Drop shipping cuts startup costs.
One cost effective ways to build an e-commerce business is to do drop shipping, as it will reduce the capital you would have to invest while starting the business.
Ecommerce operates in a very simple way. Manufacturers and drop shippers cannot sell their product directly in the market, so they use resellers which will be you in this case. You can promote the product through your ecommerce site. Once a sale is done; you can collect money from the buyer and send a portion of the funds to the manufacturer or the wholesaler to ship the product under your label. And the customer will never know you are nt the one shipping the products. That means you don't have to stock the material and get worried if the product is not sold, as you have never paid a price for it.
This option is the most cost effective option available and does not require a huge investment in the beginning. The capital that you require to set up your business is a computer, contact information, your website to promote and a drop shipper for delivery of the product. You can spend majority of time promoting your business, as this will eliminate the time in purchasing, packing and shipping. You will also do not have to worry about any kind of stock that is left over plus costs of holding the products in the ware house.
There are a few things that you need to be careful about. Check with the drop seller about the cost if any and terms involved to be a reseller of their products. Some of them have a fixed cost plus the shipping cost, while others will ask you to pay a fee on top of the other costs. The former is the best way to go for, if it's the second option than ask the wholesaler for the conversion rate of their product in order to calculate the worth of paying the extra joining fee. Once you have taken all the costs into consideration and the amount you will be spending to promote, fix a cost for the product. However you may have to be careful in doing that because of competition.
As everything comes in a package deal there are disadvantages attached to the business. The first problem that you will have to face is that, the buyer thinks that you are the one who is delivering the product. If the wholesaler is slow in dispatching the product, which can be due to any reason, you will be the one who will be answering the complaints. Therefore it is always better to check for the availability of the products especially during the peak season.
So it can be a good option for saving a lot of money, but don't sign any contracts unless you are sure about the products and the terms and conditions.
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