Drop shipping is a popular e-commerce business model for small and first-time sellers. If you are a drop shipping seller, you:

• Identify products that shoppers might like to buy

• Find them for sale from another vendor at a good price

• Offer these products for sale on eBay, Amazon, or Shopify, without first buying them

When shoppers order these products from you, you then:

• Contact the vendor you've identified for the product

• Place an order for the product and have it shipped directly to the buyer

As a business model, drop shipping enables you to set up an online shop, offer products to shoppers, make sales, and earn a profit all without having to store and manage your own inventory, or make a large up-front investment.

Drop shipping is a tried-and-true business model, but there are both practical and policy concerns to be aware of. (Image: © nik bibik / Dreamstime)

The Drop Shipping Gotchas

While millions of buyers and sellers have had positive experiences with drop shipping, many without even realizing it, the fact that sellers don't actually have the inventory they're selling on the premises can lead to some classic drop shipping problems:

• Making sales when inventory isn't actually available

• Delivery times that are longer than they would be if the seller maintained their own inventory

• Return and exchange processes in which buyers are asked to interact with companies from whom they did not directly purchase

All of these problems can be avoided by drop shipping sellers that work conscientiously to provide a great customer experience—but they are also tendencies that can quickly turn shopper experiences bad if sellers don't actively work to prevent them.

And as always, while there are many conscientious sellers out there, there are also some that get sloppy or cut corners. That's bad.

eBay's Most Recent Drop Shipping Policy

For this reason, most marketplaces are hesitant to uncritically embrace drop shipping by their sellers, and most have carefully crafted policies that drop shipping sellers must meet if they are to continue to sell. eBay is no different in this regard.

What are the key points of eBay's current drop shipping policy for sellers? They are:

1. Drop-shipping is allowed, but

2. Drop shipping suppliers must be wholesalers, not retailers, and

3. All the other eBay rules and performance standards still apply

Let's break down what each of these points means in practice, so that if you're considering drop shipping on eBay, you know how to do it in a way that won't end up creating problems for you on eBay.

1. Drop Shipping is Allowed

Despite what you may have heard, there is no blanket policy banning drop shipping on eBay. In fact, eBay's policy page clearly says:

If your would-be supplier does most of their business with the general public, you probably can't use them as a drop shipping supplier on eBay. (Image: © Thodonal / Dreamstime)

"Drop shipping, where you fulfill orders directly from a wholesale supplier, is allowed on eBay."

That's pretty unambiguous—and it's safe to say that eBay doesn't particularly want to block perfectly good sales from taking place. They profit from every transaction, after all.

But with that said, the next point is important.

2. Drop Shipping Suppliers Must Be Wholesalers

The same eBay policy referenced above also includes another key line:

"[L]listing an item on eBay and then purchasing the item from another retailer or marketplace that ships directly to your customer is not allowed on eBay."

It's allowed, but it's not allowed? What are we to make of this?

The key is in the difference between retailers and wholesalers. People often think of retail and wholesale as words that are all about price, but there's more to the difference than that. Retailers:

• Accept orders primarily from individual shoppers and families

• Are easy to find and buy from

• Require no prior relationship for an order to be made

• Have websites and customer service policies targeted at customers, not resellers

• Often interact directly with the people that will actually use their products

Is it your business name or another brand listed on the packing slip, carton, or shipping label? If the latter, you could be taking a risk. (Image: © Tatchaphol Chandraprasit / Dreamstime)

Wholesalers, on the other hand:

• Accept orders primarily from resellers

• Are not as easy to find and buy from

• Generally require a relationship or preliminary agreement prior to the first order

• Have websites and customer service policies targeted at resellers, not customers

• Rarely, if ever, interact directly with the people that will actually use their products

So if you're going to be a drop shipping seller on eBay, to comply with the rules your suppliers need to be businesses that sell to or through other businesses (like you), not businesses that sell directly to the public.

Is there an easy way to differentiate between the two for sure? Probably the easiest is this:

• If a potential shopper would receive a parcel or packing slip that lists your business name somewhere on it, you're probably dealing with a wholesaler.

• If a potential shopper would receive a parcel or packing slip that lists only their name and the name of your supplier on it—or if your shopper can use what they learn by receiving your package to make a future purchase directly, bypassing both you and eBay—you're dealing with a retailer, and should steer clear for eBay purposes.

3. eBay Rules and Performance Standards Still Apply

It's very important to understand the difference between retailers and wholesalers in order to comply with eBay's drop shipping policy, but it's at least as important to understand that all of the regular eBay performance standards still apply.

You get no breaks, in other words, just because your business is based on drop shipping and some eBay standards may be more difficult to meet.

• Delivery times and processes must still meet eBay standards

• Returns and exchange policies must still comply with eBay requirements

• Your shoppers can still provide honest feedback about your transaction afterward

At present, delivering your own eBay inventory via Amazon fulfillment and other similar practices is still allowed in North America—but it can still lead to a less-than-ideal shopper experience. (Image: © Ifeelstock / Dreamstime)

It's important to make these points because it is objectively more difficult—though not by any means impossible—to do well in these areas as a drop shipper. They will, in other words, require special care and attention from you if you're going to succeed on eBay as a drop shipper.

Side Note on FBA and Other Gray Areas

For a few sellers, these policies raise an obvious additional question: what about eBay orders that technically don't violate eBay's drop shipping policy in any way, yet are processed and/or fulfilled by services or brands that are also retailers at times?

Given that eBay forbids sourcing products through Amazon when drop shipping, for example, what are sellers to make of using Amazon fulfillment on eBay to deliver their own inventory?

For the moment, the answer is a nuanced one. Third-party fulfillment and order management are not against eBay rules today, at least not in North America, so you're probably on solid ground to use them. However, there are some things to note for the future:

• On some other global eBay sites (notably Australia), Amazon fulfillment is already against the rules, so there is no guarantee that it will continue to be permitted in North America indefinitely.

• eBay has hinted and analysts have predicted that eBay is working behind the scenes to provide eBay-branded alternatives to sellers that currently do business this way, no doubt to put an end to the less-than-ideal experience that occurs when—for example—a customer makes a purchase on eBay only to receive an Amazon-branded shipping box.

For these reasons, it's probably best to assume that even if you use retail fulfillment partner like Amazon now, you'll probably stop doing so in the future if you plan to continue to sell on eBay.

Drop Shipping at Present and in the Future

Drop shipping has been a staple of e-commerce since the beginning, and despite what some have imagined, it shows no signs of abating anytime soon.

Keep abreast of the policies of your preferred marketplaces, stay savvy to the trends that separate successes from failures in drop shipping, and you'll do fine as a drop shipper on eBay, both now and in the future.