To Drop Ship or Stock Inventory?
Should your home based business drop ship or stock products? For a while now you have wanted to sell products on your website and you have been thinking about both methods. In many of my online businesses I have done both drop ship and stock inventory. Knowing in advance which business model you want to pursue will help in finding manufacturers that will work with your home based business.
There are many aspects to consider. Let’s explore the advantages and disadvantages of both business methods below.
Drop Ship Advantages
- You do not have to stock inventory.
- No in house shipping department to deal with.
- With out a shipping department you will need fewer employees.
- You don’t have to worry about getting the best rates or negotiation with FedEx, UPS, DHL or USPS. The manufacturer usually has decent shipping rates. (that is a question you will ask when you contact a manufacturer or distributor)
- If the shipper damages or loses your product en route to a customer you will notify the manufacturer and they will correct the issue with the shipper not you.
- You do not have to have to store the product. (depending on the product this can be a huge savings)
- No inventory, so no upfront large purchase cost.
- There will be no overstock or products that are obsolete sitting in your inventory.
- You can pay cash on the barrel head or setup terms. (if you have bad credit or weak credit you can just pay cash at the time of order placement)
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Drop Ship Disadvantage
- You don’t have control over inventory. (you may find that the product is back ordered and you are sitting on many orders that need to be filled) You will need to call or email your customers to see if they are willing to wait for the order.
- Without inventory, you can’t control how many items you have available even if you check with your supplier (sometimes their inventory wasn’t updated). This goes hand in hand with first disadvantage above.
- Usually you pay more for drop shipping then when you stock inventory. This will cut into your profits.
- If there is a defect in workmanship or an issue with damage that was due to the shipping company, you will need to go through the manufacturer to have them send out a new product with a return merchandise authorization (RMA) form and shipping label for the original defective product. (this can be good or bad depending on how much control you want over your products)
- You will need to follow up with the manufacturer to trace the RMA label to be sure your customer sent the defective product back and that you receive proper credit for the returned product. (many manufacturers will charge you again in advance until they receive the product back)
Advantages of Stocking Products vs. The Drop Ship of Products
You have control of inventory.
You control your shipping department and deal directly with the shipping department for prices and damaged shipments. Problems can usually be quickly resolved on your end with the customer without having to wait for the manufacturer.
You will know exactly what products are in stock or not.
It may be easier to create specials for customers based upon overstock.
Better pricing from the manufacturer when you stock inventory.
As you can see there are pros and cons for both a drop ship business and a inventory stocking business. I have found that there can be balance in using both methods for your online home based business. The more reputable your manufacturer is the better control they have on their stock inventory and shipping procedures. You can always change the method of business as your see what works best for your particular product line.
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