Drop shipping Case Study

TWO CASE STUDIES

  1. Risk free business
  2. ability to target niches better.

Situation A:

It makes starting a business almost risk-free.

Nadia has decided to start an eBay business selling women’s clothing. At first she planned on buying in bulk and managing inventory herself. But she was shocked to learn this would involve forking out at least $1,500 for initial inventory and with a family to support, she just didn’t have that kind of money to risk. And when she went to visit a friend who was also an eBay seller and saw his garage filled with stock neatly labelled, numbered and organized, along with the inventory software he used to keep track of his sales, she realized there was a lot more to stocking inventory than she had initially thought.

Yet another surprise was when her friend said: “It takes me two to three hours a day to package and process all the orders to ship out the following day.” Clare simply couldn’t imagine where she’d find that time each day with three children to cook for, do homework with and prepare for another day of school and other activities. Luckily, her friend came to the rescue with the suggestion,

“Why don’t you look into drop shipping?”

Although drop shipping meant that Nadia would pay a $2–$5 handling charge for each item, she also learned that it meant she would only pay for items she sold. The drop shipper would also store and package everything and ship her orders out to customers for her. Her only tasks would be listing and managing the eBay auctions, which seemed much easier to handle.

Situation B:

It allows you to target small niche markets without the risk of carrying extra inventory.

Muammar has operated a successful DVD & game web store for two years but he feels he could differentiate further from similar stores if only he could target some of the smaller niches that most stores overlook. The problem is, he can’t afford to buy all the stock and carry it in the hope that he might get the occasional purchase. So he decides to drop ship. Drop shipping allows him to stock lesser-known cult titles most of the big stores don’t stock, but without the risk of physically carrying the merchandise. Muammar now sells 60–70 extra titles a week on top of his existing sales, giving him an increase in profit of $15,000 a year.

Additional Tips:

  1. Not all dropshipping service provider charges for handling fee
  2. If you chose to drop ship from AliExpress or GearBest, you don’t need to pay handling fees. But make sure to put in the remark in the ‘message to seller’ reminding them that it is a drop ship order and not to put in any invoice or promotional material in them.
  3. Although there’s a lot of benefits to drop shipping business model, there’s a few thing you should keep in mind.
    • The profit margin is not as high as keeping stock of your own
    • You have no power at all in stock and inventory management
    • Most drop shipping service provider won’t update you when and if the decided to remove a product line or a whole niche
    • drop shipping service provider won’t check on your behalf the regulatory requirement on importing a certain categories of item into your country. Remember, most country have a certain list of prohibited items which are banned from coming into their borders. Take note, you need to know the rules.
  4. Drop shipping might be a good way to start, get to know how stuff works, then you would be better off on your own
  5. Make sure the niche you selected is something that you truly loves, or excites you. This would greatly help in reducing burn-outs.

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Categories: Personal Finance

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