What is drop shipping? It is the method The Profit League uses where products are supplied by a retailer with the intention of selling them to a customer at a later date. The retailer undertakes to carry inventory, place orders with suppliers and deliver the items sold to the customer. The difference between the price of the wholesale price and the retail price is due to the fact that during the time when the retailer has not yet sold the product to the customer, he shall be liable to pay the wholesale price.
The main advantage in drop shipping is that there is no need to keep large stocks. The amount of money that has to be invested is much less than what is needed in case of investments in retailing. In addition to this, the profit margin is higher in this case as well. Moreover, the margins are subject to change on a regular basis. This is because new inventory is added or old stock is removed from the shelves of various suppliers.
The biggest disadvantage in the above situation is that retailers have to pay high amounts to the suppliers and distributors. However, in the long run such costs prove to be very advantageous. Apart from paying the suppliers, retailers also have to pay the overhead costs involved. These costs include rent or mortgage on the retail outlet, the cost of electrical, gas, water, and other utilities etc.
This type of system has been used for quite some time now and continues to gain popularity among retailers. If you have an online retail store, it is a good idea to sell through this system. It allows you to start with selling a small amount of merchandise and as your business grows, you can add more items to be sold. This means that you will start earning more profit margins and that too without having to maintain huge stocks.
Many retail experts believe that the most important advantage in using the drop shipping business model is that it helps the retailer to earn more profit by stocking very less inventory. This is possible only when the retailer has an efficient and dependable source for getting products as well as a reliable and prompt delivery service for the products. With warehouses, stock, fulfillment and other related services, retailers can reduce their inventory requirement drastically.
In other words, this reduces the burden on the retailer and allows him to concentrate on improving the product quality and attracting more customers to start selling. You do not need to purchase an expensive inventory of products because the supplier gets the items directly from the manufacturer. It saves a lot of money both in terms of capital and in terms of maintaining the necessary infrastructure for your online store.
One of the other advantages that the drop shipping business model offers is that there are no hazards associated with it as far as the inventory is concerned. Since the supplier ships the orders of the customers to the retailer, there are no stocks to maintain. So you can increase the turnover in your business by cutting down on your overheads.
The best way to earn profits, in the long run, is to maintain a very low margin and spend as much money as possible on advertising and other promotional activities. The same strategy can be used in your online store. You will spend a lot of money on buying inventory but since the cost of the same item is lower than the cost of your shipping cost, you can use the same amount of money to make an effective margin for your products and still save a lot of money in the process.