updated - April 9, 2020 Thursday EDT
Drop shipping is an online alternative to franchising that offers you most of the benefits of a franchise operation without the large upfront investment and the heavy overhead. A well-planned drop shipping enterprise fuelled by partnerships with reputable wholesalers can have you running a very successful business in a short amount of time.
Franchising is a model that untold numbers of business owners have successfully translated into profits for generations. It involves an already established company selling use of its business model, branding, etc. to other independent business owners looking to get a piece of the action.
Let's say you were to open a fast food franchise. Pick your favourite brand. You would own your restaurant free and clear. You would also pay the parent company an annual fee and a percentage of your profits in exchange for identifying with that company. You would use the parent company's name, brand, and so forth.
The nature of franchising dictates that most opportunities in this sector are in some way related to the restaurant, retail, and service industries. If retail is your thing, online drop shipping is another option.
Drop shipping has not been around as long as franchising, but it is not new either. Entrepreneurs have been making good money with drop shipping for the better part of a decade. The drop shipping model is as simple as it gets from a business standpoint. Everything is done online.
As a business owner, you decide to sell certain products to your customers. But rather than invest in warehousing space to store your inventory prior to shipping, you work with your wholesale suppliers to handle shipping on your behalf. Shipping is the key to a drop shipping business.
Let us say you decide to sell workplace safety equipment and supplies. You might specialise in UK speed bump and traffic control equipment. Stocking your own merchandise could be pretty expensive, so you hook up with a wholesaler to provide a drop ship service for you.
You market and sell the products on your own website, under your own name and brand. A customer placing an order from you would use your online shopping cart to select items and make payment. You would instantly receive a notice of that purchase. You would then turn around and place that same order with your wholesaler. The wholesaler ships the items directly to your customer in packaging that bears your company name.
The difference between what you pay the wholesaler and what your customer pays you constitutes your gross profit. Subtract any additional expenses to calculate your net profit.
Drop shipping is not the best business model for everyone but it does have its benefits. Those who make it work can do very well. For starters, you can get a drop shipping business up and running with a comparatively small financial investment.
Again, let's assume you are selling workplace safety products and supplies. There are tonnes of suppliers out there just waiting to bring you on as a wholesale customer. You will not have to search far and wide to find products to sell. Your only real difficulty in this regard is choosing drop shippers with whom you can work.
Another major benefit is not having to worry about overhead. If you know anything about retail, you know that overhead eats into profits. There is no need for you to invest in overhead because you are not stocking inventory or having to worry about shipping. This leads us directly to the third benefit of drop shipping.
Online retail and shipping go hand-in-hand. If a business grows large enough, shipping can consume a tremendous volume of resources. That's okay if you're a wholesaler selling millions of pounds of inventory every year. But if you are just a single individual trying to keep up with a successful website, you may not have the time and energy to put into shipping. When you drop ship, all those worries go away.
Perhaps you read this post all the way through because you are thinking of starting a business with a franchise. Absolutely investigate all of your franchise opportunities. But before you make a decision, give some thought to drop shipping as well.
As previously stated, drop shipping is not the right business model for everybody. It represents a different way of doing business that requires thinking outside the box. If you have what it takes and you have been thinking about maybe doing things a bit differently, drop shipping offers some tangible benefits you'll never get from franchising.
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