Dropshipping - Proceed with Caution - By R Heavner

Dropshipping is a method of reselling in which one can offer merchandise for sale without actually maintaining a physical inventory. Through agreement with a wholesale distributor a product is offered for sale in either a fixed price or auction format. If the item sells, the wholesale cost of the item plus shipping is forwarded to the distributor and the distributor then ships the item to the buyer. The difference between the wholesale price and the selling price is your "profit". You essentially become the middle man between your customer and your distributor.

It is a very attractive arrangement on paper as you neither have to purchase, store, or ship merchandise. Unfortunately for many the reality can be much different. Your product availability is completely in the hands of your distributor. Items that are out of stock or not shipped in a timely manner will quickly skyrocket your negative feedback and severely damage your reputation as a seller. In this situation there is very little you can do beyond damage control.

While this is probably the primary issue with using dropshippers there are several other caveats that also must be considered.

It is absolutely essential that you know the true wholesale cost of merchandise before you commit to selling it. Many dropshippers do a great business selling items to naive ebayers who then find they are unable to resell them at anything near profit. Research your market thoroughly with a tool such as Terapeak to get a feel for how well an item sells and the average selling price. Market saturation is also a factor, as the market can quickly become saturated with similar items when hundreds of Ebay sellers are all using the same distributor network. Yet another issue that must be factored is the "fee" that many distributors charge for making their service available to you.

Do the math very carefully. Your profit per item sold will be based on the winning bid (or BIN) minus your cost for the item, listing fee, final value fee, any extras such as gallery fees, Paypal or CC fees, and any (pro-rated) distributor fees. It can get very tight.

So is it actually possible to make money with dropshipping? The answer is yes. What separates the successful sellers from the unsuccessful is extreme attention to detail. The ideal situation is a distributor that is personally known to you or with which you have a previous or ongoing business relationship. Barring that, it is vitally important that you fully read and understand the policies of a prospective distributor. Do not be swayed by promises of fantastic profits. Research your market and do a thorough cost analysis. Move slowly and honestly assess whether a particular arrangement will be profitable.

If all looks well, the wise move is to then slowly integrate dropshipping into an existing Ebay business and carefully evaluate the results. If you have done your homework, you should be able to profitably increase your dependence on dropshipping. If things do not work as planned, you can move along with a minimal amount of damage to your business.

The author is webmaster of http://www.auction-lynx.com Internet Auction Resource Directory, a directory of hundreds of alternative auction sites, buyer/seller resources, and online auction information. An excellent tool to conduct intensive Ebay market research may be found at:
http://www.rh-trading.com/terapeak.html Terapeak Market Research.