In my article, "The Value of Drop Shipping," I sing the praises of drop shipping in helping you reduce costs both in time and money and more efficiently ship product. You can maximize the power of drop shipping by embracing the following three drop shipping best practices:
- Choose your drop shipper wisely
- Focus on margins as a dollar amount
- Research products carefully
Choose the Best Drop Shipper
With drop shipping you lose some control over inventory and shipping. To minimize the risk of being unable to fill a customer's order, choose a drop shipper who offers the following:
- Quick shipping
- Large inventory of in-stock items
To cover shipping and handling costs, a wholesale supplier has to charge you more for each item it drop ships than for items you buy in bulk. You can still find drop-ship items that garner up to 100% profit margins, but high-percentage margins are in short supply on drop-ship items.
The key to boosting your profits is to focus on margins as a dollar amount rather than as a percentage.
If I sell an item that costs me $10, for instance, and I sell it for $20, my profit margin is 100%, but I've made only $10 on it. If I sell an item that costs me $500 for $550, however, my profit margin is a measly 10%, but I've just made $50—five times more than I did on the item with the 100% margin!
With drop shipping, selling a high-priced item carries no more risk than selling a low-priced item.
Researching for Potentially Profitable Products
The beauty of working with Doba is that it connects you with so many dropshippers and suppliers (over 200 at the time of this writing and growing quickly) with a combined inventory of over 1,000,000 products. The sheer number of available products can be overwhelming, and you want to add only those products that offer the highest potential profit to your product line.
How do you choose products with the highest potential for profit? I use the following criteria:
- If your drop ship supplier provides an exportable data file (such as Doba's Data Export Tool), sort the data using spreadsheet software to show items with the highest profit margins (by comparing cost against MSRP)
- Compare your cost to the price of items sold on highly competitive sites such as Amazon.com or eBay. On eBay, be sure you're looking at ended items, and not currently running ones
- Compare your cost against items listed on comparison shopping sites such as Shopping.com, PriceGrabber.com, Google Products, Shopzilla, and others
- Many shopping comparison sites will have a "hot list"—of items that are the most popular. Look for these items and compare your cost against the typical retail price
At first, you might have to spend several hours a day researching products and narrowing your list, but as you gain experience, you'll be able to slash your research time. I'm now able to find two or three dozen products—with just a couple hours of research—that have the potential to sell for good profits on eBay.
By implementing three simple drop-ship strategies—choose the right drop shipper, focus on profit margins as dollar amounts, and research products carefully—you can maximize the power of drop shipping, minimize your risks, and boost your bottom line.
