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Wednesday, July 7, 2010

What's the Deal with Dropshipping? Is It a Scam or Legit?

Question: You can't explore business opportunities for long without discovering "drop shipping". Is its a scam or are there legtimate ways to make money with it?
P.S. Estes Park CO

Answer Marc Charles:

Yes.....it's a legitimate business and I've made money doing it.

Dropshipping is a $10 billion+ monster business.

This business doesn't require a lot of capital, it can be run from anywhere in the world, and it's more fun than a barrel of monkeys. More important, it enjoys huge margins ... and customer demand is still growing in leaps and bounds.

The business is drop-shipping vitamins, herbal supplements, weight-loss products, and life-enhancement products for men and women.

According to the Dietary Supplement Information Bureau, vitamin sales exceeded $10 billion in 2009. Direct mail and the Internet accounted for about 15% of sales, and that number is growing exponentially every year. Vitamin sales, weight-loss products, life-enhancement products, and herbal remedies are expected to exceed $17 billion in 2012.

Granted, the lion's share of this market (and the profit) is being gobbled up by health food stores, organic grocery stores and super-stores like Wal-Mart. But there's still room for you. And with drop-shipping, 'you can bypass all the headaches of running a bricks and mortar operation'.

Maintaining inventories can be expensive. 'And what happens when a product is no longer "hot"? You guessed it. It sits on the shelf, gathering dust.

Drop-shipping supplements makes a lot of sense to me. You can mail catalogs or direct-mail promotions to repeat buyers and have the manufacturers of the products drop-ship them to your customers. You'll save time and money with this approach ... and you don't need warehouse space or inventory!

Here's the deal ...

Americans spend BIG BUCKS on vitamins, herbal remedies, homeopathic products, and other forms of alternative medicine. This growing trend is creating a lot of opportunity in this industry.

For example:
• Three in five consumers (59%) take supplements on a regular basis. Even if the buyer is using a supplement - and it's working - he may be seeking even better results ... and will be open to trying something new. Like your product.
• Almost one in four Americans (23%) regularly uses herbs and specialty supplements.
Finding Buyers
The vitamin and supplement market is an active direct-response category with lots of competitors, so good mailing lists are plentiful.
The best results come from mailing to lists of mail-order buyers who have previously bought nutritional supplements by mail. Other lists that work are health-newsletter and financial-newsletter lists.

Do not rent "compiled" mailing lists (e.g., men age 50 or older) when you're starting out. The only names that will work are proven mail-order buyers.

Front-End Marketing Strategies

"Front-end" marketing means you're mailing your first sales effort to prospective customers.
A good way to do this is to mail a simple direct-mail package that features one front-end product that they can order from you directly. The mailing should focus on a single product (like a prostate supplement) and information about the problem it solves (a swollen prostate).

Formats that work great for this type of approach include #10, 6 x 9, and jumbo letter packages.
Most direct-marketing masters will tell you to stick to one product when you're starting out in this business.

The best types of products to focus on in your initial front-end mailings include multivitamins, herbal supplements (such as ginseng, flaxseed, and black cohosh root), antioxidants, minerals (such as magnesium and calcium), and non-herbal supplements (such as glucosamine/chondroitin, coenzyme Q10, and fish oils containing essential fatty acids).

Later, you can branch out and sell multiple products with other formats: tabloids, magalogs (my favorite), digests, and catalogs. But do not try to sell multiple products in solo letter-package mailings.

You can test several health-supplement mailing lists to find the one that works best for your particular product.

And, get this - you can purchase a directory of the best vitamin mail-order campaigns from North American Publishing Company. Sweet!

The "actual" mailing pieces are available as well.

You can also run space ads in newspapers, either selling a front-end product directly or to generate leads.

And you can place inserts in alternative-medicine newsletters - such as the WebMD newsletter - that are dedicated to providing quality health information.

Eventually, you can offer a downloadable catalog on your website, and send your customers e-mail updates featuring new products, discounts, and specials.

For example, Paul Hsu began selling ginseng via mail-order in 1974. In 1998, Mr. Hsu opened the Global Mail Order Network, which ships products to more than 87 countries around the world. The company's direct-marketing sales exceeded $100 million in 2009.

Back-End Marketing Methods

"Back-end" marketing means you're selling additional products to your customers after they've made an initial purchase.

This is where the big money is!


Think about it.

If you have people who trust you and enjoy doing business with you - don't you think they would love to hear about your exciting new products and all the benefits they'll receive by using them?

Just after the initial sale is a great time to send your customers a print catalog with your full product line.

You should also include a catalog with outgoing shipments of your front-end products.
Freeda Vitamins markets "companion products" - nutrients that work better when taken together. (In its marketing copy, Freeda cites scientific evidence for these claims.)

For example, they market prenatal vitamins along with Fem Cal (elemental calcium). And they market vitamin E along with selenium, which improves vitamin E absorption.

One of the most exciting aspects of a drop-shipping business is that it makes it possible for you to offer an automatic shipping program. The customer receives a one-month supply of supplements each month, and his or her credit card is billed automatically. They get a small discount in price, and can cancel at any time.

If you think that's great ... then listen to this. Every time your wholesaler drop-ships one of these automatic orders, you receive your commission (profit) - automatically!

Important Tip: Your Product's USP

To charge the premium prices necessary to build a profitable mail-order supplement business, you must offer products that are perceived by your customers as being somehow different and unique.

That is your unique selling proposition, or USP.

There are five ways to distinguish your product from the competition:

1. Unique ingredient. Your product contains an ingredient usually not found in other supplements in this category.
2. Unique blend. Your product contains the same ingredients as competing products, but in a different ratio that not only gives the customer the optimum daily dosage but also makes the individual ingredients work better in combination.
3. Unique delivery method (liquid, powder, capsule, tablet). Advantages of your method can include greater absorption of the nutrient, convenience, ease of swallowing. Taste (e.g., orange-flavored) can also be a differentiator here, as can packaging (e.g., making it possible to take one pill a day instead of six).

For example, Freeda Vitamins promises that its tablets disintegrate even more quickly than official standards require. They also use a "nutritional delivery" system that eliminates the use of animal substances such as gelatin and glycerine.

4. Quality. Your processing or manufacturing method is superior, so the product delivers more of the nutrient in a more absorbable form.

For example, Freeda Vitamins checks its tablet runs every quarter-hour with an apparatus that simulates the action of the human stomach. Hi-tech hardness testers are also used to make sure the tablets aren't too hard or too soft, which can affect digestion.

5. Brand name. The name of your product line, your company, or the maker or inventor of your formula (e.g., Dr. Atkins) is well-known. Doctors and other healthcare professionals endorse your products, and the general public always wants to learn more about them.

If you can distinguish your product by brand name, providing potential customers with educational information can help entice them to become new buyers. For example, Freeda offers a "Helpful Hints" section on its website that explains the best time to take vitamins, how to store them, when they really expire, the advantages of powder vs. tablet, and the problem with capsules. They also offer nutritional information for people coping with a variety of health problems.

Drop-shipping vitamins to repeat buyers can be easy and very profitable.

Two additional huge markets include life extension and sexual enhancement. These repeat buyers spend money without hesitation in order to "recapture" their vitality, youth, and vigor.

*** Quick Tip: The Drop-Shipping Secret ***

Drop-shipping is a terrific way to sell vitamins via direct mail or on the Web, because you don't have to stock an inventory.
Anyone in business can tell you how expensive it is to maintain a warehouse.
What's more, products typically follow trends or cycles. Therefore, if you have a warehouse full of Vigrexä (a natural Viagra) and a new product hits the market that's faster, cheaper, and more effective, you've got a big problem sitting on your shelves.
Granted, you'll lose some of the profit margin by drop-shipping your products - but you can make up for it in volume or by specializing.
Drop-shipping vitamins is fairly simple.
You'll need to acquire a mailing list of repeat vitamin buyers. I've enclosed some links below to brokerages that specialize in these types of mailing lists.
Then, all you need to do is mail your direct-mail sales piece to the names on the list.
Your customers will place an order by calling a unique 800# or by mailing the order form. (There are dozens of ways to track their purchases, too.)
Once the order has been received, your vitamin wholesaler will prepare the order for shipment.
When the shipment has been completed and the transaction (via credit card or check) has cleared, you will be sent the remaining proceeds.
Typically, your check will include the difference between the wholesale price and the retail price, minus any shipping and handling charges and transaction fees.
Some drop-ship wholesalers require a small deposit in order to cover charge-backs and returns.
One more thing: Always provide a 100% Money Back Guarantee. If a customer takes you up on the guarantee, don't be foolish. Issue a refund check the same day or as soon as possible.
Now you have everything you need to grab your slice of this $10 billion pie!
Additional Resources
List brokers that offer repeat vitamin buyer mailing lists:
Walter Karl
Direct Media

Edith Roman
VentureDirect WorldWide
21st Century Marketing
Carney Direct Marketing

Penton Lists

Worldata

Adrea Rubin Management Inc.

American List Counsel
Wholesalers and manufacturers that sell supplements to mail-order companies and other distributors:
Jarrow Formulasaä
1824 S. Robertson Blvd.
Los Angeles, CA 90035
Tel: 800-726-0886 / 310-204-6936
Fax: 800-890-8955 / 310-204-2520 NHS Labs Inc.
335 Edgewood #110
Eagle, ID 83616
Tel: 208-939-5100
Fax: 208-938-2819
Wholesale Vitamins USA
2500 83rd St., Bldg. 8 South
North Bergen, NJ 07047
Tel: 201-453-0900
Fax: 201-869-8922 Randal Nutritional Products Inc.
P.O. Box 7328
Santa Rosa, CA 95407
Tel: 707-528-1800
Fax: 707-528-0924
Vitamin Power Inc
P.O. Box 0818
39 Saint Mary's Place
Freeport, NY 11520-0818
Tel: 516-378-0900
Fax: 516-378-0919 Vita-Tech
2832 Dow Ave.
Tustin, CA 92780
Tel: 714-832-9700
Fax: 714-731-8482
Hsu's Ginseng Enterprises
T6819 County Road West
Wausau, WI 54402
Tel: 800-826-1577
Fax: 888-888-9511 Nutriforce
3337 N.W. 74th Ave.
Miami, FL 33122
Phone: 800-455-3396
Fax: 305-629-9994
Vitamin wholesalers that offer drop-shipping services:
Smart Vitamins
Vitamin Power

NEL Nutritional

Nutrition Manufacturer

MuscleMaster

Puritan

Colorado Nutrition
Mother Nature
Wholesale Vitamins
Vitamins.com

The Herbal Factory
VitaCost


I hope that helps!

Regards,

Marc Charles


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