Online sellers can start selling products online without inventory by using a method called “drop shipping,” where the seller receives an order, buys it directly from the manufacturer, and ships it straight to the customer.
The most common and popular method of selling products online without inventory is a system known as “drop shipping.” Under the drop shipping model, when a store sells a product or receives an order, it purchases the product directly from the manufacturer or a third-party wholesaler and has it shipped straight to the customer.
Obviously, this method – different from standard retail systems in that the seller does not keep any inventory in stock whatsoever – has several unique advantages that make it an attractive option to sellers looking to dive into the online selling game, as well as some unexpected drawbacks that savvy sellers would be wise to be aware of.
Drop shipping advantages
Drop shipping is a great option for sellers who want to jump right into online selling.
First, drop shipping generally requires less capital to get started, because you don’t need to sink gobs and gobs of money into acquiring inventory. What’s more, the overhead costs of drop shipping are often lower because you don’t need to shell out cash for storing your inventory in a warehouse, you don’t need to buy expensive inventory tracking software, and – besides paying for shipping – you don’t pay employees (or spend your own time) to pick and pack all of your items when they’re ready to send.
But let’s forget all about costs for a second. Drop shipping businesses are more mobile, and can be operated from just about anywhere with an internet connection and/or phone line. Sellers can also offer a wider variety of products, because whatever any of your suppliers carry, you carry!
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).
Don’t let inventory keep you from jumping into the online selling arena! By utilising the power of drop shipping, you can begin selling products online without inventory today!
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. OzForex Limited (trading as OFX) and its affiliated entities make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.
