What is Drop Shipping and Wholesaleing?

Many people may be confused as to what services are offered by a drop shipper and a wholesaler and what the differences are between the two. Most people are familiar with wholesale services; however drop shipping is definitely growing in popularity with the boom of internet retailers.

A wholesaler can be defined as a company who sells products at deeply discounted prices (typically half the retail price) and without sales tax. You must have a valid business license and a state tax ID to take advantage of these services. Manufacturers can sell directly to business owners or they could use a middle man. Wholesalers sell products in bulk and it is the retailers responsibility to store and sell the inventory.

A drop shipper can be defined as a wholesaler who sells products one at a time instead of in bulk. Using a drop ship method allows the retailer to list more products, carry less inventory, and invest very little as they don't actually have to pay for anything until the item is already sold.

Here is how the drop shipping process works: the retailer will list all or some of the items that the manufacturer or wholesaler offers on a website or via an in store catalog. When a customer buys the product the retailer will order it from the manufacturer or wholesaler. Then the manufacturer or wholesaler will send it directly to the customer. The retailer never physically has the product.

So which method is right for you? If you are a brick and mortar store it is probably best to have actual physical inventory. If you are an internet retailer it is more popular to use the drop ship method.

There are advantages and disadvantages to both methods. Drop ship services may charge a drop ship fee which will minimize your profit margin or make you less competitive than those using wholesalers. Retailers using a wholesale program will have to store and ship their own inventory as well invest more money for products that are not guaranteed to sell.

To find good wholesalers and drop shippers you can look through drop ship and wholesale sources such as directories. You should also verify the legitimacy of the companies by looking through wholesale news sites and forums for more information.


Ann Hoskins has been writing and publishing articles about wholesale and drop shipping. She is a business consultant and has been specializing in logistics management and shipping for more than 10 years.