If you’re seeking an online business opportunity, chances are that you’ve come across dropshipping. Dropshipping is an online business model that can generate returns for the aspiring ecommerce entrepreneur. It’s possible to start dropshipping with a small amount of startup capital and some sweat equity. Once you begin to see success, you can scale by allocating more resources to advertising and brand building. But how does dropshipping work, and why should you go for this model to realize your entrepreneurial dream?
Before we get any further, it’s important that you have an answer to the question ‘what is dropshipping?’
What is Dropshipping?
Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product and passes on the sales order to a third-party supplier, who then ships the order to the customer.
However, contrary to popular belief, the dropshipping business model is not a get-rich-quick scheme.
Sure, it seems like easy money — you sell other people’s goods and take a cut for yourself — but when you factor in all the drawbacks, obstacles and day-to-day management, it’s far from easy and can be hard work.
If you approach it the right way, though, dropshipping can still help you build a successful business… just not as quickly as you’d hoped.
How does drop shipping work?
These are the parties involved in drop shipping:
- Manufacturers create the products. They usually don’t sell to the public; they sell in bulk to wholesalers and retailers instead.
- Wholesalers buy products from manufacturers, and then mark them up before selling them to retailers. Wholesalers usually stock products from a variety of manufacturers.
- Retailers sell products directly to the public, at a markup.
And here’s how it works:
- The customer places an order with your business, the retailer.
- You alert the drop shipping partner — either the manufacturer or the wholesaler — who packages and ships the product to the customer.
- The drop shipping partner charges you, the retailer, for the service, and you charge the customer.
Generally, the shorter the supply chain, the greater your profits will be because there are fewer parties taking a cut. A short supply chain is one where you deal directly with the manufacturer.
Advantages of dropshipping
A dropshipping business is easy to set up
You don’t need prior business experience to get started with dropshipping. If you take some time to learn the basics, you can launch a business quickly and learn the rest as you go.
It’s easy to start a dropshipping business because start-up costs are low — especially when compared to other types of retail business models. For instance, you don’t need a warehouse to store products or a team to help you out. You also don’t have to worry about stocking or shipping either. It’s surprisingly hands-off, especially once you get going.
All of this means that you can start your business today. In fact, you can get everything up and running within a matter of hours.
You will need some foundational knowledge and the right tools and resources, and that’s why we created this guide. By the time you’ve finished it, you’ll be equipped with the knowledge you need to jumpstart your own dropshipping business.
You can offer customers a wider selection of products
Since you don’t have to invest in building your own inventory, you can stay on top of trends and quickly add new products to your site. You can also quickly switch up your offerings without first having to order new items or clear out backstock.
Dropshipping doesn’t require an office
You can run an entire business right from your laptop, and you don’t need to make any high-level investments. Your largest expense will be advertising, which is a budget you can scale as your store gains more traction. Even as your business grows, your costs will be fairly low – especially when compared to traditional business expenses.
Dropshipping is simpler to manage
Since it doesn’t require you to make too many commitments like hiring staff or renting warehouse space, you can manage everything with little hassle. Once you’ve found suppliers and set everything up, for the most part, you’re only responsible for managing your online storefront.
Disadvantages of drop shipping
Dropshipping has slim margins
One of the disadvantages of dropshipping is that you should expect low margins initially. That’s not to say it can’t be profitable, but you should be aware that the product margin in some niches might be small.
This issue is especially problematic when you’re dropshipping in a super-competitive niche. When you’re fighting for customers’ attention, it can be difficult to achieve the kind of profits you desire.
Lack of control over customer experience
By putting reliance on a drop shipping partner to get products to your customer, you’re acting in good faith that they will deliver the orders on time and intact. If they don’t come through on their end of the deal, or deliver items late, broken, or not at all, it can result in bad reviews and a loss of consumer trust that can negatively impact your company’s customer service reputation.
Have you ever been blamed for something that wasn’t your fault but had to accept responsibility for anyway?
Even the best dropshipping suppliers make mistakes fulfilling orders—mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which can damage your business’s reputation.