Most people who want to start an online business are hesitant to sell physical products online because they have a false impression that you have to store and ship all of your own products.
But did you know that you can run a successful ecommerce business without carrying any inventory at all? In fact, it’s pretty straightforward to run a full blown online store without worrying about storing or shipping anything physical at all.
Here are 3 ways to do exactly that.
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You Can Dropship
A dropshipped online store is a type of ecommerce business where you you take orders on your own website, but your vendor or distributor is responsible for shipping the product to the end customer.
As a result, you don’t have to carry any inventory at all. You simply act as a middle man between the distributor and the buyer.
Here’s how it works.
- A customer finds your website online and places an order
- You receive the money from the customer and immediately place an order with your distributor at an agreed upon wholesale price.
- The distributor sends the product to the end customer with YOUR company branding and logo. As a result, it appears as if the product is coming from YOU and not the vendor
Sounds simple right? But as with everything in life, there are pros and cons to this business model.
- You don’t have to carry inventory or ship out any orders yourself
- The startup costs are really low. There are no upfront costs for inventory. You simply need a website and can start taking orders right away
- The overall risk is negligible.
- The margins are usually super low (on the order of 10-30%)
- Managing customer service can be a pain since you have no control over fulfillment
- Your advertising options are limited because the margins are low.
- There will be many other stores selling the exact same products which will cause pricing pressure.
- The ramp up to significant money will be much longer than a traditional store because margins are low.
- You will likely have to rely on SEO and other free methods of promotion.
- Customers may need to be shipped separate packages if different dropship vendors are used on your store
- You need to connect to your vendor’s database to determine inventory levels
- You are responsible for driving traffic to your own website
Overall, dropshipping can be very attractive if you don’t have a lot of money and if you plan on having a long time horizon for your business. In other words, it could take several years for your store to ramp up to significant profitability.
To find vendors who are willing to dropship in the United States, you can use a service like Worldwide Brands but be prepared to put out a lot of content to rank your store in the search engines.
You Can Use A 3PL
For those of you who are unfamiliar with the terminology, a 3PL is a 3rd party logistics company. Most 3PL services can handle the storage of your products in addition to order fulfillment. And in some cases, they can even help with customer support and product returns.
Here’s what a typical order flow looks like if you use a 3PL
- You ship all of your products to the 3PL provider
- A customer places an order on your website
- Your website sends the order to the 3PL
- The 3PL ships the order to the end customer.
- You pay the 3PL a monthly fee in addition to a per order cost for fulfillment.
The online store/3PL combo looks and behaves very much like a traditional online store with inventory except that you don’t have to store or fulfill the orders yourself.
- You don’t have to store any inventory or ship out orders yourself.
- You have full control over your customer flow.
- Your margins are usually 50% or higher which gives you more flexibility on advertising
- You have to purchase your goods up front
- You are responsible for driving traffic to your own website
Overall, if you want to start a more traditional online store but don’t want to worry about inventory or fulfillment, then using a 3PL might be a good option for you.
Here’s a list of 3PLs to consider if you decide to go this route along with what to look for in a good logistics partner.
- EFulfillmentService.com – A no frills fulfillment house that caters to small businesses. They don’t need for you to have a corp or LLC in the United States. Generally easy to work with.
- ShipMyOrders.com – A fulfillment service very similar to EFulfillmentService.com. They cater to small businesses. There is no minimum on monthly transactions
- WarehousingAndFulfillment.com – A fulfillment service very similar to EFulfillmentService.com catering to small-med businesses.
- InFifthGear.com > 300 packages/month – These guys can take on high touch products. For example, they can do personalization, engraving etc… But they generally are only interested in shops that can generate at least 300 orders/month.
- 3plsolutions.co.uk – An option for those shipping in the UK
- Direct-Outbound.com – A fulfillment service catering to small-large businesses.
Quick Tip: Amazon is also a 3PL. If you are already selling on Amazon using FBA, you can also have Amazon fulfill the orders from your own website. The only downside is that your goods will be shipped in an Amazon branded box unless you pay an extra fee.
You Can Use Amazon FBA
Right now, Amazon FBA is the most popular choice among online sellers. Amazon FBA stands for “Fulfillment By Amazon” and here’s how it works.
- You ship your goods to Amazon’s warehouse
- You list your products on the Amazon marketplace
- A customer places an order on Amazon
- Amazon handles storage, fulfillment and all of your customer support
Going the Amazon FBA route is extremely attractive because not only does Amazon take care of EVERYTHING, but you also have access to Amazon’s vast audience of buyers.
However the main downside is that you have to obey Amazon’s rules and they also take a pretty sizable chunk of your profits. In addition, it’s much harder to establish your brand on Amazon because people think that they are buying from Amazon and not you.
Overall, here are the pros and cons
- Once you ship your products to Amazon, you don’t have to do anything else. Amazon takes care of sales, shipping, returns and customer service
- Amazon’s marketplace is so large that you will likely generate sales right away
- Amazon takes a sizeable chunk of your sales. (15% of your revenues + 10-15% for fulfillment depending on your product)
- You have to purchase your products upfront
- Your margins must be high to make money because Amazon takes such a large chunk of your sales. (Margins should be > 66% which means you will likely need to import from overseas).
- You have to obey Amazon’s rules
- You only get paid every month. Amazon can hold your money for any reason.
- You have to constantly monitor your listings from the competition
- Amazon can ban you at any time
- It’s hard to establish your brand because you are building your house on someone else’s property
But selling on Amazon can also be extremely stressful as well. Because the Amazon platform is super competitive, you have to constantly monitor your products in case they get piggybacked or hijacked
In addition, there’s also the danger of getting inexplicably banned or shut down in case you get too many customer complaints.
Most people’s first instinct is to gravitate towards dropshipping since it’s cheap and risk free. But in this day and age, dropshipping is getting harder and harder to execute successfully. Because you are selling someone else’s products at a lower margin, you usually can’t win based on price.
Instead, you have to do an incredible job of educating your customer and presenting them with an amazing shopping experience to get them to buy from you. For a great example of a successful dropshipped store, check out my buddy Andrew’s shop at Right Channel Radios
In terms of deciding whether to sell on Amazon versus using a separate 3PL, I heavily lean towards selling on Amazon through FBA and also using them as your 3PL. If you are worried about Amazon’s branding on the box, then pay the extra fee to have it removed.
Chances are, you are going to be selling on Amazon anyway, so there’s no reason to use 2 separate fulfillment services that do the same thing.
In my mind, the only reason to use a separate 3PL is if you require special handling on your products. For example, smaller mom and pop 3PLs may be willing to bundle separate products together or prepare your products in a specific way that Amazon would not.
If you sell internationally, certain 3PLs may be better equipped to handle international fulfillment. And finally, certain 3PLs may also offer more attractive pricing than Amazon depending on your goods.
But no matter what option you go with, your end goal should be to create your own branded business. So even if you are seeing great results on Amazon, you should always start your own website.
In this day and age, you don’t ever need to carry inventory or worry about fulfillment but you still need a brand.
photo credit: Bycatch delivery
Have you read these?
- 5 Amazon Alerts That Will Change The Way You Manage Negative Feedback, Inventory And Sales
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- How To Get A Sellers Permit, Fictitious Business Name And FEIN For Your Ecommerce Business
- Product Differentiation Strategies – 6 Ways To Make Your Business Stand Out From The Competition
- Alibaba vs Amazon – Who’s Dominating Ecommerce And Key Differences