First: A little background on drop shipping
The idea of drop shipping is that a wholesale drop shipper (the supplier) offers you the option of selling products without buying them first. They also act as service providers who prevent you from having to:
But they don't do all that for free! When you buy from a wholesaler offering drop shipping services, they add a fee to cover the costs involved with offering this service. This is usually US$2-US$5 per item, which means you must be careful when you think about the products you want to drop ship, as there are some items which are much more suitable for drop shipping than others. We suggest going for:
As promised: Your 5 Step Guide to starting a drop shipping business
Step 1: Find a supplier!
You need to explore a few different possible suppliers. Try our own SaleHoo Directory which is full of reputable sellers stocking a wide range of products from cosmetics to farming equipment. For local suppliers, try flicking through your Yellow Pages in the Wholesale or Suppliers sections. Look for ones who have plenty of experience in drop shipping and who understand the importance of sending out your items in a timely manner. Before negotiating a deal with them, ask:
Step 2: Select products from your new supplier's range
This step could also be Step 1 those who know exactly what they want to sell. Start by trawling through your suppliers product range and pick out a few items which interest you and do some market research. Find the best selling items by:
1. Using a service like SaleHoo Market Research Lab, which performs market research for you when you input key words into the search tool, and tells you all sorts of valuable information including the average selling price, average shipping price and sell-through rate (ratio of listings which sell in relation to those which do not). It's free with your SaleHoo membership, well worth it to ensure you choose only profitable items to sell!
2. Otherwise, use our old favorite and take a close look through eBay's completed listings. If you haven't used this method before, follow these simple steps:
If none of your products match up, go back and find something else to research or try searching the same product under different key words and categories.
Step 3: Get a tax ID
Not all eBay sellers need a tax ID but some wholesale suppliers require you to have one before they will do business with you. You do need to get a sales tax ID (also known as retail or resellers license, tax ID, resale number resale certificate or vendor's license) if you are inside the US or Canada and running a business (not just selling items from around the home). Note that some states including Alaska, Delaware, Montana, New Hampshire and Oregon do not require sales tax ID's. so let your wholesaler know if that’s the case, as they may have another form for you to fill out. Applying for a tax ID is easy and inexpensive; you can do it by visiting your local county clerk’s office or online – just Google “[your state] + sales tax ID”.
To get a sales tax ID, you may need to be a business entity; a company or a sole proprietor (which applies to a lot of at-home online businesses), and to have a Federal Tax ID number.
Step 4: Choose a selling platform
The obvious one is eBay but there are plenty of other online auction sites out there which are growing rapidly and getting a lot of traffic (and some are even fee-free or much cheaper to use than eBay!) Check out sites like Bonanza.com or Amazon.com and see if there is a market there for your product range. It's a good idea to diversify when it comes to selling on online auction sites as each site has its own unique visitors (not everyone checks eBay first, yah know!) and with most sites being free to join, there is no reason not to give others a try.
For sellers who are really looking to diversify, consider setting up your own eCommerce site such as a SaleHoo Store which is the fastest and easiet way to open your own store. You can get a free 30 day trial of SaleHoo Stores right now and try it for yourself.
Step 5: Manage your listings
When drop shipping, you will list your items in the same way you would if you had the stock on hand, but when selling on eBay (and some other sites, you must check individual policies), you must disclose in your listing to all potential buyers the location of your item.
For example, if your supplier is based in Hong Kong, you must display this in your listing so that buyers are aware that there may be longer than expected shipping times. Check out the details of the policy here.Drop shipping orders work a little differently than regular wholesale orders.
Here's what a typical drop ship order will look like:
Good luck with your drop shipping business! For more information check out our free drop shipping advice.
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