The Pros and Cons of Drop Shipping on eBay

We’ve probably all been in the position of running out of stock and getting a supplier or competitor to ship an item direct to the customer for us. If you’ve done this then you’ve already performed what’s known in the trade as “Drop Shipping”.

Some sellers however never actually handle any of their stock, their entire eBay operation is based around drop shipping where they list products for sale, accept payment, but then place the order on a drop shipper who fulfils it shipping it direct to the customer with the seller never handling or even seeing the item.

It’s not unheard of on eBay for sellers, especially in the DVD and media categories, to use eBay’s competitors Amazon or Play.com to drop ship for them. This isn’t strictly drop shipping, but again if you’ve run out of stock and can make a margin in the middle it’s a great way of fulfilling a customer’s order.

A quick search of the Internet will reveal that there are hundreds of companies who specialise solely in drop shipping for eBay and website sellers. Many are reputable and may even be eBay certified, but do your home work before committing to a particular drop shipping and if you’re considering using them place a couple of orders to be shipped to yourself or family and friends to test out their service before launching the products on eBay.

Unlike your own website on eBay it’s buyers that will rate your service, and by using a drop shipper you lose the vital control of when the product is shipped and the method and speed of shipment. This will all affect your eBay feedback and detailer seller ratings and if a drop shipper runs out of product, back orders it from the manufacturer, or simply places you orders on hold for any reason then this will be reflected in your feedback.

“Many drop shippers allow you to pay on an order by order basis, but check if there are any up front or annual fees you need to pay, and also check payment terms.”

Many drop shippers allow you to pay on an order by order basis, but check if there are any up front or annual fees you need to pay, and also check payment terms. It’s normal to pay for each order as you place it with the drop shipper, either by credit card or today an increasing number will accept PayPal. In either case make sure you have available funds as if you are a new seller subject to PayPal 21 day holds, or if a PayPal rolling reserve is placed on your account you’ll still need to pay for orders to ensure that they’re shipped promptly.

The obvious advantages of drop shipping are that you don’t have any up-front investment in stock, and you don’t need warehousing to store your products. Also most drop shippers will have attractive delivery charges as they can negotiate with carriers based on a larger number of shipments for discount levels than you as an individual seller will be able to access.

The biggest downside of drop shipping is that you’ll be offering the same products with the same service and delivery standards as many other sellers using the same drop shipper. Unless you obtain samples to personally photograph and describe you’ll be reliant on stock images and manufacturers descriptions which again will be identical to your competitor’s listings.

With drop shipping margins maintaining decent margins is tough to achieve, as soon as two or more sellers are supplying the same products from the same drop shipper the only real differentiator is on price. Be prepared to drop product lines and introduce new ones as soon as your drop shipper offers them to beat the competition – there really is little point maintaining a drop ship line if your competitors are dropping the price and you have to cut your margins to compete.

Drop shipping is something that only experienced eBay sellers should consider as their sole or primary source of supply. Whilst the advantages of no initial stock purchase, no storage costs or shipping are attractive the lack of control and ease with which competitors can enter the market make drop shipping a difficult proposition to get right.

For experienced sellers who want to supplement or grow their businesses drop shipping can make a significant difference to their turnover and profitability, but the management of a drop shipping operation and the risks to your eBay feedback if something goes wrong shouldn’t be underestimated.

The Pros and Cons of Drop Shipping on eBay was last modified: May 25th, 2011 by Andrew Pinner