Drop shipping is a fulfillment model wherein online retailers market products and take orders from shoppers, but third-party suppliers (drop shippers), which are often product distributors or brokers, fulfill those orders. The retailer does not inventory, handle, or ship any of the drop-shipped products.
1. Low Overhead Costs
When an online retailer employs drop shipping, overhead expenses can be very low.
There is no need to warehouse products. The business doesn’t need to carry inventory. For a very small ecommerce operation, this might mean that you won’t have to stack boxes in a storage unit or your garage. A mid-sized or larger ecommerce business might save thousands of dollars a month in warehouse lease payments and utility bills.
2. Scale Quickly
Drop shipping suppliers, the companies that actually have the products and have promised to fulfill orders on the ecommerce retailer’s behalf, should have plenty of inventory.
Inventory is one of the primary benefits these sorts of companies offer. So when a retailer enjoys a spike in demand, drop shipping should make it possible to scale quickly.
3. Increase Customer Lifetime Value
Drop shipping may help some ecommerce retail businesses increase or improve average customer lifetime value.
Getting new customers is among the most difficult and most expensive ecommerce marketing activity. Once a retailer has a customer, it makes sense to try to sell to that customer repeatedly.
With drop shipping, it is possible to carry a very broad range of products. In turn, these additional products give an online store more items to market to existing customers — think email marketing — which in turn may mean that more customers will return for a second or third purchase. When this happens, the store has effectively boosted customer lifetime value with its wider product offering.
4. Little Financial Risk
Because drop shipping often comes with low overhead and low start-up costs, it can be very low risk.
In fact, it is possible to create a relationship with a drop shipping service, pay for a software-as-a-service ecommerce platform, and do some basic pay-per-click marketing for less than $500 a month.
5. Work from Anywhere
When a drop shipper handles inventory and order fulfillment, a retailer is not tied to any location. A small ecommerce business can be based anywhere.
Courtesy of PracticalEcommerce
