What Is Dropshipping?
Dropshipping is a retail fulfillment strategy in which a company does not hold stock of the things it sells. When a dropshipping store offers a product, it buys it from a third party (a manufacturer, wholesaler, or another retailer) who then sends it to the client directly.
As a result, if your company uses drop shipping, you’ll be acting as a storefront where customers can come in and place orders. You charge the customer and the drop shipper charges you once they place an order. You are never in contact with the actual products.
How does dropshipping work?
Dropshipping is a supply chain management technique. A supply chain is a network of suppliers, materials, manufacturers, and retailers engaged in the creation and distribution of a product, from production to client delivery, if you recently launched a retail store or an internet store.
Dropshipping involves the following parties:
- Manufacturers – are the ones who make the goods. They don’t normally sell to the general public; instead, they sell in bulk to wholesalers and retailers.
- Wholesalers – buy products from manufacturers and resell them to retailers at a higher price. Wholesalers typically carry a wide range of products from a variety of producers.
- Retailers/Digital Marketers – sell things to the general public for a profit.
This is how it works:
- The customer makes a purchase from you, the retailer.
- The goods are packaged and dispatched to the consumer when the dropshipping partner — either the manufacturer or the wholesaler — is alerted.
- You, the merchant, pay the dropshipping partner for the service, and you, in turn, charge the client.
The shorter the supply chain, the bigger your earnings will be because there are fewer parties obtaining a piece. You have a short supply chain when you interact directly with the manufacturer.
The advantages of starting a dropshipping business
Dropshipping is a retail inventory management approach that can assist your company to reduce risk while also providing other benefits. This type of order fulfillment is popular among eCommerce enterprises and other businesses aiming to reduce inventory risk and enhance flexibility.
- It reduces the costs of beginning and running a company: Dropshipping cuts the cost of launching an online business in half because you don’t have to invest in inventory upfront, which can be prohibitively expensive for new and small enterprises. Furthermore, because you are not responsible for acquiring inventory (or managing storage for that product), your overhead is kept to a minimum. It also means you won’t be stuck with things that don’t sell, which means you won’t have to price them down and lose money.
- You have the option of changing your location: Dropshipping companies are also more agile than companies with more traditional setups. You can basically run your store from any place you can get an internet connection because you don’t have real inventory.
- You can provide a greater range of products to your customers: You can keep on top of trends and swiftly add new products to your site because you don’t have to invest in establishing your own inventory. You may also change up your products rapidly without having to order new things or clear up backstock.
- You don’t need to keep track of inventory: You won’t have to handle inventory if you don’t have any. Inventory management can be difficult and time-consuming (although inventory management software can make the job much easier). Because you and your staff won’t have to keep track of stock, reorder it, or process it, you’ll have more time to focus on other elements of your business that will help it expand.
Drop shipping’s difficulties
Dropshipping has advantages for business owners, but it also has disadvantages that may conflict with your overall business strategy. Here are a few reasons why some businesses choose not to use dropshipping:
- Profit margin reduction: As previously said, the longer your supply chain, the smaller your earnings.
- Inventory issues: It’s simple to verify stock levels when you own inventory. It’s more difficult to ensure that the things you need are readily available when you receive them from numerous suppliers — who, in turn, work with other shops.
- Shipping complexities: When you interact with a lot of different suppliers, your shipping expenses might get extremely difficult. Let’s imagine a consumer places an order for two things, each from a separate supplier and with varying shipping rates. You’ll need to figure out how to charge the buyer for shipping without making them feel overpriced.
- Lack of control over customer experience: When you rely on a drop shipping partner to deliver products to your customers, you’re trusting that they’ll do so on schedule and in good condition. If they don’t keep their half of the bargain and deliver things late, defective, or not at all, it can lead to unfavorable reviews and a loss of customer confidence, which can harm your company’s customer service reputation.
- Supplier issues: It’s critical to establish strong relationships with your suppliers that are built on trust and mutual respect. Suppliers are the lifeblood of your company, so choose carefully who you work with and never take their loyalty for granted by paying late or being difficult to work with. In order to enhance drop-shipping efficiency, you must learn how to properly manage your suppliers in order to develop good partnerships.
How to Choose a Drop Shipping Provider
The third party you choose as a drop-ship supplier will affect the success of your supply chain, so do your research before making a decision.
In general, you want to work directly with the makers of the products you wish to sell to set up drop-shipping arrangements. The fewer intermediaries you have to deal with, the more money you’ll make. Because each additional price levied by your supply chain partners has an impact on your bottom line, it’s ideal to engage directly with a manufacturer wherever possible.
Here are some questions to ask when selecting suppliers:
- How much do you charge? : Before choosing a drop shipping partner, do the math. Look elsewhere if the wholesale pricing isn’t enough for you to generate a decent profit on the merchandise.
- Is there a handling fee? If so, consider how it can affect your profit margin. You want to shorten the process as much as possible because every cost and middlemen hurt your bottom line.
- What methods are used to deliver products? You want a partner who will ship your things via a service that will provide you with tracking information (which they should send to you). If your consumers ask about the status of their orders, you’ll be able to give them accurate, up-to-date information. Returns are a part of the shipping process. Find more about the policies on returns and warranties. Stay away if returns aren’t allowed or products aren’t guaranteed.
- What is the procedure for billing? : Do drop shipping companies charge your credit card immediately after you place an order? Or do they send you a bill every month? Choose a partner whose billing method is compatible with your cash flow.
Suggestions for starting a dropshipping business
To ensure the success of your dropshipping business, you should follow a few best practices.
- Make online purchasing a pleasure: From ordering to delivery, you want to make the experience as frictionless as possible. A user-friendly e-commerce experience is the first step. You wish to spend in constructing a beautiful site that is easy to use (on all devices) and simple to understand.
- Pay attention to the products you use: Although drop shipping allows you to sell a wide range of products, this does not mean you should. Determine what you should sell at your store by conducting market research and analyzing trends. Consider what is marketable, what is simple to ship, and what is difficult to locate locally.
- Focus on quality: Even if you thoroughly evaluate a supplier before dealing with them, you should keep an eye on their service once you’ve started working together. Cut ties with the supplier if there are multiple cases of damaged products, lost packages, or late deliveries, for example, or risk losing your consumers’ trust.
- Create a trustworthy company: Your reputation is everything, therefore in addition to working with reputable drop-shipping partners and having a fantastic website, you should also endeavor to improve your internet credibility to ensure client confidence. Long-term prosperity will be assured. Developing solid relationships with your clients will assist assure the success of your drop-shipping business, from having a strong social media presence to creating successful email marketing campaigns.
- Is it legal to dropship? Dropshipping is, in fact, legal. Drop-shipping business owners should be cautious about the suppliers they work with, especially when it comes to trademarks and intellectual property, but the procedure is legal.
- Is dropshipping a viable business model? Dropshipping can be lucrative, but it is dependent on a variety of circumstances. When handling fees and percentages are taken out by numerous middlemen are factored in, pursuing a drop shipping business may not be worthwhile. In the dropshipping niche, there is also a lot of competition. Dropshipping enterprises sometimes provide products at very low prices since they require such a small initial commitment. In order to compete, you must frequently lower your rates.
- What’s the easiest approach to get a dropshipping website up and running? A drop shipping website will function similarly to an eCommerce platform’s online store. The main distinction will be inventory management with your third-party supplier. Square has teamed up with Spocket to make this integration a reality for your company. Running a business isn’t easy, but Shopify is a platform you can use. Whether you’re selling in person, online, or both, we have all the tools you’ll need to start, run, and grow your business. And they have integrated all of the tools into a single system to save you time, money, and effort. So you can get back to doing what you enjoy and focus on the next step. Examine how Shopify works
If you want to start your own dropshipping business today – join 5-Days eCom Workshop