Setting up an Internet Business? Consider Drop Shipping
You've tried affiliate programs, but you'd like higher profits
and more control over your business. You don't have your own
products and you don't want to manage an inventory. Drop
shipping might be your answer.
Mail order businesses have used drop-shipping arrangements
successfully for decades. While this method of order fulfillment
is not yet well known on the Internet, the potential is
excellent.
It works like this.
You set up a drop shipping account with a manufacturer or
wholesaler. Next, you generate orders for their products,
establishing the retail price yourself. When an order is placed,
you forward the sale information to the supplier. The supplier
fulfills the order, sending it to the customer with your
business name on the label.You remit the wholesale price of the
item to the supplier.
The benefits are obvious. You keep no inventory and, since you
set your own selling price, you are likely to make higher
profits than you would make as an affiliate. You might, in fact,
set up your own affiliate program and enlist affiliates to
market your merchandise.
Drop shipping arrangements also give you the ability to
establish small, low-cost web sites that are targeted to niche
markets. These little sites also make it easy for you to test
and promote various products. If a product doesn't sell well
online, it's an easy matter to remove the web site -- or leave
it up, since costs are low.
Consider the following:
You Need a Legal Business Entity To operate a drop shipping
business, you must be a legitimately registered business. In the
US, you will need a State Tax ID number. Residents of other
countries must determine the requirements in their locale.
Sales Taxes US residents are responsible for collecting taxes
from their own state and from the state of the drop shipper (if
applicable). In some states, gross sales must be reported to the
state and county for business licenses. Residents of other
countries will need to check local requirements for taxation and
reporting.
Your Internet Store You will need a web site, shopping cart
software, and a means of processing financial transactions. In
most cases, this means having a Merchant Account. Typically,
when a customer makes a purchase, you handle the transaction via
credit card, then forward the order to the supplier for
fulfillment. You, in turn, pay the supplier for the item via
credit card transaction. You might arrange payment by individual
item or by a net 30 invoice. Research your Drop Shipping Company
Do your homework and research the company before you sign
contracts. Here are some questions to ask:
* Is the company a manufacturer or wholesaler? Some businesses
offering drop shipping arrangements are resellers. They have set
up accounts with drop shipping companies. You, in turn, will be
reselling for them. You will make better profits if you set up
your own drop shipping account directly with a supplier rather
than with a reseller.
* Does the drop shipper charge you an account setup fee or a
monthly fee based on monthly traffic counts or some other
criteria? Most (not all) companies charging a set up fee are
resellers. If there is a set up fee, is it in exchange for a
value-added service such as access to an admin web site or
specially printed labels for your company's orders?
* What does the company charge for shipping and handling? If the
cost is too high, your customers will abandon their shopping
carts if they think the expense is out of line.
Your Product Mix
A web site selling a narrowly defined range of products will be
easier to administer, and easier to promote than a site
containing an array of products. For example, a site selling
lady's sportswear will be more attractive to search engines than
a site selling men's, women's and children's clothing of all
descriptions.
And finally, choose items that are neither too inexpensive nor
too heavy. Experienced drop shippers say that products of over
$20 and under 70 pounds work best. If you want to sell lower
priced items, group them together in a package and sell the
package. The shipping costs will appear to be more reasonable.
Alternatively, promote products that carry similar shipping
costs, or that will not add to the shipping cost.
And lastly, much success in your new business!
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