What is Dropshipping?
Do you want to know what is dropshipping? Dropshipping is an order fulfillment strategy wherein a business doesn’t maintain inventory of the products it sells. Upon receiving an order, the seller immediately transmits it to a third-party company, which then dispatches the product directly to the customer. The seller acts as an intermediary between the customer and the product supplier and facilitates a seamless transaction process. This method streamlines online sales, the entrepreneurs don’t have the burden of warehouse leasing, supply chain management, and inventory control.
Drop shipping comes with several advantages that help business owners seeking to establish an online presence. By eliminating the need for physical inventory, aspiring businessmen can minimize initial capital investment and operational issues. Dropshipping enables greater flexibility in product selection and scalability.
What is a Drop Shipper?
A drop shipper is a person or an entity that uses the dropshipping business model, procuring inventory and logistical support from a third-party supplier rather than managing warehousing and shipment independently.
As a dropshipper depends on third-party suppliers for inventory management and order fulfillment, a dropshipping operation may be overseen by either several employees or a sole proprietor.
How Does Dropshipping Work?
The dropshipping process is a relationship between a customer-facing store and a supplier.In a dropshipping business model, there are two primary approaches. One method involves independently seeking out wholesale suppliers globally, such as AliExpress, SaleHoo, or Worldwide Brands.
In the second method, you the businessmen can make use of apps like DSers, integrated with platforms like Shopify, which streamlines the process by connecting businesses with a multitude of suppliers. Through DSers, sellers can browse products on AliExpress, import them directly to DSers, and fulfill orders with a simple click. Such apps facilitate product selection and order fulfillment seamlessly. The second approach to the dropshipping business involves the automation of the dropshipping process, requiring minimal intervention from the store owner, the product is dispatched directly from the AliExpress supplier to the customer’s location worldwide, after the order confirmation.
Advantages of Dropshipping
1. No need to buy inventory upfront or store it
The dropshipping business doesn’t require physical interaction with the product, no need for upfront inventory purchases, storage, packaging, and shipping. This allows businessmen to experiment with new products without full commitment.
2. The Business is easy to set up
Many aspiring businessmen are attracted to the dropshipping model due to its simplicity of setup and absence of concerns regarding storage facilities. Once the niche market is chosen, the main step involves sourcing a reliable supplier capable of providing good dropshipping services. Market research can be conducted through platforms such as Alibaba.com or Google searches, or by leveraging existing connections within the industry. Once the pricing is decided, the focus shifts towards promoting and advertising. The process of setting up a dropshipping enterprise is quite straightforward, particularly in comparison to retail sales channels operating independently.
3. Low overhead costs
As there is no inventory purchase or warehouse management involved, overhead expenses remain very low. While expansion may lead to increased costs, they will still be considerably lower compared to conventional brick-and-mortar or online stores.
4. Flexibility and a wide range of products
The dropshipping business comes with geographical flexibility, enabling management from any location globally and facilitating the option to outsource labor to overseas markets. The businessman can diversify product offerings effortlessly by listing items sourced from various suppliers. As an aspiring businessman, your main focus must be on market testing advertising, and promotion.
5. Easier to grow your business
In the dropshipping business model, the onus of managing increased volumes and order processing falls totally on the suppliers. Scaling the business is not as difficult as the conventional business model as there’s no need to recruit additional personnel, the business can operate smoothly while suppliers handle the operational demands behind the scenes.
Disadvantages of Dropshipping
1. Limited control over product quality and branding
In dropshipping businesses often encounter challenges related to damage control, particularly in mitigating product or shipment quality issues. The merchant and their team can have a significant additional workload serving as intermediaries between their company and one or more suppliers.
2. Dropshipping can be more expensive than traditional retail business
Even though the dropshipping business comes with several advantages, it comes with a few disadvantages the chief among them being lower profit margins. Suppliers commonly levy premiums for branding packages, thereby impacting profitability. The aspiring businessman Consequently, must consider carefully raising prices, potentially deterring customers, or initially accepting reduced margins until a loyal customer base is established.
3. Inventory tracking can be tough
When you stock your product tracking inventory is really easy. But when you have multiple warehouses to deal keeping an eye on stock can be tough to do. Sometimes the suppliers may not have advanced technology like EDI, in such cases, it’s best to have a really solid relationship with your supplier and regular updates from them so that you know how many items you can sell to your customers, or whether your customers need to wait for more stock to arrive with your suppliers before receiving their deliveries.
4. Satisfying customers can become harder
Customer service issues as a drop shipper can prove stressful, given the lack of complete control over the process. There could be other customer service issues like providing shipping updates especially when suppliers operate from multiple warehouses dispersed geographically, resulting in orders being shipped in parts and delivered by various couriers at different times.
5. Shipping complexities can occur
Managing shipping costs when dealing with multiple suppliers is another issue in this business model. It can be challenging to track the various shipping charges imposed by each supplier. Vigilance in monitoring such costs is very important, adjustments may be necessary, such as raising shipping prices or incorporating some costs into product prices so that the business remains profitable.
Examples of Dropshipping business ideas
- Clothing
- Smartphone Accessories
- Fitness Equipment
- Pet Supplies
- Electronics
- Vehicle Accessories
- Beauty Products
- Eco-friendly Products
- Food and Drink
- Wireless Security Cameras
- Gaming
- Jewelry and Accessories