Imagine selling on eBay without the headaches of storing all that inventory, standing in line at the post office five times a week or calculating shipping costs to Guam. The answer could be as simple as two words: drop shipping.

Drop shipping, simply put, means not being involved with the product itself. As a retailer, you can avoid ever putting your fingerprints on the inventory.

Here’s how it works.

A buyer submits payment information. The order goes not only to your business, but also to the wholesaler who ships the order directly from the warehouse to the customer. The wholesaler, offering drop-shipping services, handles shipments, returns, and maintains your inventory.

“If my business location is virtual, why can’t my inventory be virtual too?” points out Jeremy Hanks, author of Drop Shipping for Dummies and eBay Inventory The Smart Way.  Hanks, whose company, Doba, is also a certified eBay developer, helps eBay businesses get off the ground.

The trickiest part about using drop shipping is finding a trustworthy drop shipper. Companies, like Doba, can help you find a reputable drop shipper to trust with your business. If you can’t afford to go that route, Hanks offers the following tips:

  • Search for wholesalers offering drop shipping services on Thomas Net, an online resource for industrial information, products, and services.
  • Research the wholesaler’s website. Is the company a member of the Better Business Bureau? A professional-looking site doesn’t guarantee reputation, but an amateurish site is a red flag that you’re taking a big risk.
  • Call them. Don’t just communicate by e-mail. Make sure that the 1-800 number actually works and get a feel for the company by who answers the phone.

Drop shipping has allowed many entrepreneurs to streamline their businesses, so they can expand beyond the mom-and-pop level. “There’s been a professionalization of selling on eBay,” observes John Morgan, an economics professor who studies e-commerce at the Haas School of Business at the University of California, Berkeley.

Is it right for my eBay business?

There can be somewhat of a stigma attached to companies that drop ship. The bigger companies on eBay will sometimes criticize the smaller ones who drop ship, insinuating on message boards and blogs that drop shipping is for the less serious business owner. 

“Proponents for and against drop shipping are as vocal in their beliefs as are Republicans and Democrats. Go carefully here. Very carefully,” says Brad Schepp, author of the upcoming book How eBay Really Works.

Jim “Griff” Griffith, Dean of eBay University, the online auction’s sanctioned school for newcomers, and author of The Official eBay Bible recommends drop shipping, but quickly adds that it’s not for everyone, particularly new sellers. A drop-shipping arrangement can be complicated to set up. A business has to be wary because there are some fly-by-night drop operations offering drop shipping. And if the drop shipper doesn’t ship promptly, mishandles a return, or sends a lower quality product than what was marked for sale, it’s the eBay seller that gets blasted in the customer feedback. “I’m always hesitant to recommend drop shipping to a new seller,” Griffith says. “You want to get comfortable with selling first.”  

Griffith does offer a piece of advice to those who do choose to drop ship. “Have a small stash of inventory around in case something goes wrong,” he says. “If the drop shipper is out of stock or fails in some way, you don’t have to fail your customers. Remember, it’s your reputation, not his, on the line.”

Looking beyond eBay, tell that to Costco, a business known for its warehouse approach in retail. According to Hanks, seventy percent of what it sells online is drop shipped.