Dropshipping is a form of retail order fulfillment where a store purchases an item from a third party and ships it to a customer without ever physically stocking the product in its store.
Whereas most sellers buy products and then sell based on what they have in inventory, dropshipping sellers buy and sell items without ever actually handling the product.
In this article, we’ll dive into detail on what exactly dropshipping is and why people do it, explain how it works, as well as how to dropship.
What is Dropshipping?
Dropshipping is a retail fulfillment method where the seller or store accepts customer orders but does not keep the items in stock. Instead, dropshippers transfer the orders to a third party who ships directly to the customer.
When using the dropshipping method of retail sales, the retailer is responsible for marketing and selling a product, but has little or no control over product quality, storage, inventory management, or shipping.
It has become a popular method for entrepreneurs and businesses looking to grow their business online.
The goal of dropshipping is to be able to sell products to customers without incurring the significant running costs that a wholesaler would have. This eliminates the need for several costly business functions such as the costs of maintaining a warehouse, a brick and mortar storefront, purchasing and storing inventory, and employing necessary staff.
Due to its low-cost nature, it can be easier to start turning a profit with dropshipping much quicker than other business models. Plus, a successful dropshipping business can be one of the most profitable business models of all since stores are not responsible for the costs of shipping or manufacturing.
How Does Dropshipping Work?
With dropshipping, you are essentially playing the middleman between customers and wholesalers, which can seem confusing.
To better understand how dropshipping works, we’ve broken the process down by steps:
- Store markets product and puts it up for sale
- Customer purchases product
- Store accepts and processes customer order
- Store transfers the order and its shipment details to a third party such as the manufacturer, a wholesaler, another retailer, or a fulfillment house
- The third party then ships the order directly to the customer
While we have simplified the process, dropshipping can still have plenty of hurdles to overcome.
The key to running a smooth dropshipping business is to make sure you have good communication with both your customers and your suppliers.
Reasons to Dropship
Whether you’re a large retailer or a fresh new store, dropshipping can benefit your business in several ways.
Below are the most popular reasons entrepreneurs and businesses get into dropshipping.
- Easy to get started: As we mentioned above, dropshipping has much lower costs associated with it than many other business models. Not only are overall costs low, but it also doesn’t take a huge investment to get started. Plus, with reliable dropship companies like World Wide Brands , or full website builders with dropshipping like Shopify, getting started with dropshipping can be quick and easy.
- Expand product offerings: One great thing about dropshipping is it allows stores to easily expand their product offerings without having to purchase physical inventory, which makes it easy to scale as you grow. The better your selection, the better chance customers purchase more items per order. Additionally, dropshipping makes it easier to test out new products without having the worry of a big physical investment you need to sell to turn a profit.
- Maintain brand integrity: Almost all of the dropship suppliers will include your branding materials like boxes, inserts, and packaging slips, which makes it appear as if the package is directly from your store. By working with suppliers, you are essentially spreading your inventory around the world, which means more places to ship from and faster shipping times for customers. Since the customer thinks their package came quickly straight from you, they will be more likely to shop with you again.
- Build online marketplace: Dropshipping is an easy way to build and expand an online marketplace. One of the reasons Amazon is able to offer such a diverse and extensive product catalog is because they use dropshippers to help sell items. As you build your business and establish more relationships with suppliers and third parties, you can use that to build your own marketplace.
While there are plenty of pros to dropshipping, that is not to say it is without its cons.
The most common dropshipping woes tend to be issues with inventory, supplier errors, low margins or hidden fees, and heavy competition. Things like inventory issues and supplier errors can typically be boiled down to poor communication.
It’s essential to have good communication with all parties involved and be sure you understand any and all fees associated with doing business with any suppliers you work with.
Utilizing trustworthy suppliers is a good best practice when dropshipping.
How to Dropship
The first step to starting a dropshipping business is to commit to doing so and then decide on a dropshipping business idea.
Once you’ve picked your niche, you’ll want to do competitive research to see what your competition looks like in that area.
From there, it’s time to choose a supplier or suppliers. As we highlighted before, it’s essential to pick a trustworthy and reliable supplier. Researching suppliers and choosing ones with a good reputation can save you major headaches down the road.
The two most common ways to find a supplier for your dropshipping store are:
- Through a supplier database, like Alibaba or AliExpress.
- Using an integrated supplier directory in your store’s backend, like Oberlo or SaleHoo.
After you’ve done all that, it’s time to set up your online store. It’s a good choice to choose a reliable hosting provider for your online store. Get, fast, safe and reliable eCommerce hosting with InMotion Hosting.
Dropshipping is a diverse business model that provides an accessible entry point for budding entrepreneurs to launch their store, as well as an easy way for existing businesses to bolster their product catalog.
If done correctly, dropshipping can be low-risk and high-profit, but like any business, becoming profitable isn’t easy and requires hard work.
When launching a dropshipping business, it’s essential to do your research.
Do research around what your business will be and who your competition is. Then do research into the suppliers and manufacturers you’ll be working with to ensure you find reliable suppliers.
No matter who you decide to work with, communication is key.
If you focus on working with reliable and trustworthy suppliers and maintaining a clear and open chain of communication with them, you can solve a lot of problems before they happen.
If you are looking for more ways to drive traffic to your store or website, check out 10 Ways to Drive Traffic to Your Website.