When internet retail stores were just starting in the 1990’s, it was thought that drop shipping was the answer to everything.  Few people thought there would still be issues two decades later.  Progress is being made and vendors can make money if they know what they are doing.

Filling orders through drop shipping meant that a website owner could send their orders to wholesalers and have them shipped to customers.  For e-commerce owners this did away with the expense of an inventory and the risk of it not selling.

Some thought that carrying an inventory would become a thing of the past except for drop ship companies, but there were service issues…all kinds of service issues.  Some wholesalers never shipped orders or the wrong product was sent.

Quite a few of these problems were caused by slow or inefficient communications.  Orders were entered manually and were prone to human error.

Even if companies sent their orders by xml or EDI had many obstacles.  Many businesses tend to do things their own way.  Because of that, drop shipping caused as many problems as it solved.

The problems were mostly the suppliers fault.  The early companies did not have the knowledge or technology to excel at this type of selling.  They were used to selling pallets of product instead of one piece at a time and shipping it directly to a customer.

As e-commerce rocketed the demand for more and more drop shippers took off.  This lead to some shady characters getting into the business and stealing money from retailers.  By 2000 drop shipping was looked on with disdain.

Data Translation

Luckily, the technology for handling drop shipping has improved.   Commerce Hub, a leader in the industry can handle 10 million orders per year and offers an interactive dashboard so that retailers can see inventory levels.

Commerce Hub has grown large enough that they charge an initial fee of $500 to $150,000 and you must have at  least 2000 transactions per month for it to make sense for you to use them.

Doba handles transactions for small to mid-sized e-tailers.  They offer over 250,000 products and act more as a data translator than anything else.  Their main function is to connect retailers and wholesalers.

They allow you to monitor wholesalers inventory levels  so that your site offers in stock products each day.

Tight Margins

Drop shipping is a very cheap way to go into business.  Doba charges a monthly subscription fee and Commerce Hub charges a one time fee.  Working with a drop shipper is not necessarily a path to easy riches.  Each transaction carries a smaller profit margin.
The nature of drop shipping causes these tighter profit margins.  The supplier is the one actually taking all of the risks, expenses, and handling the inventory.  Doba uses its size to negotiate better prices because of their bulk purchasing power.

Margins differ by product.  There is no one set profit percentage that you should expect.  Electronics actually have the slimmest profit margin.  Some companies can get a 90 percent margin while other only get 10%.  It all depends on the product.

Fraud Detection

Fraud is sort of hush hush in the drop ship game, but it exists.  All of the transaction are between tow people who never meet.  Credit card fraud can constitute up to 3% of sales.  It is even worse when you add a third party into the equation.

Doba has launched a fraud protection program to cover their retailers.   If you followed their “best practices” protocol and get defrauded, they will cover the loss.

The Secret Of Drop Shipping Success

Starting an online store is easy and cheap.  Drop shipping takes most of the headaches out of the equation.  All you have to do is hire a website designer, post some photos and product descriptions, and work with your wholesaler. The next thing you know you are processing orders.

Building the store is the easy part.  Making it a success is another.  You have to offer value of some sort for your customers and you have to market the site.  You must have inlinks and back links.  You have to do press releases and article marketing.  It is best to hire a freelance expert for this aspect of the game.

Good luck with your e-commerce site.