Drop-shipping is changing the game of retail. An estimated 22 to 23 percent of online merchants now use it as their primary method of order fulfillment. If you’re considering starting a drop-shipping business, read on to learn what it involves and our picks for the best drop-shippers on the market.
What is drop-shipping?
Drop-shipping is a unique supply chain model in which products ordered from a merchant ship from a third-party supplier (i.e., the “drop-shipper”) to the consumer. The merchant doesn’t have to stock or handle the products at his store. The order flow is as follows:
1. The customer places and pays for an order with the merchant.
2. The supplier receives the order, and the merchant pays the supplier for it.
3. The supplier ships the order to the customer.
What are the benefits of drop-shipping?
A drop-shipping business model offers many perks over a traditional retail model. Hence, the advantages of this model are:
- Eliminates warehousing costs: Merchants avoid the initial and ongoing costs of investing in a warehouse where regular retailers would house their product stock.
- Reduces up-front and ongoing inventory costs: Retailers that go through the traditional distribution channels must buy an initial stock and then replenish their inventory to keep up with demand. Merchants procure products on a rolling basis and don’t have to pre-purchase inventory either at the time of a business launches or afterward.
- Prevents understock and overstock: Merchants only buy products that a customer has paid for, so issues of understock and overstock are not a concern.
- Avoids return and shipping hassles: Merchants don’t have to deal with customer returns or shipments of inventory from a supplier because the supplier controls these aspects of the supply chain.
Who can use drop-shipping?
Any entrepreneur can get into the business of drop-shipping if they have the following:
- Product: Strive to sell small, lightweight products with year-round appeal.
- Sales tax permit: If you operate in a state that imposes a sales tax (most do), you’ll need to get a sales tax permit to charge customers sales tax.
- Supplier: Reliability, affordability and drop-shipping experience is vital whether your supplier is a wholesaler or a manufacturer.
- Sales platform: Amazon, eBay and Etsy are well-known marketplaces that double as sales platforms through which you can conduct your drop-shipping business. You can also develop a business website with an online shop for further customization.
Who are the best drop-shippers?
Merchants can take the initiative to scout out and connect with an individual local manufacturer or wholesaler. But many companies offer drop-shipping services that can help you connect with a broader network of suppliers and gain access to a wider selection of products than you could on your own.
Many of the best drop-shippers also offer product management and shipping services. Therefore, making them a one-stop shop for all your drop-shipping needs. The best drop-shippers include:
- Oberlo: This pick for small-scale merchants comes with a free service option that limits you to 50 orders and 500 products per month. Oberlo’s elegant user interface integrates well with Shopify.
- Doba: Doba offers merchants access to over 2 million products from over 200 suppliers as well as alerts about discounts. Their strength and extensive catalog make it ideal for large-scale drop-shipping businesses that sell a high volume and wide variety of products.
- Sunrise Wholesale Merchandise: Merchants who choose to use eBay as their selling option will want to consider Sunrise. It offers an eBay wizard for simplified eBay product listings.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.