Twitter Facebook LinkedIn Flipboard 0 StockSnap / Pixabay One of the biggest problems facing retail today is the cost of unsold stock. That’s why a growing number of e-commerce businesses are relying on third-party suppliers to ship online orders directly to shoppers. Known as drop shipping, it allows e-tailers to expand their product offerings without acquiring inventory—they only pay for the items that customers actually buy. Most e-commerce platforms support the practice, including Shopify, which allows entrepreneurs to start an online store with very little upfront investment. That being said, there are some important points to consider if you want to do it properly. What is drop shipping and how does it work? A drop-ship store operates as a middleman. When a customer places an order, that information is passed to the supplier, who then ships the item directly to the buyer. For the seller, it removes the need to invest in stock upfront, find a warehouse or incur the workload and expense of packing and shipping orders, tracking inventory or handling returns. Laying out your plans and finding suppliers It sounds obvious but you need to know what you are getting involved in, so research and planning are critical. Identify your niche and determine if you can realistically turn a profit in that area. Not sure where to start? Check out Reddit, Alibaba, Amazon and eBay to get an idea for what’s trending. Eighty percent of new products fail, so once you find your niche, it’s worth considering: Who are the main competitors and brands for these products? Who are your potential customers? Are they likely to purchase these products online? Can your chosen products be sold at a substantial markup? Research the market using Google Keyword Planner to find keyword ideas and their search volume. This can help guide you in planning which products to sell. One angle that can lay the foundation for profitability is arranging an exclusive agreement to carry a product, or getting access to exclusive pricing from a manufacturer. This will give you a big advantage over the competition. It’s also critical to differentiate between legitimate suppliers and fake ones. A true wholesaler buys directly from the manufacturer and can usually offer you significantly better pricing. Shopify recommends AliExpress as a primary source for finding a vendor, while Oberlo allows you to import products from suppliers into your Shopify store and ship directly to customers. Building your drop-shipping business and growing sales Shopify offers everything a new seller needs to set up an e-commerce business in minutes. All you have to do is choose a theme, upload your product lists (details can usually be taken straight from the supplier’s website) and you’re ready to start selling right away. You probably won’t generate sales right away, so you need to work on strategies to drive traffic to your Shopify store, utilizing SEO tactics, content marketing such as regular blogging, social media campaigns and email marketing. A lot of this can be done without major expense, but it is about investing the time to win new customers. The disadvantages of a drop-shipping business and how to navigate them Given the low barriers to entry, it’s no surprise to learn that drop shipping is hugely competitive. With minimal start-up costs, many retailers can advertise goods at rock-bottom prices to grow revenue. Competing with these tactics often leads to very low margins. However, you may still be able to achieve decent margins if you find the right niche. In addition, offering expert advice and guidance through value-added content that complements your products can help you stand out from the crowd. Other drop-shipping pitfalls to watch out for include inventory issues that might arise from dealing with multiple suppliers, shipping complexities and the inevitable hassle of dealing with mistakes by third-party fulfillment. Not to mention, when you’re sourcing from multiple suppliers that are also fulfilling orders for other merchants, inventory changes from day to day. This increases your risk of stock-outs, which could hurt your reputation. Plenty of hard work can reap rewards Building up your drop-shipping business demands patience and perseverance. The best approach is to grow things slowly and steadily, which means scaling it over time and taking a realistic long-term perspective on building revenue. The low set-up costs allow you the flexibility to do this and you will turn a healthy profit in time. Getting there, however, requires more than hard work—you need to provide fast, accurate customer service. xSellco connects sales and support in one place so you can solve queries in double-quick time. Figuring out what to sell online is hard. Check out our free 12-page guide on finding, validating and sourcing the best products to sell on any marketplace. Get the guide→ Twitter Tweet Facebook Share Email This article originally appeared on xSellco and has been republished with permission.Find out how to syndicate your content with B2C Author: Kane Pepi Kane Pepi is an experienced financial and cryptocurrency writer with over 2,000+ published articles, guides, and market insights in the public domain. Expert niche subjects include asset valuation and analysis, portfolio management, and the prevention of financial crime. Kane is particularly skilled in explaining complex financial topics in a user-friendlyView full profile ›More by this author:VoIP Basics: Everything Beginners Should Know!Bitcoin Investment, Trading & Mining: The Ultimate Guide for BeginnersIs This a Better Way to Set Your 2020 Goals and Resolutions?