This is part 2 of the series on Starting a Drop Shipping Business. You can read the previous article of this Series below: 

Part 1 : What is drop shipping and the advantages of drop shipping.

In the previous part of this series, I discussed the basic theory and some advantages to start a drop shipping business. They are many people start their own drop shipping business after reading its attractive benefits. However, like most business, drop shipping also has its own disadvantages which we cannot overlook. 

Today, in this part, I would like to discuss the disadvantages of drop shipping and what kind of thing you must pay attention in this business.

The Disadvantages of Drop Shipping

Below are some of the biggest disadvantages of drop shipping:

1. You complete rely on the wholesaler. One of the advantages of drop shipping is you don’t have to worry about the after sales service such as delivery and etc. However, this also is a disadvantage for you. You have no control over on this and therefore…
   
2. Your credibility is on risk. Please remember, your customer is dealing with you and they have no idea about your wholesaler. So if the drop shipper happens to be slow, or out of stock and take a long time to deliver the products to customers, your complain call and email will be increased and your business credibility is dropped due to this uncertain factors.
   
3. Lack of quality control. Products and service quality is very important for a business to grow. It is directly related to your business’s image and credibility. However, in drop shipping, you have no idea the condition of the products, the after sales service, the delivery and also the returns services. In a nutshell, you have no control on the quality.
   
4. Your Profit margin is affected. Sometime your margin will drop due to the fluctuations in wholesale pricing. So you must pay attention on this.
   
5. It is hard to fully understand a product. Since you never ever seen the products yourself, sometime it is hard for you to answer customer questions about the product. In this case, you have to select a wholesaler that has this kind of system or give you the sample to let you understand the product.
   
6. Competition. Well, your wholesaler might deal with a lot of sellers like you. So all of you is selling the same category of products and the competition is there.

Above are some of the main disadvantages that you must pay attention on. Just like other kind of business, you must think a way to fully maximize the advantages and minimize the disadvantages efficiently. So in next part, I am going to discuss the proper way to start a drop shipping business that you can make money from. 

This is an article that I write to answer a 19 years old boy’s question in richdad forum. He was asking :

I am looking for anyone to point me in the correct direction, my goal is to be financially independent by 25. I just recently joined this forum, I have done some research on recommended books and such, but just do not know what to do. I have no need for inspirational or motivational materials, I have plenty of that. I need a starting point, somewhere to begin my work.

I am thinking high-risk stocks, but do not know much about the stock market. Some friends and I were talking about real estate, but do no know much about that either. I am willing to learn anything. Any books that will go more in depth with these sort of things (i.e. termonology, etc.)? Any other ideas where I could begin?

This is the most common question that a lot of people ask when they want to make a plan to achieve financial freedom. So below is my answer for this question.

The First Step in your plan is ……

I will recommend you to plan anything that you can make excessive cash as your first step in financial freedom planning. At this moment, what I can see is business has the potential to let you make excessive cash, especially the online business. Of course, if you don’t like to start any business, you can do anything that you can to generate excessive cash.

But if you want to retire earlier, just like this 19 years old boy who wants to retire at 25. Then starting a business is must for you because of its potential. It can really make you retire and financial free quickly if you do everything properly. Of course, starting a business is not easy but I can tell you that it is worth to put some hard works into it. What you are doing right now is invest for your future. Furthermore, you don’t have to quite your day job to start your own business, for example, to make money online through blogging, all you have to do is sit down at your spare time and write some articles for your blog. This is the true way to achieve financial freedom – leverage on your spare time.

The Power of Excessive cash

So here are the reasons that why you should start with excessive cash:

1. Reduce the investment risks. People always afraid of taking risks when comes to investing. This is because they are worry of losing money. If you are investing using their limited cash or money, losing money is a big risk because it might affect your life and personal finance or even their retirement. But the story will be different if they invest with excessive cash. First you have excessive cash and you can invest in less risk because losing money will not affect you directly. Second you usually have a way to generate excessive cash, so you can always generate back the money if you loss it in investment. By reducing the risks, you will invest differently compare to others and hence you can achieve financial freedom faster.

1. Able to afford more and variety of investing options. Investing just like a strategy game where you must plan and use your strategy to make money. So each investment has its own options for you to invest. But some time you need to pay extra or use more money to use difference kind of options. So with excessive cash, you choose whatever you want. At the same time, you also can invest in different kind of investment to diversify your investment portfolio. Don’t put all your eggs in one nest, this is what most investment experts will tell you.

1. Afford some big deals which sometime are less risk! Yes, I found this from my customers who are rich. According to them, in some cases, your investment will not risky if you can put a certain amount of money in it. This is what we always call big deal investment. Some of them even can bring higher return and less risky compare to those small deals investment. I also found this theory when I was learning to trade in Forex last few years. In Forex, the more money you invest inside, the lower risks you have to carry. Now you know why those riches can invest not as worry as others.

How to Generate Excessive Cash?

3 ways I will recommend you to do for generating the excessive cash:

1. Mange and save your money. This is the most basic and conventional way to let you have excessive cash for investing.
2. Start your part time business. If you have a day job, I would recommend you to start a part time business which will allow you to build your business empire while still holding your day job. You can check my post 20 Ideas to start a part time business for more information.
3. Start your own online business. This is what I’m doing right now. I want to make money from internet and generate excessive cash for my financial freedom plan. If you want to make money from internet or start an online business, I will recommend you to start blogging. You can download this free ebook for more information. I can tell you that this is the best way I ever found to get started in online business.

Conclusion

Above are just my opinions and thoughts for the 19 years old boy’s question. My recommended path is start generating excessive cash, invest the cash and transform them into passive income, then finally achieve financial freedom. There isn’t just one correct path. Each person has their own path to achieve financial freedom. The most important thing is your passion. If you are not passionate about and love what you are doing, then you may hardly stay focus on it and succeed. The theory is same with business. You must understand your passion and then start a business around it. Then you can stay focus and succeed from it easily.

Do you have any advices for the same question? Why not share it here….

This is an article series about drop shipping. This series consist of many information about drop shipping. So far the topics that I covered are : 

Part 1 : What is drop shipping and the advantages of drop shipping.

Part 2 : The Disadvantages of drop shipping business and should you start it?

I hope you can enjoy this series and please feel free to give your opinions on… whatever you think about. I really appreciate it.

What is drop shipping?

You might hear about the words drop shipping before. This is a dream for many internet entrepreneurs to make money from internet or from their own house.

In drop shipping, you are a middleman. Your jobs are market and sell a product over the internet. After someone purchases your product and you receive the payment, you place an order of the product to your drop shipper. Then the drop shipper will ship the products to your customers. They usually charge you the wholesale price of the product plus shipping cost. So you make money from the difference between the selling price and your costs (product wholesale price and shipping cost).

Sound great, right? This is why Ebay business becomes so popular because its business model was developed base on the theory of drop shipping.   Actually there are several advantages of this online business that make it become one of the hot discussed topics.

Advantages of Drop Shipping

Ok, there are a lot of advantages that making drop shipping becomes a so attractive online business that many people want to start. Here is some of the main one that I think you should know and understand:

1. No Inventory to hold. Drop shipping doesn’t like the old traditional small business where you have to hold a certain amount of stocks to run the business. In drop shipping, all you have to care is promotion to attract customers to buy and payment collection. After that your drop shipper will look after the order fulfillment. So you don’t have to hold any inventory as drop shipper will handle it for you.
   
2. No Shipping Hassles. Drop shipper will handle this for you. You should be thankful for this.
   
3. Low Modal Business. To start a traditional small business, you have to dump a certain amount of money in it. But in drop shipping, the story is different. All you have to do is buy a domain name and get a web hosting which is in a very low price. (around $20). Maybe you can hire someone to design a web page for you. This may cost you some money, but it definitely worth it to free up your time for marketing. After that your first online business is ready and you can start promoting your products to the internet world.
   
4. Your risks are low. Since you are not holding any stocks, your risk in this business is quite low. You don’t have to worry about sales. But of course if you want to make money, you must try your best to boost the sales volume. But if you sales are low, especially in starting, you don’t have to worry because you have no burden in this business.
   
5. Work at home business. In a nutshell, drop Shipping allow you to work in your house!

There are many advantages that I can think about. However I will not list them all here instead I just listed down some of the most beneficial advantages above. Now you know how attractive a drop shipping business is. But please wait a minute before you start jumping into this online business. There are several disadvantages of drop shipping that you must care about. I will discuss this in next part which will come out not so soon….

My Blog Master Mind mentor, Yaro Starak, just updated a video clip in his blog that talk about how he works in the day and make $20,000 per month. 

First of all, I am pretty impressed and motivated by the video and this going to give me some motivation to make money from internet. If you want to make money from internet too, then you must watch the video below and get motivated by Yaro.

I talked about the potential blogging and also the tips to make money from it in my post: How to make money from blogging and achieve financial freedom. There really a huge potential to make money online through blogging. However, it is not that easy to do so if you don’t find the right key to do the right thing. This is why I joined Yaro’s Blog Master Mind mentoring program because I need his guideline in order to succeed faster.

You see, Yaro is a successful, business-minded and intelligent online entrepreneur. He is famous with the theory on making money from blogging in the business way. Besides that he also proved that with only 4 hours per day, he can make $20,000 per month in the video. 

So I joined the mentoring program the time Yaro launched it. I know Yaro definitely can help me with his experience and know-how. 

If you want to make money from blogging, I definitely will recommend you to download Yaro’s free ebook, Blog Profit Blueprint and read it. I can guarantee this is an eye-opening ebook that give the information that you never think about before. You can read my review on this free ebook here for more details.

Download Yaro’s free ebook, Blog Profit Blueprint

In my latest post, How to make a plan to achieve financial freedom, part 3, I recommend that we should start a business or build up some kind of income source to make excessive cash. This is because we need excessive cash to support our life and invest to get more passive income in the journey to financial freedom.

When comes to business, I will recommend you to start an Internet business. Currently I’m running 2 kind of business, one is online and another is offline. So from my experience, I can tell you that I will definitely choose internet business as my main business. Below are the 8 reasons why I say so:

Reason #1 : The Potential of Internet Business

Does Internet Business have a greater potential than other small business? Not really. This has to depend on a lot of factors and vectors around. However, Internet business still has its own greatest potential. A recent report by Forrester Research shows that online spending will grow up to $229 Billion Dollars by 2008. So can you imagine what it would be if you can share 0.01% from this figure?

Reason #2 : The Leverage of Currencies Exchange

US dollar is the most common currency used in Internet Transaction. So the money you make from your internet business is in US dollar too. This actually a great leverage to those people from other country. For example, I’m coming from Malaysia and 1 US dollar equals to 3.4 Ringgit Malaysia. So for every dollar I make, I will make 3 dollar in my country. With this leverage, my internet income can easily over pass the average income in my country.

Reason #3 : Low Start Up Costs

If you ever start a business before, you will know that starting a small business is quite expensive. However, Internet business is different. You don’t need to rent any office space. You don’t need any office furniture or hire half a dozen workers. There will be no salaries to pay and no labor insurance to worry. All you need is a computer that can online to run your online business. Maybe you need to spend another $50 per month to get your own domain name, web hosting or do some marketing for your site.

Reason #4 : Good Profit Margin

Most Internet businesses have high profit margins due to the low direct cost of sales. Let’s take the ebook business as the example. You don’t need any cost for stocking and delivering for your ebook. Like what I said just now, you just need a web hosting that cost you less than $100 per month. You may also need to pay a fairly small percentage of sales revenue for payment processing fees. Generally, you will make a profit of 50-75% in selling an ebook. A traditional small business is really hard to get this level of profit percentage in the sales.

Reason #5 : Global Market

Your internet business is targeting on those internet users all over the world. You can easily target on customers in any country you choose to. This market is getting big as more and more people will online in future.

Reason #6 : Spend More Time in my Home With My Family

I like to stay at home. I love to spend time with my family. So an Internet business will be my choice. The basic requirements of an internet business are computer and internet cable. So I can easily setup an office in my house and I can start making money from my home. I don’t have to run around under the hot sun, get stuck in the traffic jam and wear those formal clothes. Every day I just open my PC, connect to internet and I can start my business. If I finish my works, I can hang around with my family and do whatever I want to. This kind of leisure time is what I want in my life.

Reason #7 : Take More and Longer Vacations

I like traveling and I wish to spend most of my time in this. Recently I bought my new laptop and my internet business becomes portable. I can easily handle all my internet business related tasks easily in anywhere and anytime. So with a laptop, I can travel more and in a longer time since I can handle my business in anywhere. This is some kind of freedom that is hardly available in other traditional businesses and jobs.

Reason #8 : I enjoy it

I enjoy myself in Internet business. First I don’t have to do all the physically hard works. All I have to do is sit in front of my laptop and keep my finger busy with typing. To me this is an easy job and I enjoy this every much. Maybe this is because I am introversive.

Are you making money from internet too? Can you tell me what is your main reason to start an internet business?