People have been distributing products since before the first
mastodon skinner traded a fur coat for a flint axe.
Here’s
how it works.
Let’s
say ABC Manufacturers makes a product called Mom’s Ankle Wax. We’ll
say that Mom’s Ankle Wax has been around for years. It’s a very well
known brand name product. It will without a doubt give you the shiniest
ankles on your block, and everybody wants some.
ABC
Manufacturers makes Mom’s Ankle Wax, but they don’t sell it directly
to the public. They’re a manufacturing operation. They’re far too busy
melting paraffin and waxing test ankles to go around building stores all
over the place. They need distributors; companies who will take their
product and distribute it to the places that will sell it.
For
years, ABC Manufacturers has sold Mom’s Ankle Wax to a company called
DEF Distributors. The founder of DEF Distributors knew Mom herself, back
in the old days when she made her Ankle Wax by hand, out in the turkey
barn.
Today,
DEF Distributors buys Mom’s Ankle Wax by the truckload. They pay $5.00 a
case for it, which is a very good price. It’s such a good price, it has
it’s own name: the Manufacturer’s Wholesale Price.
However,
DEF Distributors does not sell it to the general public either. They are a
distributor. They distribute Mom’s Ankle Wax.
DEF
Distributors works with a chain of retail stores called Wax R Us. This
place was founded by a retail business visionary who saw the incredible
potential of Mom’s Ankle Wax a long time ago. Today there are Wax R Us
retail stores on every street corner in every major city in the country.
Wax R Us buys truckloads of Mom’s Ankle Wax from DEF Distributors for
$10.00 a case.
So,
DEF Distributors makes $5.00 on every case of Mom’s Ankle Wax they sell
to Wax R Us retail stores. This makes DEF Distributors very happy.
Cases
and cases of Mom’s Ankle Wax arrive in the stockrooms of Wax R Us stores
everywhere. The Wax R Us employees open those cases, and pull 12 cans of
Mom’s Ankle Wax out of each case. With their pricing guns, they stick a
price of $4.50 on each and every can.
Wax
R Us stores make a total of $44.00 on each case of Mom’s Ankle Wax.
(12
cans x 4.50 per can = 54.00, minus the 10.00 they paid for the case =
44.00).
Wax
R Us is even happier than DEF Distributors.
However,
the happiest people of all are the people who can stroll into Wax R Us and
purchase a can of Mom’s Ankle Wax for only $4.50. They think this is a
great price, and they’re walking around with the shiniest ankles in
town.
Well,
that’s it…basic product distribution. The manufacturer sells to the
distributor, the distributor sells to the retailer, and the retailer sells
to the end user (the customer). The manufacturer, the distributor and the
retailer all make money because the customer is willing to spend
money for the product.
Drop
Shipping has been around for a long time, too. Probably as long as mail
order catalogs; maybe longer. If you want to use a buzzword to impress a
corporate type, call it “second party addressing”.
Above,
we talked about the manufacturer-distributor-retailer relationship. When
you use drop shipping to sell products on the Internet, (or anywhere
else), YOU become the RETAILER in that relationship.
For
our purposes, there are two kinds of retailer. There is the retailer who
stocks products, and there is the stockless retailer. Drop Shipping
means that you become a stockless retailer.
Retailers who stock products
Let’s
imagine that you want to open a retail store on the Internet. You have to
have products to sell, right? Let’s also imagine that you like to
suffer. Mental anguish is your favorite pastime. You aspire to financial
ruin. In that case, you will want to stock products for your Internet
retail store.
To stock products for your store, you will have to rent warehouse space, or
at least clean out your garage. You will have to have to pay for a
shipping account with UPS or FedEx, unless you want to saddle up
and trot down to the post office every day. Worst of all, you will
have to pay for those products up front.
Yes,
that’s right. Money. Probably lots of it. For example, if you want to
sell Mattel Toys, you can contact Mattel and they will be happy to set you
up as a retailer. I know…I’ve talked to them. We had a nice
conversation about setting up an account, placing orders, and all the
other wonderful things businesspersons discuss with each other when
beginning a relationship. Toward the end of our conversation, this nice
woman said to me, in an offhand manner, “By the way, your minimum first
order must be at least $100,000.” That’s One Hundred Thousand Dollars,
folks.
I
nearly choked on my bagel. Needless to say, I do not stock Mattel
products. Or anyone else’s, for that matter.
Stocking
products costs money, that’s the bottom line. No matter what you sell,
if you carry stock, you pay first, and then hope you sell later. If
you don’t sell the products you buy, there are going to be some very
happy people at your next garage sale, and your bank will be sending you
an amazing amount of undesirable mail.
There’s
a much better way.
Stockless Retailers (Drop Shipping)
It
should be noted here, if only to keep the Punctuation Police happy, that
if you use the method of drop shipping in your business, YOU are not the
“drop shipper”. The company(s) who supply the products to your
customers for you is the drop shipper. YOU become a “Stockless
Retailer”.
Here’s how drop shipping works.
1.)
You open an Internet Store, with a shopping cart and the ability to
accept credit cards.
2.)
You find a distributor who is willing to drop ship the products you
want to sell. The best place on the Internet for this is www.DropShipSource.com.
This is our website, and our
Drop Ship Source Directory is recognized as
the best source for legitimate wholesale drop shippers on the Internet.
3.)
You establish an account as a retailer with the distributor you
choose.
4.)
You receive images and descriptions of the products you want to
sell from the distributor, and post them on your Internet Store.
5.)
A customer surfs into your Internet Store, and falls in love with a
product that you have priced at, say, $80. They purchase the item with
their credit card. Your Store charges their credit card $80 plus your
shipping fee.
6.)
You turn around and email the order to your distributor, along with
the customer’s name and address.
7.)
The distributor sends the product directly to your customer, with
YOUR Store’s name on the package.
8.)
The distributor charges you the wholesale price of, say, $45.00,
plus shipping.
9.)
Your customer gets a cool product from your store shipped to their
door, and they tell all their friends about you, and you make even more
money.
There
you have it. You just made a $35.00 profit on one item. You didn’t have
to buy a whole bunch of the product and keep it in your warehouse, hoping
you would sell it. You didn’t have to pay to have it shipped to you, and
then pay to ship it to your customer. All you did was send an email to
your distributor.
That’s
the drop shipping process in a nutshell, and we've placed information in
the Drop Ship Source Directory about everything from setting up your store
to accepting credit cards.
About the Author:
Chris
Malta
is
a Microsoft Certified Systems Engineer. He has worked with
computer Systems for 18 years. He's been involved in eCommerce
systems, networking and site design for more than 6 years. He's
taught college-level computer courses in Western NY. He
developed The Drop Ship Source Directory, and he and his
partners at Worldwide Brands, Inc., publish the Directory and run
eCommerce sites of their own using Drop Shipping as their only
business method.
