With the ubiquity and increasing popularity of the Internet technology, online virtual business has opened up a whole new world of opportunity to business entrepreneurs. Parallel to the advancement of this revolutionary technology which has turned the globe into a small village, new business concepts are emerging everyday.

Drop shipping is such a newly developed business concept  which has emerged over the last few years. Basically a supply chain management technique for online business, drop ship business refers to shipping of merchandise from a supplier directly to a SME's customer. No matter whether you are a retail business or a manufacturing unit, you can benefit from this unique business concept.

But where does the promise lie? Starting a business always involves challenges; the first and foremost is money. In traditional business, you have to buy or rent a premise, establish the workplace, make an inventory, and meet numerous marketing costs- and all these you have do before making your first sale. For a large organization which can invest a whopping capital, these are not really a problem. But for a small or medium sized business, every pie means a lot.

With a limited budget, you may not have enough money to make a warehouse for yourself; nor you may have enough money to set up a premise. But still you can start your business, and it is just sitting at your home. What you need is a home PC with Internet connection. Nothing to worry about purchasing a large amount of stock, spend a fortune on the huge inventory or for shipping arrangements.

How drop shipping works?
Now, have a look how the drop shipping mechanism works. Drop shippers are basically wholesalers who ship their products directly to drop ship business's customers. Therefore, when you start your drop ship business, what you need to do is to advertise, and find customers for your products. As per the advertising campaign is concerned, you may display your products online on your own website or on a B2C portal. The Internet will enable you to communicate with a larger client base. Even if you already have a physical store, you can double your business efficiency to profit more with less effort implementing Drop Shipping mechanism into your supply chain management system.

After your products are displayed on a website, the visitors to it will be converted into your customers if they find your products attractive enough. These visitors turned customers can now place their orders directly to you. And what is most exciting about drop shipping business is that you are paid the retail price for your products (this is the reason why drop shipping has become increasingly popular in these days even with the manufacturing businesses).

When you make a sale, you email the orders to your drop shipper who will ship the products to your customers on behalf of you. Of course, you have to pay the drop shipper the wholesale price of the products along with a little shipping fee. But there is no expense for warehousing and insurance. So, the the earning would certainly be more as compared to that of a non-drop ship business. And, that is not all about the advantages of a drop shipping business over a traditional business. There are a few more, and all striking.

Advantages of drop shipping

• Small and Medium Enterprises (SMEs) are immediately faced with many challenges. The first and foremost amongst them is the requirement of setting up an inventory. It costs  a lot and often translates into a very high business start up cost. And even after filling up your warehouse with enough products, you have to wait to sell your products and may caught into a nasty situation to find that the products have become obsolete among customers. But in Drop Shipping both these problems are gone. Neither you need to invest on inventory nor you have to wait a long time to sell your products. Choose carefully which product is has strong demand in the market, advertise them, and get them supplied directly from the Drop Shippers warehouse to your customers' doorstep.
• Another prime advantage of drop shipping is that a you need not to worry about arranging shipping and logistics for product delivery. The drop shipper takes care of all these things, often labeling the products with your company name. As a result, you get rid of paying  unnecessary shipping costs, despite the fact that it will appear to your customers that you are one who shipped the products, not the drop shipper. Drop shipping also saves some extra cost required for shipping insurance, product packaging,etc.
• In non-drop ship business, a business generally purchases products from a wholesaler, store them in a warehouse, and sale them when approached by customers. But in drop shipping, you first sell a product and then buy it. As a result, you need not invest a huge capital and business risk due to non-payment is dramatically lowered down.
• In non-drop ship business, when an SME buys some products from a wholesaler, it has to pay an whopping amount for 'minimum orders'. In contrast, as a drop shipping business you never face this problem. There is no minimum quantity restriction on your orders. Sell as much as you can and leave  the indenting of stocks to your drop shipper.
• Drop shipping is beneficial not merely for a retail business; even a manufacturer can hire a drop shipper to expand its own client base. As a manufacturer, you can also think of increasing profits by selling other people's products.  
  

Assessing your drop shipper

• You have to pay a fee to the drop shipper for shipping the products. It is therefore very much important to know the cost involved before choosing your drop shipper.
• In drop shipping, you rely on the drop shipper for products. You may lose potential customers when the drop shipper goes out of stock. So, always look for a drop shipper which is reliable and efficient. Moreover,the drop shipper you hire may not use a reliable shipping service. This may affect your business reputation. Ask the drop shipper which shipping service they use before hiring its service.
• Without an inventory, you cannot keep a stock of your best selling items. This problem can be minimized by collaborating with the drop shipper.
• You may have to share your profit with the drop shipper. However, it is often your customers who pay for shipping, inventory and other costs, not you.
• Ask the drop shipper about its return policy. You may caught up in a nasty situation if the products are returned by your customers.