Dealing with Drop-Shippers in Your eBay Business

A drop-shipper is a business that stocks merchandise and sells it to you (the reseller) — but ships the merchandise directly to your customer.

By using a drop-shipper, you transfer the risks of buying merchandise, shipping it, and storing it to another party. You become a stockless retailer with no inventory hanging around — often an economical, cost-effective way to do business.

The following steps outline the standard way to work with most drop-shippers via eBay:

1. Sign up on the drop-shipper's Web site to sell their merchandise on eBay or in your Web store.

Be sure you've checked out their terms before you sign up — to be sure there's no minimum purchase upon signing up.

2. Select the items from their inventory that you wish to sell.

For this example, say the item you select costs $6.99. The supplier gives you descriptive copy and photographs to help make your sales job easier.

3. Post the item online and wait (fidgeting with anticipation) for someone to buy it.

By the way, you'll be selling this item for $19.99 plus shipping.

4. As soon as your buyer pays for the item, e-mail the drop-shipper (or fill out a special secure form on their Web site) and pay for the item with your credit card or PayPal.

5. Relax while the drop-shipper ships the item to your customer for you.

6. If all goes well, the item arrives quickly and safely.

You make a profit and get some positive feedback.

The drop-shipper's Web site provides you with descriptions and images. Fine. But you and everybody else who sells that item on eBay will have the same photos and descriptive copy. Do yourself a favor and get a sample of your item, take your own pictures, and write your own description. Then at least you have a chance at beating the competitive "sameness" on eBay.

Drop-shipping works especially well for Web-based retail operations. Web stores can link directly to the drop-shipper to transmit shipping and payment information. When you're selling on eBay, it's another thing. There's more competition and you can't list hundreds of items at no additional cost.

Listing items on eBay costs money and may build up your expenses before you make a profit. You can't just select an item from a drop-shipper and throw hundreds of auctions on eBay without loosing money. That is, unless your item is selling like gangbusters at an enormous profit. If that were the case, you could count on meeting up with another eBay seller buying direct from the manufacturer and undercutting your price.

It's one thing to sign up for a free newsletter — or even to register with a particular site — but it's something else to have to pay to see what the drop-shipper intends to offer you. You should not pay anything in advance to sign up for a drop-shipping service.

Finding a good drop-shipper

Thousands of Web companies are aching to help you set up your online business. While some of them are good solid companies with legitimate backgrounds, others are out there just trying to get your money. These guys hope you don't know what you're doing; they're betting you'll be desperate enough to send them some cash to help you get your share of the (har-har) "millions to be made online."

Consider the following when you're choosing drop-shippers to work with:

• Skepticism is healthy. When you come across Web sites that proclaim that they can drop-ship thousands of different products for you, think twice. Thousands? How many stores carry "thousands" of items — if they do, they have vast square footage for storage and hundreds of thousands of dollars to invest in merchandise. Most drop-shipping services don't. A much smaller offering of merchandise may indicate that indeed the drop-shipper has the merchandise ready to ship and isn't relying on ordering it from someone for you.

• Look out for long lines of distribution. Drop-shippers are often middlemen who broker merchandise from several different sources — for example, from other middlemen who buy from brokers (who in turn buy from manufacturers). The line of distribution can get even longer — which means that a whole slew of people are making a profit from your item before you even buy it "wholesale." If even one other reseller gets the product directly from the distributor or (heaven forbid) the manufacturer, that competitor can easily beat your target selling price and make (what should have been) your profit. Verify with the drop-shipper that they stock the merchandise they sell.

Many wholesalers will perform drop-shipping for you.

When you find a drop-shipper who is also a wholesaler (or vise versa), look for one who has a good professional track record. Look for experienced buyers who get in a lot of good merchandise, and can handle pro-level business concerns such as resale permits and sales-tax numbers.

Coping with the inevitable "out-of-stock"

What happens when you sell an item and you go to the distributor's site and find it's sold out? Before your heart completely stops, call the drop-shipper. Perhaps they still have one or two of your items around their warehouse and took the item off the Web site because they're running too low on it to guarantee delivery.

If that isn't the case, you're going to have to contact your buyer and 'fess up that the item is currently out of stock at your supplier. Call your customers in this situation; they may not be as angry as they might if you just e-mailed them. Offer to refund their money immediately. Somebody else's foul-up may net you bad feedback, but that risk goes along with using drop-shipping as a business practice.

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