Drop Shipping 101: What is Drop Shipping?

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Welcome to Drop Shipping 101 where I’ll teach you everything that you need to know about drop shipping in eCommerce. I started in eCommerce in 2009 and have been utilizing the drop ship business model to build million dollar eCommerce companies since then. To date, I have sold over $20 million on Amazon.com utilizing drop shipping and have worked with over 1,000 drop ship suppliers located within the United States and Canada.

In a nutshell, drop shipping is the ability to sell products online, whether through your own online store or online marketplace, where you don’t ever have to touch the products as customers purchaser from your store. It is a controversial eCommerce business model that has been around for more than 20 years and that eCommerce entrepreneurs continue to modify in order to find better results selling online.

In this article, I will break down what drop shipping is so that you can understand it at an extremely basic level. I will also dive into how it functions as a business model and the steps that you, as an online seller, must take to properly operate your eCommerce business with the drop ship model.

Drop Shipping 101: How Does It Work?

In order to explain the drop ship business model, I want to first provide you with an image depicting the business model then I will walk you through the step by step process of drop shipping from the seller’s perspective.

Image result for drop shipping business model

(Image courtesy of Quora.com)

As you can see above, the drop ship model can be broken down into very simple steps. This image is a great way to wrap your head around the drop ship business model, but it is only the beginning. Once you dive deeper into the model, you will see the many intricacies of building and maintaining an eCommerce business with this strategy. Let’s get into it…

Let’s assume that you are an eCommerce business owner and you are just getting your first store set up on the Amazon Marketplace. You’ve gone to Amazon.com, found the webpage where you can create your own Amazon seller account, and you are all registered. You have access to your Amazon Seller Central account and you’re starting to put together how you are going to list products on your store and sell to your customers.

You’ve heard of the business model of drop shipping and you want to utilize it to start your store so that you don’t have to purchase any products up front. You like the idea of not having to touch the product in the selling process and you’re ready to get your feet wet.

Build the Supplier Relationship

The first step to the drop ship business model is finding and creating a relationship with a supplier that has the ability to drop ship orders to your customers. So, what does this mean? This means that you need to find and create a partnership with a company that manufactures their own products and has the operations set up to ship them to customers one a case by case basis. They must be able to ship single units within 24 hours of being notified.

It’s important to note that not all suppliers will have this ability. Some suppliers only work through traditional wholesale business models where you, as the seller, are required to purchase goods in bulk, ship them to your fulfillment center/warehouse, and fulfill them on your own. That is not the route that you’re looking to take.

Once you have found a supplier that is willing to work with you, you can move onto the next aspect of the drop ship business model.

Obtaining Product Data from the Supplier

With a supplier relationship ready to roll, you now need to get the product data from them so that you can list the products on your Amazon store. What does this mean? In order to list products, you need all of the information that Amazon requires to create a product listing. Think of any Amazon product page when you are shopping. It has a product name, product description, bullet points, weight, dimensions, product images, and much more.

In order to start selling their products, you need access to their product data. Depending on the supplier that you are working with, that product data can be provided in a variety of different ways. The most optimal means of receiving product data is through an Excel or CSV file. These will be the easiest to work with as you are listing the products on your online store.

To make sure that you are getting the correct information, you want to request the exact information that you want from your supplier. They will put the file together and send it along to you. Once you have this information, you are ready to list it on your online store.

List the Products on Your Online Store

With the product data that you need to list on your online store, you can now go through the listing process. On Amazon (and on other marketplaces or online store platforms), you can list products one by one or in bulk. For the purposes of this example, let’s say that you are going to list the products one by one.

You go into your Amazon account, find the product listing that already exists for your product and you click “create a new listing.” You enter all of the details regarding your product from the data that your supplier supplied to you and then you click “Enter” to list your product. After being evaluated by Amazon, your product will be listed and it will appear in your Amazon inventory. Congrats! You now have a product listed on your online store that customers can see and start purchasing.

Remember that you don’t actually have this product in your house or at your office. Rather, the product is being held by the supplier that you created a relationship with. They have communicated that it is in stock and ready to ship once you receive a sale. With a product listed on your store, you can move onto the next step of managing your drop ship business model.

Manage Your Inventory Levels

While drop shipping has many pros to it as a business model, one of the cons of the business model is that you have to regularly communicate with your supplier so that you know if the products you have listed are in stock or not. In the example we’ve been working with, you have one product listed on your store. Depending on how popular that item is and how much stock your supplier has for that one product, you will need to contact your supplier to get updates on how many they have in stock and ready to ship.

Why do you have to do this? Great question. The reason is that suppliers that work through drop ship relationships are working with handfuls of online sellers just like you. They may be allowing you and 25 other people to drop ship their products online. That means that you and 25 other people could be selling the one product that you have listed on your store at any given time 24 hours a day, 7 days a week.

Because of this fact, it is of utmost importance that you, as a seller, make sure that your product is always in stock with your supplier. You don’t want to sell the product if it is out of stock. That can lead to customer complaints when you have to tell them that it’s actually not in stock and you have to cancel the order. No customer wants to hear that and can eventually lead to your store getting shut down.

Once you have a process set up to regularly check in with your suppliers and then update the product on your store, you’re ready for the next step in managing your drop ship business.

Fulfill Orders from Customers

With your product now for sale on your online store and knowing that it is in stock by communicating with your supplier, you are ready to start accepting sales. Let’s say that a customer places an order for your product and you receive it on the back end of your store. How do you actually get the product shipped to your customer?

This is where your relationship with your supplier comes in handy. As you receive an order from a customer, they provide you with their shipping information, phone number, and the product that they have purchased. It is your job to then take that information and send it to your supplier so that they know where to send the product that your customer has purchased.

Once the supplier has this information, they communicate the order to their warehouse where the product is prepared, packed, and shipped using their preferred shipping carrier (usually UPS, Fedex, or USPS).

Once the product has been shipped, the supplier will ping you back to provide the tracking information for the shipment. You then take that tracking information and you send it along to your customer so that they can see when their product will arrive.

The product is now on its way to the customer and the customer is able to track its arrival. You are now ready to head to the final step of the drop ship business model process.

Make Sure the Customer Is Happy

The final step in the drop ship business model is to ensure that the customer received the correct product and that they are happy with their shopping experience. You can do this by following up with them via email or phone once you’ve seen that the package has arrived at their shipping address. Send the customer a short and friendly email stating that you saw the package arrived asking if there is anything else that you can do to make their online shopping experience better.

If there are any issues with the shipment (they received the wrong product or they need to process a return), you will be responsible for getting in touch with your supplier to get the return or exchange set up. This is yet another aspect of communication with your supplier that comes into play as you are building your drop ship eCommerce business.

Bringing It All Together

That may have been a lot to take in if this is your first time learning and reading about the drop ship business model, but that is why this is called Drop Shipping 101. Let’s take a step back and go through the model so you leave this article with a clear understanding of how it works.

Step 1: Build a supplier relationship.
Step 2: Get the product data from the supplier.
Step 3: List a product on your online store.
Step 4: Make sure the product is in stock with your supplier.
Step 5: Make your first sale. Send the order to your supplier. Supplier ships to the customer.
Step 6: Make sure that the customer is happy.

If you are someone that has shopped online before (and I will assume you are), most of this should make sense from a customer perspective. The major difference between the drop ship business model and a traditional wholesale model is that you need to keep a much closer relationship with your supplier on a day to day basis as they are the shipping component of your eCommerce business. You still list the product on your store and create the customer experience, but your supplier is the one that ships the product to your customer.

If you learned something in this article, share it with your friends and stay tuned for next week’s article of Drop Shipping 101. I will continue to dive into the drop ship business model and explain how you can run an eCommerce business model with it. From a 10,000 foot view, the drop ship model is simple and is very attractive to millions of eCommerce entrepreneurs. In the trenches, drop shipping requires a high level of organization and communication in order to turn it into a profitable business model where you are able to benefit in the long run.

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About Connor Gillivan

In the past 10 years, I’ve started 7 businesses & built two to $10M+ in annual revenue, teams of 30+ & an exit in 2019. Today, I run SEO & growth for my 4 B2B companies while teaching millions how to make SEO simple.

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