Please don’t get this confused with other contingency plans like contingent liability or contingent convertibles (coco’s).
This is just a simple solution for having no solution for an initial investment.
When I was trying to start-up an idea I had for awhile I realized I was really strapped for cash. So I started using a VERY simple process. Illustrated below:
With this model, the only starting expenditure required is the cost of an online platform (assuming you are selling your product via an online e-commerce solution… I mean it is 2016) .
This method is based on Dropshipping, which Shopify has perfected. According to this article, Dropshipping is the following:
Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
This unique model has a number of benefits and drawbacks:
Less Capital Is Required – Probably the biggest advantage to dropshipping is that it’s possible to launch an ecommerce store without having to invest thousands of dollars in inventory up front. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.
With the dropshipping model, you don’t have to purchase a product unless you already made the sale and have been paid by the customer. Without major up-front inventory investments, it’s possible to start a successful dropshipping business with very little money.
Easy to Get Started – Running an ecommerce business is much easier when you don’t have to deal with physical products. With dropshipping, you don’t have to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
Low Overhead – Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop for less than $100 per month. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
Flexible Location – A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.
Wide Selection of Products – Because you don’t have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list if for sale on your website at no additional cost.
Easy to Scale – With a traditional business, if you receive three times as much business you’ll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work. Sales growth will always bring additional work – especially related to customer service – but business that utilize dropshipping scale particularly well relative to traditional ecommerce businesses.
All these benefits make dropshipping a very attractive model to both beginning and established merchants. Unfortunately, dropshipping isn’t all roses and rainbows. All this convenience and flexibility comes at a price.
Low Margins – Low margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Because it’s so easy to get started – and the overhead costs are so minimal – many merchants will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. They’ve invested so little in getting the business started so they can afford to operate on minuscule margins.
True, these merchants often have low-quality websites and poor (if any) customer service. But that won’t stop customers from comparing their prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that’s well suited for dropshipping. We’ll discuss this more in Chapter 4.
Inventory Issues – If you stock all your own items, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store’s inventory with your suppliers’, these solutions don’t always work seamlessly, and suppliers don’t always support the technology required.
Shipping Complexities – If you work with multiple suppliers – as most drop shippers do – the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs.
Let’s say a customer places an order for three items, all of which are available only from separate suppliers. You’ll incur three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer, as they’ll think you’re grossly overcharging for shipping! And even if you did want to pass these charges along, automating these calculations can be difficult.
Supplier Errors – Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway?
Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments and low-quality packing, which can damage your business’s reputation.
Is It Worth It?
As we initially warned, dropshipping isn’t a perfect, stress-free way to build a successful business. The model has some definite advantages but comes with a number of built-in complexities and problems you’ll need to be able to address.
We’ll be examining these problems – and how to best address them – in future chapters. The good news is that with some careful planning and consideration, most of these problems can be resolved and need not prevent you from building a thriving, profitable dropshipping business.
Here is more cool stuff about Dropshipping by the Dropship Factory:
“Supply chain” is a word describing the process starting from a product conception through manufacturing and finally comes to the hands of a buyer. In some cases it goes deeper, right from getting e.g. oil from the earth, but that is too much for what we mean about the dropshipping supply chain.
To prosper in this business you need to understand and separate the three most important parts in the whole dropshipping supply chain: manufacturers, wholesalers and retailers. And to avoid any headache we have no need to go really deep into this matter.
So here we start from the first part:
MANUFACTURERS – Manufacturers are those who make the product. Most of them do not sell the product directly to the public. They prefer to create and sell products with really huge minimum purchase requirements and there is not any retailer who will be able to buy that lot. Though it is the cheapest way, not everyone needs thousands of items on his warehouse, especially if one does not have one. Because of the need to store the goods and then to re-ship them many businessmen prefer to use the service of wholesalers instead of manufacturers.
WHOLESALERS – Wholesalers are the second or middle link in the chain that buys products in bulk from manufacturers, mark them up slightly and then sell them to retailers for resale to the public. Quite often they have minimum purchase requirements as well, but they differ from the manufacturer`s quantity. Sometimes it is enough to buy only 10 pieces or to buy several pieces meeting a certain total amount e.g. $100.
Some of the wholesalers are strict and sell only to retailers avoiding and business with general public.
RETAILERS – Retailers are those who sell the goods directly to the general public. Thus, if you want to operate a business based upon dropshipping and work with the public, you are going to be a retailer.
Dropshipping Is a Service, Not a Role
You can notice that “dropshipper” isn’t mentioned in the supply chain as any of these three parts can act as a dropshipper. Manufacturer, wholesalers can sell directly to the public acting as drop shippers. The difference will be in their prices, as wholesalers buy from manufacturer.
If you want to start dropshipping business you need to check if your supplier is a real legitimate wholesaler or manufacturer to avoid any additional pricing. It is not necessary that any part that is ready to ship items on your behalf offers you the best price possible. This question will be well studied and covered in the next chapter.
Dropshipping in Action: The Order Process
Now when you know the role of every player in this game, let`s have a look at the process of the order. Here are the four steps of order made on the example of an e-store of smart phones named Smart Phone Outlet specializing in accessories. It ships the accessories directly from a wholesaler and that is why we will name it Wholesale Accessories.
Here’s a sample of how the ordering process might look from the start till the end:
Step 1 – Customer Places Order With Phone Outlet
K. needs a file for the screen of his smart phone and he places an order via our Smart Phone Outlet’s online store. Once the order is approved, the following happens:
- Smart Phone Outlet and K. get a likely identical email confirmation of the new order that is automatically generated by the store software.
- K.’s payment is captured during the checkout process and will be automatically deposited into the bank account of our Smart Phone Outlet.
Step 2 – Smart Phone Outlet Places the Order With Its Supplier
The second step is usually a very simple one, as it is just about sending an e-mail order confirmation to the sales representative of the Wholesaler. In our case to the Wholesaler Accessories. Having the credit card`s number of our Smart Phone Outlet, our Accessories Wholesaler will send the bill covering the goods and all the other fees like shipping and processing if any.
NOTE: E-mail is the easiest and most common way to place an order. Though there is another way to do that via sending an XML automatic file, that is not the best way, as all the genius is simple.
Step 3 – Wholesale Accessories Ships the Order
Though it is the Wholesaler who ships the items, the return address and the logo will be the one of your company. So, in case the Wholesaler has the item in stock, it will charge our Outlet`s card, then put in into a box or a plastic bag, depending in the staff and ship it. The invoice and packing slip the client gets will also you’re your data. After shipment the Outlet will get the tracking number of the parcel by e-mail.
NOTE: The turnaround time on dropshipped orders is amazing as it is quite often takes a couple of hour to ship the order, thus you can put the info about your prompt shipment on your web-site.
After getting the tracking number our Smart Phone Outlet sends this number to the client via the e-mail interface built in the interface of our online store. Having the order shipped, payment taken, all processes finished and order fulfilled. The margin of our Smart Phone Outlet is the difference between the payment of K. and our payment to out Wholesaler Accessories.
Dropshippers Are Invisible
Though the goods are sent by Wholesalers, the dropshippers are absolutely invisible. Only Outlet`s contacts are seen to the end customer. In any case of mistake the client can contact only our Outlet and inform about the mistake. And the retailer himself will contact the wholesaler and arrange everything to send the right items to the customers.
Having played its role in producing and shipping the items dropshipping wholesaler disappears, leaving the stock, marketing and service to the merchant.
Please not this not original content but curated insights from the links cited.