Drop Shipping

How to run a business online with no stock and almost no overhead. Drop shipping is where you have a business, typically a website or it could be eBay, and you display yourself as a store or vendor. The customer that is interested in the product places the order from you and you process the payment. You then go to the supplier’s website and place an order on behalf of the customer and earn a percentage for yourself. The basic premise is that you buy the item cheaper (after the sale) than you sell it for. Farther down the page I will explain my strategy for working four hours a day and making $100 an hour!



Low overhead - you generally maintain no stock. Very little capitol is required to start up this business model. You should have some basic website design skills, even FrontPage which is very similar to Microsoft Word will do. Or you could use a template from who over you buy your domain from. Your website should look good. Pay attention to websites you like and look at the competitor’s websites. Appearance is a big selling point.

You will most likely have to be a registered business or sole proprietor to enable your ecommerce. Ecommerce is your checkout solution. An easy setup is to be hosted on Yahoo! Small Business (not endorsing Yahoo! - this is just an example) and use PayPal Merchant account for checkouts. Yahoo cost about $40 per month (2010) to be connected to the small business console. It’s relatively easy to use and their customer help line is responsive and helpful. PayPal is the simplest check out solution and they charge 3%. As they are used by most drop shippers it’s straight forward to accept payment, hold it in your account, and then go to the supplier’s website and order the product in the customer’s name. The profit margin varies by drop shipper and by their items, generally the higher priced items have a higher commission. But you should be selling products that have 15% - 35% with an average of 20-25% profit.

You will require a computer and a phone line. Even though you have a website you’ll find that the majority of customers will want to call up and talk about the product, and place their order over the phone. You will have to go through your own store checkout entering their information. You’ll have to maintain accurate financial records. Depending upon where you live you might have to charge sales tax. The percentage of tax can be setup easily in your Yahoo! Small Business (or similar) console, and shipping can be varied by state, city, zip code, etc. In 2010 when I was running my online store, I was only obliged to collect taxes for the State I was physically living in. To keep life simple I disabled check out for that State to avoid becoming entrapped in the State tax net. Currently the sales taxes are being looked at in the USA and it’s possible that a business would have to comply with all state taxes in the future. This seems an excessive requirement for a drop shipping business and makes one ponder if the US is trying to discourage small business.


If you build it they will come, won’t they? Maybe but don’t count on it. Unless you have a specialty item your webpage is probably one of many. So what to do?

First submit your website url to Google and other search engines. If you don’t have metadata and key words in your webpage, find out how to do it. It’s not hard. You will most likely need an advertising campaign. This is the biggest expense, depending upon how many other people are also advertising the same product.

Google Pay per Click (ppc)

An excellent way to advertise your business. When you enter a search term into Google the result come up below. But over on the right hand side are the paid listings. You don’t have to be top ranked but you should be on the first page. If you have something that few others are advertising you might be able to get on the first page for a few cents per click. However if you have competition you might have to pay 40 cents per click. If you are doing this you have a variety of options with your advertising campaign. You can run your advertising between certain hours that you know you will be home to answer the phone.

An additional option is to run your advertising budget out as fast as possible, that is that you will appear in every search until your daily budget is reached. Make sure you have a daily cap on your advertising. Or you can have your results showing up in search, but not every search, so that you get exposure over a longer period. The choice is up to you. Ensure that your ad that you place on Google describes the item specifically and the landing page is that item and not your home page. You have to make it easy for the customer.


  • Products arriving damaged: Ensure you have a FAQ that fully describes what to do in case of damaged product. Make sure it tells them to stay calm – this is not a joke. Ensure that your website says that the Manufacturer handles all warranty issues and is the party that would issue refunds. Generally most Suppliers have text for you to copy paste in, but you can always improve it.
  • Customers from hell: It’s very occasional this happens. If you are courteous, sympathetic, and responsive, the customer knows that you are trying your best to resolve whatever issue they may be encountering. But you will probably get a customer from Hell once a year. If that happens always be polite, and if you feel that the issue can’t be resolved, such as hiring a jet plane to ship little Johnny a new scooter the night before Christmas, then advise them to file a chargeback and notify your Supplier.
  • Suppliers that don’t or won’t honor their warranty: Stop selling their products. Advise your customers to file a report with the Better Business Bureau.
  • Getting stuck as the middleman between an upset customer and the supplier: Keep you FAQ page updated as to how issues are handled by the Supplier. Be nice.
  • Spending a lot on advertising and not selling enough product to cover costs. Don’t go broke!

Finding a Drop Shipper

A lot of large toys are drop shipped such as electric scooters, and remote control planes, cars, and boats. You are best to stick with a product range you are comfortable maintaining on your website and you are knowledgeable about. You can Google “drop ship” to find suppliers. Always call them first to find out about their communication and service skills. Search for reviews, complaints, or ratings. Contact eBayers based in China if you are interested in eBaying. Many have online stores offering drop shipping. Be aware that the cost of living is different in China and a developed country, so what may be profitable in China might not be where you are located.

How I did it

In my case I sold electric scooters. I bought one for fun and many people were asking me where I got it when I was riding around. After providing numerous referrals I decided to start an online store. It was just a hobby and more for vanity than anything else. It also looked terrible. One day I checked and I had a sale. I was panicky but accepted the payment and processed the order. I decided to get serious and improved my website dramatically until it had 140+ web pages.

I started a Google PPC (pay per click) campaign and set aside a budget of $40 a day. This started at 8:00 am and ran as fast as possible until noon when I’d about run my budget out anyways. I started this the last week in October. On average I was doing $1600 a day in sales. I had the odd day with no sales, but other days could be $2500. My 20-25% netted me around $400 a day profit, minus the $40 a day ppc campaign, and the $40 a month webhosting fee. Of course PayPal takes their 3%.

As it approaches Christmas your customers start getting really stressed as they have left it late. Making money is not the prime motive at this point. If you get a product shipped before Christmas and the delivery guy drops it from the truck, it could arrive damaged or non functioning. It’s best to shut down an internet store no later than December 10th. If you are getting product from only one supplier, and assuming they handle warranty, as most drop shippers do, the night before Christmas change the phone number on your website to the Suppliers warranty phone number. Whenever a customer contacted me with a problem I went to the Supplier and opened the online claim for them (rather than directing them towards it) and submitted it. Should you have a chargeback you want to ensure you have done your part and document the process. If the Supplier is being unreasonable, I advise the customer to file a complaint with the better Business Bureau. It’s a slow process taking 90+ days but the Supplier then has to issue you a refund, which you then refund to the customer.

When I did this from the end of October to early December, I made $10,000 profit. I ended my advertising campaign and waited until next year to do it again. The rest of the year I pursued other ventures.

Should you go ahead

Good luck and congratulations on taking control of your destiny. May you have great success and many happy customers


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