Diversified Revenues with Distributed Responsibility
Unlike in other ecommerce transaction, Drop Shipping requires two entities to complete an order; namely an online store (where one accepts orders online) & a Drop Shipper (who actually delivers the order to customer). In Drop Shipping, online storeowner and Drop Shipper could be different individuals.
The operations:
a) Customer places an order (say of $100) on the online store.
b) A copy of the order details is sent to drop shipper, who ships the goods to the customer.
How does one earn in this process?
The drop shipper charges the online storefront owner for the goods shipped (say with $80) and the storeowner in turn earns the difference between the prices he charges from customer and pays to the drop shipper (in our case the storefront owner will earn $20).
Drop shipping helps both the online storeowner and drop shipper to diversify their sources of revenue and at the same time distribute their risks.
1) Benefits to Online Storeowner:
If you are an Online Storeowner, this can be a low risk Ecommerce business model. Drop Shipping is a sought after business model when you are risk averse and still want to fetch respectable revenues. Drop Shipping may have following benefits:
- Zero Inventory: You are saved of building a strong inventory of the goods sold, as you do not need to manage the inventory or shipping related issues. You pass on the orders to the drop shipper and he takes care of order fulfillment issues.
- Sell Unlimited Products: With no inventory to maintain, you can expand your business and sell unlimited products without getting bothered of inventory related issues.
Choice of Ecommerce Solution for online storefront will be one of the most important decisions in operating your business on Drop Shipping model.
2) Benefits for Drop Shipper:
If you are a Drop Shipper, this can be a low risk ecommerce model to earn through Internet without having an online store of your own. For you, as a Drop Shipper, contracting with web sites working on Drop Shipping model acts as a lower risk preposition. Drop Shipping has the following advantages:
- Expand your Reach: Contracting with multiple web sites selling merchandise through Drop Shipping, helps in expanding the reach of your business. You will be able to expose your business at various web outlets and as a result your sales may also increase.
- Accept online orders without a web site: You are only responsible to fulfill the orders received from the online store. You can earn revenues, without facing the challenges of selling online.
Selection of online store is one of the most important decisions for drop shippers. Other issues like the terms and conditions, the revenue sharing agreement, responsibility in case of goods returned, etc also need to be considered.
While into drop shipping, adequate caution needs to be taken in choosing products to be sold online, and deciding the terms and conditions. Besides, synchronized communication and complete coordination between online storeowner and drop shipper are other important requirements.
