Small Business Q & A: Cut Start-Up Costs By Using a Dropshipper

Q: I'm starting an online specialty shop that sells gifts and home
accessories. I want to be able to have items dropshipped to customers
through my site. I already have a Web site and a domain reserved,
but I don't have a lot of money to get this going. Can you offer
any insight?

A: Setting up relationships with companies who will ship merchandise
directly to your customers for you-- dropshippers, as they're called
--is an excellent way to start your e-business and, if done properly,
doesn't have to be a costly endeavor. There are literally hundreds
of companies out there that will dropship products for you, everything
from gifts and housewares to power tools and furniture.

In a nutshell, here's how dropshipping works. You set up an account
with a dropshipper (or multiple dropshippers who offer different
kinds of products) who provides merchandise that you can sell on
your Web site. The dropshipper typically supplies you with images
and product descriptions that you can use to build your online
store or feature on static HTML Web pages.

You can locate dropshippers with the new e-book The 2003 Guide to
the Top 400 Dropship & Wholesale Companies. YOu will find it at: op400.asp.

When a customer places an order for the product on your site, he
or she pays you for the product. You, in turn, place the order
with the dropshipper and pay them for the product. The dropshipper
then ships the item directly to your customer under your company
name. To your customer's knowledge, the product was shipped by you.

Dropshipping offers many advantages to the shoestring online
start-up. You don't have to pay for an item until it sells, and
your customer pays you, so your personal cash outlay for the product
is zero. You never have to handle or warehouse the merchandise,
as order fulfillment is handled by the dropshipper. You can also
offer a wide variety of items from multiple dropshippers, and your
end customer is none the wiser.

Dropshipping does have its downsides. Since you do not actually
stock the products featured on your site, you have no control over
inventory management, product availability, order fulfillment,
shipping processes and so on. Still, if you do your homework and
establish a good relationship with a reputable dropshipper, the
problems you experience should be few.

Your goal should be to find a dropshipper that will ship items one
at a time instead of requiring that you purchase a fixed minimum
number of items each time (single-unit purchases vs. minimum-order
purchases). With this arrangement, you don't have to invest your
limited cash reserves in inventory that might not sell (and that
sits in your garage for months).

Thanks to the stiff competition the Web has created, many dropshippers
will now do business with you without requiring that you pay a setup
fee or have a tax ID number. You simply set up a reseller account
(you're the reseller) and start marketing the products on your site.
Account registration can often be done online at the dropshipper's
Web site. With this process, you can literally be selling products
within minutes of setting up your reseller account.

Be warned, however, that some dropshippers are not as reliable as
others. Also, be aware that some companies who claim to be dropshippers
are really middlemen who have positioned themselves between the online
merchant (that's you) and the real wholesale merchandise distributor.
These middlemen will eat into your profits and usually don't offer
much in the way of customer support and service. They can actually
hurt your business more than help it, so make it a point to do
business only with--and directly with--established, reputable
dropship companies.

Spend the time to research the dropshippers doing business in your
particular product category, and try to get feedback from their
current customers. Remember that your customer doesn't know (or care)
that the product they are purchasing from you really comes from a
dropshipper. If there is a problem, your customer will come back
to you for resolution, not the dropshipper, so make sure that the
dropshipper you use has a policy for resolving problems quickly.

Setting up an online store that offers merchandise from dropshippers
doesn't have to be expensive or time-consuming. However, this brings
up the age-old question: If I build it, will they come? The age-old
answer is: Only if you let them know you are there, but that's
another column.

Here's to your success!

Tim Knox
For information on starting your own online or eBay business,

About the Author

Tim Knox as the president and CEO of two successful technology
companies: B2Secure Inc., a Web-based hiring management software
company; and Digital Graphiti Inc., a software development company.
Tim is also the founder of, an ebusiness
dedicated to the success of online entrepreneurs.

Tim Knox