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Dropshipping is a topic that I first addressed in my column way back in April, 2003, which is decades ago in Internet years. But with the continuing growth of eBay and it’s positioning of itself as a viable way for anyone looking to launch an ebusiness, the topic of dropshipping is now hotter than ever. It is also now more misunderstood than ever.

Dropshipping has been around since Sears first started selling goods from its mail order catalogs over a hundred years ago. However, the idea of dropshipping still confuses many people who don’t understand exactly how the process works.

By definition, dropshipping is a method of selling and distributing goods wherein the distributor or supplier of the product (the dropshipper) ships the product directly to the end user (your customer) on the retailer’s behalf (that’s you).

The process of dropshipping involves three parties who take a product from manufacturing to market. They are a manufacturer, a distributor, and a reseller.

Let’s use a blue widget as a sample product to demonstrate the process:

* Blue Widget Manufacturing (manufacturer): This is the company that manufactures blue widgets. Blue Widget Manufacturing does not sell directly to the public or supply the retailers who ultimately sell the blue widgets to the end user. They prefer to use distributors to handle the task of taking their blue widgets to market. Blue Widgets sells blue widgets by the truckload to distributors who pay $5 per blue widget.

* A1 Distributing (distributor/dropshipper): A1 Distributing is the company that purchases blue widgets in bulk from the manufacturer and supplies them to resellers at a cost of $7 each. The distributor does not ship blue widgets to the reseller, but ships orders directly to the reseller’s customers as the widgets are sold.

* Big Bob’s eBay Widget Store: Big Bob sells blue widgets to the public from his eBay store. Bob orders the blue widgets from A1 Distributing as he sells them (usually one at a time) and has A1 ship the blue widget directly to his customer. Bob sells blue widgets to the public for $10 each, which means that for every blue widget sold he nets $3.

How The Process of Dropshipping Works

Here are the seven steps involved in starting a dropship ebusiness:

* STEP 1: Choose A Product To Sell The very first step in any sales process is deciding what product to sell. There are many factors that should be considered before deciding on a product to sell, but for now let’s say that you decide to sell CD players on eBay.

* STEP 2: Locate A Supplier Who Will Dropship For You Using a research tool like Google, Thomas Register, or an industry-specific resource like The Ultimate eBay Dropship Power Pak. You search for and find a company who will dropship CD players for you. The company offers you a 35 ark up over cost, which means that they will supply the CD players to you for $100 each and you should be able to retail them for $135. You make sure that the dropshipper has a good stock of CD players on hand so you don’t end up selling a product that must be back-ordered.

* STEP 3: Set Up An Account With The Dropshipper You contact the company that can supply the CD players and set up a reseller account with them. This can often be done online or by phone, but some companies will require that you complete and return a reseller application to open an account. Some companies may also require a tax ID and business license.

* STEP 4: Advertise The Product For Sale On eBay Now that you have your supplier lined up and know that the product is in stock, it’s time to make a sale. You advertise the product using an eBay auction. Since you know what you must pay the dropshipper for the product, you know what the minimum amount you will take for the product. In this case you start your auction at $100 since that is your cost. If you are confident that you can get more than $100 for the product you can start with a lower price, but remember that if the product goes for less than what it costs you to fill the order, you will lose money. Also remember that the dropshipper will charge shipping, so you should figure that into your sale.

* STEP 5: The Product Sells Great news: your CD player sells for $135 and your customer pays you with a PayPal instant payment. I highly recommend that if you are selling on eBay you use PayPal or some other online processor to accept instant payments. This allows the customer to pay you faster, which lets you place the order with the dropshipper faster, which gets the product to your customer faster.

* STEP 6: Place The Order With The Dropshipper After your customer pays you, you should contact the dropshipper immediately to order the product on your customer’s behalf. The dropshipper then ships the order to your customer under your company name and address.

* STEP 7: Follow Up After The Sale This is where many new ebusiness people drop the ball. Just because your customer has paid you and you’ve placed the order with the dropshipper does not mean that you are out of the loop. Quite the contrary, if there are problems with the order you are the one that will be held responsible in the eyes of your customer.

Be proactive in your customer relations. Follow up with your customer to let them know that the item has been shipped. Offer yourself as the personal contact for any

Many people are afraid to use dropshipping as a method of sales due to the horror stories that fill the Internet about unscrupulous dropshippers who take the money and don’t fill the orders, merchandise that is eternally back ordered, unscrupulous middle men posing as dropshippers, etc. Make no mistake, the dropshipping industry - like most other industries - does have its share of shady characters who would rob you blind given the chance, but there are also hundreds of honest dropshippers who can help you build a profitable eBay dropship business.

About the author:
Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs. http://www.dropshipwholesale.net- http://www.30dayblueprint.com- http://www.prosperityandprofits.com

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Q: I want to start an online business. Since I don’t know anything about ecommerce and building websites and such, I’m thinking about starting out selling products on eBay, then pay someone to build a website for me once the money starts coming in. The big question is: what is the hot product to sell on eBay to make money fast? — Bob D.

A: While it’s true that selling products on eBay can be a quick, low cost way to launch an online business, following the herd by selling the “hot product” of the moment, is not a great idea. To the contrary, chances are you will be stomped in the ground by the herd and left lying in the dust with your unsold inventory in hand.

We talked about starting a profitable eBay business in a previous column and the advice I dispensed then still applies today.

The most successful eBay sellers are those who understand that success on eBay relies on many of the same factors as success in a brick and mortar business.

* Smart sellers research the marketplace and the competition to determine the salability and profitability of the product.

* Smart sellers test the market with one or two before committing to a product line and tying up their cash reserves in inventory that may never sell.

* Smart sellers adjust their product offerings until they find a product or product line that sells consistently.

The last point is perhaps the most important. Long term eBay success does not come from “one off” sales. The key to real eBay success is to find a product that sells well and sell that product over and over and over again.

I asked Timothy Mina, author of the new book, The Online Auction Expert’s Bible To Selling on eBay, his thoughts on launching a successful eBay business.

Why is eBay so attractive to entrepreneurs?
“With an eBay business, you set your own hours and set your own goals,” Mina said. “You can work as much or as little as you want and whenever you want. Many sellers supplement their income by selling on eBay and many others have turned it into a full time business.”

Mina cites the following reasons for eBay’s growing popularity among entrepreneurs who want to start an online business:

* You can start up quickly and don’t need special skills.

* There is very little risk and investment required to get started.

* The marketplace is huge. There are millions of potential customers waiting to buy what you’re selling, 24 hours a day, with the click of a button.

* No stress, no boss. Yes, there is work involved, but the work can be done at your own pace. You are your own boss and you set your own schedule.

* Most importantly, you can follow your passion and do something you love. If you sell something you enjoy selling, online auctions aren’t just profitable, they’re fun and exciting, too.

Why It’s Critical To Find Your Niche
Mina recommends creating your eBay business with niche items. According to Mina, the benefits of targeting a specific niche market include:

* If you are going to rely on eBay as your primary source of income, it is essential that you find your niche. If the goal of your eBay business is to earn enough money in your spare time to make your car payment every month, it is less important, but still highly recommended.

* If you find a profitable niche, you will become a certified guru of the items you sell you will ideally be the only one on eBay offering the products.

* Your expertise will make it ten times as easy to spot bargains when you’re shopping for products to resell. Bargains might be all around you, but if you don’t know anything about what you’re selling, you won’t know how to spot bargains that are right in front of you.

* You will find different ways to add personal value to your products. These low cost add-ons or unique twists to your products will drastically increase your sales and profits by making your items unique and desirable.

* You will have little or no competition from other sellers, so you can corner your niche market.

* By dealing with the same type of customer over a long period of time you will get to intimately understand the mindset of your target customer and what your customer wants. This will help you sell your products better and allow you to market your products in ways others haven’t thought of.

* You will be knowledgeable and enthusiastic about what you sell, and you will be attentive to your customer’s desires. This results in satisfied customers, name recognition, and a lot of repeat business.

* You’re going to find something you’re passionate about and specialize in it. If you love what you’re doing, you have a much greater chance of sticking to it and loving it. So it won’t even fell like work - it’ll be like you’re getting paid to play.

How do you find your niche? So how do you find your niche? Mina recommends doing an inventory of your hobbies and interests to help you identify a niche you would enjoy working in.

Ask yourself:

* What are you passionate about?
* What do you collect?
* What do you like to read about?
* What do you do in your spare time?
* So you have a favorite pastime?
* What was your major in college?
* What jobs have you had?
* Are there any other fields in which you have a great amount of knowledge?
* What clubs do you belong to?

Mina also recommends that you spend time on eBay studying the category listings. This may give you additional ideas for hobbies you can turn into an eBay business. Once you have defined your hobbies or interests, brainstorm how you can turn them into a business.

* How can you turn your expertise into a product?
* How can you add value to current products related to your interest?
* What product can you sell that may be one of a kind and have little or no competition?
* Can you think of novel ideas that people who share your passion would love?
* Is there anything related to your hobby that you can create yourself? An ebook or a how to, perhaps?

About the author:
Tim serves as the president and CEO of three successful technology companies and is the founder of DropshipWholesale.net, an online organization dedicated to the success of online and eBay entrepreneurs http://www.prosperityandprofits.comhttp://www.dropshipwholesale.nethttp://www.30dayblueprint.com