Drop shipping refers to the process that enables a retailer to bypass stocking of inventory. A retailer will take customer orders and pass the delivery details to the drop shipper, who carries the stock of goods and who will be responsible for shipping the goods out to the customer. The retailer will pay the drop shipper and in turn receive payment from the customer. The retailer will earn the difference between the wholesale price he pays and the retail price he receives. The retailer may himself be either a retailer or wholesaler of goods – i.e. he may choose to offer this service to bulk customers only or may offer it to all customers.

Drop shipping clearly has its advantages in terms of passing on the cost of carrying inventory onto a third party and low cost of entry into the business. This makes the business of drop shipping a very popular online business. Internet commerce, or E-commerce as it is sometimes called, thrives on easy business ideas, and drop shipping has gained popularity with online businesses in the recent years. With low barriers to entry and instant sales via the Internet, the number of online businesses based on selling items that will be delivered via drop shipping is increasing.

However, a successful retailer will not simply set up shop as soon as he looks up a drop shipping directory. Be sure to plan out your business appropriately. Have a clear understanding of whether your product is in demand and whether a customer is likely to buy that product online. Further, construct a comprehensive business and marketing strategy. Next, for the tips on running a successful drop shipping based online business:

• Be sure to find a reliable drop shipper. Check references and if possible, find one with an affiliation with a business organization such as BBB.
• Find out if your drop shipper has a tracking system and always keep track of the items. Be sure you know how long it will take to deliver the item, or you may face a lot of disappointed or dissatisfied customers. Be especially careful around the holidays, because you know people don’t like their Christmas presents delivered late.
• In case of a snag in delivery, communicate with your buyer at once. Keep customers informed – since online businesses have the advantage of easy access to customer email IDs, this can be instantaneous.
• Start slow and beware of scams.
• Try to find a niche in the market to cater to – this is a great business strategy for most online businesses but works very well for drop shipping business models because your customer may not be able to find the same product elsewhere.
• Build relationships and use more than one drop shipper. This will tide you over in a tight spot and make sure you have access to the most competitive rates.
• Try to ensure that the orders are large enough to leave space for a discount from your drop shipper.
• Make sure you figure out how to handle returns with your drop shipper, especially if your online business has a trial period policy.
• From time to time, do a little test of your drop shipper’s services without informing him. Send yourself something and see what happens.
• Be careful about listing that 100,000 units of the product are available – make sure your drop shipper can service the amount of orders you’re receiving. Remember you are not the only retailer this drop shipper works with.
• Create a mailing list of customers and potential buyers.
• Provide plenty of free, useful, informative content on your site and update regularly.