Reliability – If there are problems with inventory or shipping, I’ll be at the mercy of the dropshipper as I don’t have the merchandise myself to send.  If they do a good job, there’s no problem.  If their service is poor, it will reflect poorly on Funtober and there won’t be much that I can do about it other than complain or switch to another avenue of order fulfillment such as wholesaling or affiliate marketing.

I’ve started the application process with a specialty Halloween/costume wholesaler and dropshipper.  I didn’t hear back this week, but it was an off-season holiday week.  Hopefully, I’ll be approved soon and can take a look at their prices compared to where the products are priced in the marketplace so that I can determine whether I can make any money selling costumes using them.  If I can, I’ll be hard at work on my shopping cart soon.  I’ve already started looking into ecommerce software such as Magento and Shopify.

If you have experience as a retailer dealing with dropship aggregators or manufacturers who drop ship, I’d love to pick your brain sometime.  And if you are an internet marketer who is just breaking into the world of drop shipping like I am, you should feel free to contact me as well.  We should keep in touch as I’m sure we will learn faster together.