What Does the Term Drop Ship Mean?

by Michael Marz; Updated September 26, 2017
Female Warehouse Employee Doing A Checklist

Whether you already operate an Internet retail business or are considering starting one, being able to drop ship merchandise to your customers may save you a substantial amount of time and money. When you drop ship, you can purchase just enough merchandise from suppliers to fulfill each customer order. Suppliers generally will then ship orders directly to your customers.

Drop Shipping Benefits

Not having to purchase large quantities of merchandise means you don't have to spend money storing inventory. The time and money you'll save by not having to prepare packages for delivery can allow you to focus your time and more of the business' resources on finding new products to sell and ultimately improving your bottom line.

Some Drawbacks

Drop shipping minimizes your risk of being stuck with inventory that no one wants to buy, but if a product is in high demand, you may find it difficult to fulfill every customer order -- which can lead to lost sales. The benefits of drop shipping usually come at a higher price than for online retailers who purchase large quantities of inventory from wholesalers, since wholesalers generally offer more competitive pricing.

About the Author

Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.

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