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In a perfect world, beauty of this is that you have no overhead expense. Overhead expenses include such items as rent for storing product, interest on money spent to buy product, and labor involved in boxing and shipping product. You also have no risk of overstocking product or slow moving product. The product is purchased from your direct source only after you have received an order from your customer.
Some of potential problems with drop shipping are:
1. The drop shipper source runs out of product you are listing for sale
2. Defective merchandise returns may have fees associated to you.
3. Customer support is out of your hands, which, if handled incorrectly, can negatively affect your feedback.
As with any business venture, there are risks and rewards that you have to balance to find out if method works for you.
Drop shipping is also a good way to test new products, if you don't want to invest $500 or more on a minimum order to obtain resale pricing. You can list your item on your ecommerce or auction site and experiment with various titles and categories to see where product will sell and what it will sell for. Any successful sales organization will tell you key is to Test! Test! Test! Fine-tune your listings and products to find best mix for you.
Use eBay to test your drop ship items. Remember, information you gather on these products is very valuable to you. You may sell some items at or below cost for your testing purposes, but I have purchased volume loads of product prior to testing and then been saddled with them - even having to sell some for 50% of my cost. You will make mistakes - everyone does! Using eBay and other auctions sites to test new markets or new products via drop shipping eliminates any large risk before committing to a product line.
Jason James is a 10 year Internet marketing veteran and an eBay Power Seller of 4 years. His website "The Auction Resource Network" reveals his inside secrets and sources that help him pocket over $10,000 a month on eBay.
Claim your FREE 14 Day "Learn How to Sell on eBay" e-Course Here: www.auctionresourcenetwork.com