As consumers, we’re always looking to find the perfect product at the perfect price. But what is the perfect the price and how long are you willing to spend looking for it?

What is drop shipping?

Drop shipping can be defined as follows:

Drop shipping: Purchasing an item from a third-party that connects the seller and buyer without ever seeing or handling the product.

Example of drop shipping

You’re in the market for the latest fitness tracker watch and head out to eBay to see what kind of deals you can find. You find the perfect watch and it’s a great price, eagerly snapping it up. A few days later, an Amazon box shows up on your door. You don’t remember buying anything from Amazon. You open up the box and there is your fitness watch. You’ve been dropped shipped.

How do I know if I’ve been drop shipped?

If you’re someone who doesn’t order a lot of packages online, you’re more likely to notice when you’ve been dropped shipped. If you have packages getting delivered everyday (like our neighbors), it’s unlikely you’re going to notice.

The telltale sign you’ve been drop shipped is to receive a package in the mail from someplace you don’t remember ordering from, such as in the example above.

How to avoid drop shipping

The best way to avoid drop shipping is to shop around. It sounds simple, but it’s easier said than done. Do you have time to price compare between all the major retailers out there? Well it turns out, you don’t have to.

Drop shippers gravitate towards larger companies with easy to use platforms that can be automated. They are also more likely to use companies you may not want to shop with or don’t have a membership to. (Like Costco or Sam Clubs.). Amazon and Walmart are frequent targets of drop shippers. Why? Because, on principal alone, some buyers will not patronize those shops. Are you willing to pay extra to ultimately receive your item from there anyway?

Quick tips to reduce the chances of drop shipping:

  1. Google your item to find the best price available
  2. Buy the item directly from the manufacturer
  3. Check the most common businesses that drop shippers use: Amazon, Walmart, Sam’s Club, Jet.com, and Costco before you purchase
  4. Minimize purchasing items from “store fronts” on eBay.
  5. Watch out for “re-sellers” that have a large variety of different items.

I always do a thorough search for items before I purchase. #smartmoneymouse

How drop shipping can hurt the business owner.

The most prolific example of how drop shipping can hurt the business owner is the well publicized story of Fred and Natasha and their cat toy, the Ripple Rug. This popular toy was being sold on their website and Amazon and it was doing well. One day, Fred noticed it was also being sold on eBay for $20 more. Only, it wasn’t Fred and Natasha that put up the listing, it was a middleman.

Yes, the middleman generated extra sales for their business through the re-selling, but then the problems started. Some of their clients found out they could get the toy for $20 cheaper directly through Amazon. What did they do? They returned the item and repurchased it directly. Now the owners were left with a used cat toy that couldn’t be resold and extra shipping costs.

At the time, Fred and Natasha ended up pulling their toy from Amazon and forsaking a tremendous amount of income. They have since expanded their distribution channels and sell it on Amazon, eBay and even Chewy.com, all for the same price to reduce the odds of drop shippers getting in on the action.

Is drop shipping illegal?

No. Drop shipping is just another way to connect buyers and sellers. There are no laws against it and in some cases, it can really help the manufacturer. In fact, some business choose to utilize a middleman to sell even more of their product. Marketing and visibility can be key to having your own product take-off with customers. Fred and Natasha may be big detractors of the drop shipping, but there’s nothing they or you can do about it.

When drop shipping can help you.

We consider ourselves to pretty savvy online and look around for the best price. We’re always looking for coupons and ways to save by buying in bulk. To say we were surprised when a package showed up that we didn’t remember ordering is an understatement. You see, we use a fair amount of Ziploc bags for our lunches at work and we like to get the best price we can. After doing a fairly exhaustive search online for the product (Ziplock bags are expensive!), we settled on an online store through eBay that offered a great price.

Little did we know, that store was getting their product from Sam’s Club. When the Sam’s box showed up, addressed to us, we curiously opened the box to see what had arrived. Lo and behold, it was our Ziplocs that we had ordered from eBay. Sure enough, we had been drop shipped. We went online to see how much our little mistake cost us and it was about a 10% mark-up.

I know what you’re thinking, how dare they make an extra 10% on the sale? You’re right, I was upset too. I wanted my discount! Any smart $Mav would. After further consideration, we actually considered it a win. You see, we don’t have a membership to Sam’s Club and we’re not about to sign up for one just to save 10% on Ziploc bags. If it weren’t for drop shipping, we would have paid more for our product.

Wait a minute, you’re saying I can make a 10% mark up just for starting a drop shipping company? I want in on this!

Should you start a drop shipping company.

Whether or not you start a drop shipping company is a personal decision. If you do decide to jump into this growing industry, here are a few pros and cons you should consider.

Pros

  1. You don’t own any product or have to come up with an idea of your own product to sell.
  2. You don’t have any inventory on hand or costs to warehouse your product.
  3. The world is your oyster and there are unlimited products you can find and drop ship to unsuspecting customers.
  4. You are connecting sellers with buyers that never may have found each other. (Thank you cheap Ziploc bags!)

If I wasn’t so busy throwing cheese tasting events, my next side-hustle would be drop shipping.

Cons

  1. If a customer wants to return the item, you may end up losing money on the item.
  2. The margins on drop shipping are typically very small. Volume is the key to being successful which means you need to invest in automation.
  3. Drop-shipping may hurt small businesses. Just ask Fred and Natasha, founders of the the Ripple Rug.

Is drop shipping here to stay?

In a word, yes.

As you look back in history, there are many examples of “middlemen” inserting themselves into the sale of goods. An early example dates back to Ireland in the mid-18th century. A middleman paid an approximate rent of $160 for land and subsequently sublet it to someone else for $903 and pocketed the difference.

Anyone who has ever utilized a property manager for their rental property, called an insurance agent to save on their insurance, or shopped at a grocery store is going through a middleman. And while the internet should have reduced the need for middlemen, it has in fact created a whole new market of opportunity for them.

Why? Because no two individuals place the same value on a good or service and connecting buyers with sellers will always remain a challenge.

So the next time you get drop shipped, you may want to ask yourself a couple things. Did I get drop shipped because I was too lazy to shop around or did I get drop shipped because I didn’t have a better option? In the case of our Ziploc bags from Sam’s Club, even with the mark-up the drop shipper received, we didn’t have a Sam’s Club membership and could not find a cheaper price anywhere. We felt like the drop shipper deserved their fee for connecting us with the thing we needed.

Have you experienced drop shipping? Did you try and return the item to get a cheaper price?

The information contained on this website is for entertainment purposes only and references only opinions of the author. Nothing contained within should be considered professional, financial, legal, tax, psychological, safety or investment advice. Seek advice from a duly licensed and/or registered professional that can help with your specific situation.