Drop Shipping Pros and Cons

SaleHoo drop ship explanatin screenshotBecause SaleHoo is a resource for people to find products to drop ship whether from you Amazon or eBay accounts, or your own website, we should cover this topic a little bit in this site. If you read our review about SaleHoo on our home page, you probably understand the basics: You set up an account to sell someone else’s product, you advertise it, collect the payment for it, place the order to have it delivered to the customer, pay your wholesale price, and keep the profits. Sure sounds like the dream life to me!

But, before you commit to starting an e-commerce website or Amazon or eBay store with the intent to market other people’s products that they will be delivering to the buyer, there are a few things that you should be aware of when it comes to this business model.

At first it seems like a completely win-win proposition, doesn’t it? After all, you don’t have to carry the product at all. The “only thing” you have to do is talk about it on your website, take the order and payment, and then place the order with the merchant and have their warehouse deliver it to your customer.

Ahh… yes, it seems so easy. You can get up and go to work in your jammies and never have to touch the product!

This is good… and also not so good. Let’s weigh the pros and cons of this model.

First, the Pros:

No Need to Handle Product: As mentioned already, this part is probably the most enticing aspect of working a drop shipping business. You do not have to physically handle or ship the product to the customer. The merchant does that on your behalf.

Lower Overhead: As a result of not having to handle the product, your overhead is going to be much lower than a bricks and mortar warehouse or store. Of course you’ll pay for your website (if going that route), and any seller fees to Amazon and/or eBay if that’s the direction you decide to take. Other overhead might include a merchant account – or at least PayPal – in order to accept credit cards. Both options incur fees. If you hire help to create your website content and graphics, you will need to budget for that as well; however general budget planning for a business venture is a topic all on its own!

Flexible Hours: Because you are not opening a retail location, and the internet is “on” 24 hours a day, you can set your own hours. This is especially appealing to parents who need to work around children’s school and afterschool schedules. Unlike many parents who cannot leave the office to go watch little Susie play soccer, you can. But, you should definitely still post “open hours” on your website if you are taking phone calls for product orders, because otherwise you can expect the phone to ring at the craziest hours. Make sure you have a dedicated line for your business, and turn it to voicemail when you are “off duty.”

You Set the Price: While the merchant or vendor will suggest a suggested retail price, you may have the wiggle room to adjust it in order to be more competitive than someone else who is selling the same thing. Of course you’ll want to be careful not to price things so low that you don’t make any profit!

Now, some of the Cons:

In my experience, the two primary downsides to drop shipping include the fact that the quality control, profit margins and competition are largely out of your hands. Let’s look at this.

Quality Control: The good news is that you aren’t responsible for shipping and handling the product. The bad news is that you have no idea what condition it’s going to arrive in, or whether it’s going to arrive at all. It isn’t unheard of to have an irate customer call you or email you wondering where the package is, or that it arrived damaged. You need to work with both the customer and the vendor or manufacturer to make things right. Hopefully you are promoting an outstanding item from a vendor with a great track record for customer satisfaction; however, mistakes and errors do happen. You need to be prepared to handle this, and to do so promptly.

Profit Margins and Competition: Sometimes the profit margins aren’t great when you are selling someone else’s product. And, if you are drop shipping items from a place like Sale Hoo especially, you can bet you aren’t the only person doing so. Why should the buyer buy from your website or your product listing on Amazon or eBay? If you are new, and don’t have a lot of positive feedback, buyers may be cautious about buying from you. You may need to lower your prices to get a nibble. Be prepared for this, and have a strategy in place to help boost your sales.

Only after you make an exhaustive list of the pros and the cons for you, personally, to start a drop shipping business will you know if it’s the right business model for you.