by RoxH

Created on: November 21, 2009

Dropshipping has opened up the online retail sector to small, home based business start ups by offering a cheap way to start a retail business. However, as with any business opportunity there are advantages and disadvantages of operating a business using dropshipping. You must consider your dropship partner company carefully to ensure that they are able to offer a satisfactory level of service and provide you with a sustainable stock of in demand items. If the wholesale dropshipper you choose to work with is not able to meet some basic criteria you will struggle to make your new business venture a success.

Traditionally a retail supply chain works by a retailer purchasing stock they hope to sell from a wholesaler or manufacturer and then delivering this to a customer as and when they make a sale. A bricks and mortar retailer is dependent upon this supply chain because their customers expect to leave the store with the item they have purchased, therefore the retailer is required to have physical possession of the stock they are offering for sale. However, the online retail business model is able to operate in a different way because there is an inevitable gap between the time the purchase is made and when the customer receives their goods.

With the dropshipping business model the retailer does not buy stock up front but buys individual units after making a sale and then arranges for the wholesale dropshipper to ship the goods to the customer on their behalf. So, the dropshipper, as well as acting as a wholesale supplier manages part of the sales transaction for the retailer. The dropshipper offers a range of stock for sale, which the retailer can market only making an actual purchase once they themselves have made a sale. This is an ideal business model for trading online, particularly on a site like eBay; dropshipping allows you to offer a wide range of items for sale, with the only cost being that of listing the item on the eBay site. Ebay also allows you to list multiple quantities of an item in one listing, reducing your listing fee you have to pay; allowing you to get your eBay business off the ground with minimal financial investment.

This has some obvious advantages for the online retailer. Firstly, there is no need to invest money in stock up front, meaning that an online retailer can start a business without any financial commitment. An online trader adopting the dropship business model can maintain positive cash flow because they do not need to

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