Selling Products Online Without Inventory

Drop Shipping Disadvantages

Of course, it's not all sunshine, flowers, and low overhead costs when it comes to drop shipping.

Firstly, the profit margins involved with drop shipping are razor thin. Drop shipping is a very competitive space because the financial barrier to entry is so low. As a result, many sellers choose to compete only on cost, as it is simpler to differentiate yourself by price than by customer service or storefront quality. Some customers will seek out that better service and buying experience; many others will simply compare prices and buy.

Drop shipping also involves a whole complex network of relationships with suppliers, a network that you'll have to manage and troubleshoot. What if a customer orders 10 items, but no one supplier can fill the entire order? Then you have to coordinate different shipping costs, timelines, and even item prices. You'll also need to track the inventory of each of your suppliers, who are likely all servicing other clients, as well. More moving parts means more complexity, and more complexity can often mean more overlooked errors and conflicts.

Perhaps the biggest disadvantage of drop shipping is the wait time for your customers. In an age of near instantaneous delivery, customers are often unwilling to wait for weeks to receive their goods, and it can be hard to expedite a supply chain when you have very little control over it.

How to Get Started Selling Products Online Without Inventory

First, check online to see if the online marketplace you wish to use allows drop shipping. Amazon allows drop shipping, as do Shopify and eBay with certain restrictions. Rakuten does not.

Secondly, source and secure your suppliers, usually more than one in the event of an item being out-of-stock. The easiest way to do this is to contact the manufacturer of the item you wish to sell, and ask them for a list of approved wholesalers. You can also buy supplier directories from providers like Worldwide Brands, Doba, and Wholesale Central.

Finally, you should become legally incorporated and/or licensed to operate as a business in your home country. Wholesalers jealously guard their wholesale prices, and will often only offer them to licensed retailers. Similarly, you'll need an official business identification as provided by your home government. In the United States, this is your Employer Identification Number (EIN); in the United Kingdom, this is your Value-Added Tax (VAT) number; in Australia, this is your Australian Business Number (ABN).