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Dropshipping Pitfalls
by DeAnna Spencer

Theoretically, you can offer a million dollars worth of merchandise by mail without ever buying or stocking a single item. The trick to this is by using the drop ship method of selling. Simply stated, this means that you merely do the advertising, receive orders at your address, then forward the orders to your suppliers with your wholesale price and they send the item to your customer. It's an easy way to sell, it's effective and it works for many mail order firms, large and small. But, like so many other things in this business, there are two sides to the story. If you have already heard about drop shipping, you have probably only heard one side...the side that merchandise promoters want you to know. As Paul Harvey might say, "Now you will hear the REST of the story."

Yes, drop shipping can be used profitably, but it is unlikely that you or anyone else can become wealthy in mail order this way. The reason is economic. Most manufacturers, wholesalers or suppliers offer drop ship discounts of 30%-40% and up to 50% to dealers. This is not enough to allow any great profit on which to build a business. The selling costs will usually outweigh the profit allowed on merchandise, so the more you sell, the more you lose. How then can you make money by using the drop shipping principle? By using it to get REPEAT business.

Here's how it would work:
Select what you think would be a good "leader" item and ask your supplier for his lowest price in quantities. The low price will give you greater flexibility in promoting it. The important rule here is to make sure this item represents the entire line of merchandise that you want to sell. Whether you sell it directly from an ad, run inquiry ads and use the two-step followup method of selling, or rent a mailing list...you will probably lose money on this first sale. Don't worry about it. If it's a good item at the right price, you will be building a customer base... people who will be happy with their purchase and will be willing to do business with you again.

Now is the time to use the drop ship method. From your original supplier or from others, get all the sales literature available on other good products that will appeal to your customers. Use this literature as individual sales pieces, or compile them into your own catalog. When filing your first order, enclose this catalog or sales literature with the order, along with an order from and your return address envelope. A percentage of customers will begin sending you additional orders for these new items. Here's an important point: To get the first order you had to spend a lot of money for merchandise, first order you to spend a lot of money for the merchandise, the advertising and shipping. This time you don't have these expenses. All subsequent orders are virtually FREE, except for the cost of the sales literature(possibly 2 cents to 10 cents each.)

At least 3 or 4 times a year, mail to your accumulating customer list with additional offers. All of these can now be drop shipped at a profit. Keep a close watch on items that are hot...those that sell exceptionally well. You might want to take advantage of the lower prices by stocking some of these to fill your own orders and enjoy the maximum profits from each sale.

This is how drop shipping can and should be employed. Of course, if you already manufacture or publish a product of your own, you're way ahead of the game. Use drop shipping to supplement your sales by offering other items to your customers on a regular
basis. This is where the profits are in drop shipping.

Copyright 2004 by DeAnna Spencer
This article may be freely reproduced on the Internet as long as the resource box remains intact.

DeAnna Spencer is a virtual assistant that helps entrepreneurs run a successful business by providing affordable administrative help. She also publishes a blog for small business owners. Visit this small business resource today.

Article Source: http://EzineArticles.com/?expert=DeAnna_Spencer

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