A lot of people new to selling on auctions look to drop shipping as a low-cost way to get started. The reasons make sense on the surface, but the pitfalls that exist can ruin your auction business even before you start. To understand the benefits and risks, a little explanation is in order.
Drop shipping is where a wholesale distributor will store and ship products for you and you don’t have to pay for anything until you actually sell the item. All you have to do is make the sale. This is how the system works:
First, you locate a wholesale distributor who is willing to drop ship the products you want to sell and establish an account with them. If you do decide to go this route, be aware that there are a lot of scam drop shippers. A real drop shipper will not charge you any upfront fees to establish an account and will not require a minimum quantity order. That is, you can have a single product shipped to your customers and there is no further commitment on your part to sell more.
Once you have established an account, you will have access to images, descriptions and other selling tools for the products the distributor offers. You can use these free of charge to set up your auctions. Say you choose a product that wholesales from the drop shipper at $15. You place it on auction and it sells for $25. After the product sells, you gather the money from the winning bidder, including shipping costs, and then contact the drop shipper with the winning bidder’s name and address. The drop shipper then sends the items from their warehouse directly to your winning bidder with your name on the label. At that point, you get charged by the drop shipper for the wholesale price $15 and shipping and you keep the $10 difference less your costs.
The advantages are obvious. You don’t need to put out any upfront money to have hundreds of possible items to sell. Quality photos and item description are already done for you. You don’t have to pay to have the item sent to you before sending it to the winning bidder. Your only costs are the fees for the auction. If the auction doesn’t sell, you are only out the fees so you don’t have unsold products you paid for filling your basement. You don’t have to spend the time wrapping and shipping the item. It all sounds great. So why would I not recommend it?
Along with the advantages, there are some distinct disadvantages. The first is that there are so many people that use drop shippers now on online auctions that it is difficult to make much of a profit. That is not to say it can’t be done. It just means that it is difficult. While that is a problem, the real issue of concern is that you give up control of your seller reputation to the drop shipper. Until you have worked with a drop shipper awhile, you will not know how reliable they are and a negative feedback early on in your selling career can have a devastating impact on your selling ability by keeping a lot of potential bidders away. If the drop shipper is slow in delivering the product, has a temporary supply problem or makes a mistake with your order, it is your seller reputation that suffers.