What Is Dropshipping and How Does It Work in 2024?
By Sonaksh Singh Rawat on
Dropshipping, in simple words, is an order fulfillment method and an extremely cost-effective one. In this business model, businesses do not have to keep products in-stock, instead businesses partner with 3rd-party manufacturers and order fulfillment centers to manufacture as well as deliver products.
This is one of the main reasons why start-ups and budding businesses choose this model. Because without the need to keep products in-stock, businesses save warehouse and inventory management costs. The dropshipping business model offers businesses a streamlined way of selling products online, with this model the need to rent out a warehouse space and management crew is eliminated along with the need for managing multiple supply chains. All of the above-mentioned facets of running an online business will be handled by the 3rd-party manufacturer and order fulfillment center, the business has to send the order details as and when they come and the rest will be taken care of!
What is Dropshipping?
Dropshipping is a retail/order fulfillment method where an online store doesn't keep the products it sells in stock. Instead, it purchases the products from a third party and has them shipped directly to the customer via order fulfillment centers.
Typically, under this model, the online store acts as the middleman by relaying the customer's order to the manufacturing company to manufacture and deliver the product. However, the packaging and branding will bear the band of the online store and not the manufacturer.
This is a business model that is preferred by businesses that prefer lower overhead/investment costs and a streamlined way to run an online store. In brief, with dropshipping, online stores can:
- Save inventory and warehouse management costs
- Save on warehouse space and rent
- Eliminate investment costs
- Eliminate the need for supply chain management.
What is a Dropshipper?
A dropshipper refers to an individual or a business who makes use of the dropshipping method to run an online business. It is done by partnering with 3rd-party manufacturers and logistics centers to manufacture as well as deliver the product.
Unlike other business models, due to its efficiency a dropshipping business can be managed by an individual or an entire team.
How Dropshipping Works?
The dropshipping process begins with finding the right supplier, it can be done in two ways.
- Finding them by yourself using a supplier database
- Or using an e-commerce application or platform for the same purpose.
Once the deal between the supplier and business is done, customers can place their orders. Although the exact logistics will differ from one business to another, this is how dropshipping works:
- A customer heads over to an online store and places an order
- The online store or the retailer will forward the order details to the 3rd-party dropshipping supplier.
- Now the 3rd-party supplier will manufacture/source and deliver the product to the customer.
This is how efficient a dropshipping business is!
Benefits of Dropshipping
It is quite evident that online stores can reap a lot of benefits from the dropshipping business model, here are a few of them:
Low Startup Cost
A dropshipping business does not require businesses or individuals to shell out any kind of investments or upfront costs. Dropshipping eliminates almost every cost involved in the starting of an online store. This also means that there is reduced risk involved in starting an online business.
Businesses don't have to worry about
- Product Investment costs
- Inventory and inventory management costs
- Warehouse cost
When the order is placed, the retailer will relay the order details to the drop shipping supplier. Then, the dropshipping supplier manufactures and delivers the product to the customer.
Easy To Get Started
It is quite clear that dropshipping makes starting and running an online store easy by removing the burden of storing products, managing inventory, and managing order fulfillment. With all of these processes streamlined, it becomes easy to start an online store.
Here are a few days in which drop shipping makes starting a business easy:
- Eliminate the need for managing warehouse duties as well as eliminate warehouse expenses
- There is no need for the online store to pack and ship the orders, delivery will be handled by the 3rd-party order fulfillment center.
- Businesses do not have to worry about tracking inventory.
- There is no need to keep products in-stock.
Flexibility
Dropshipping offers flexibility and can be run from any corner of the world as long as there is a stable internet connection. The main factor for running a drop shipping business is to maintain clear communication lines with the suppliers to fulfill orders on time. Furthermore, online stores should also be able to offer customer support and address any concerns customers may have.
Wide Range of Products
With dropshipping businesses can have an extensive product catalog. Since there is no need for businesses to stock up on products, they can have an extensive catalog of products listed on the website without any hassle. Since inventory management is handled by a third-party supplier, it is up to them to stock and give the products for delivery.
Challenges of Dropshipping
Every coin has two sides to it, similarly, dropshipping comes with its own set of challenges.
Low Profit Margins
This is one of the biggest drawbacks of dropshipping. Given the fact that it offers minimal starting costs, it drives up the competition. There are plenty of online dropshipping stores that will offer products dirt-cheap rates to get ahead. More often than not, such dropshipping sellers will have poor-quality websites and extremely bad customer support. These are aspects where you can differentiate yourself as a brand with quality.
Inventory Issues
When a business handles its own inventory, it is quite simple to keep track of it. But when inventory and inventory management are outsourced, it could be a bit of a hassle. Although dropshipping businesses do not take care of inventory, they still have to keep track of things, especially when sourcing products from multiple warehouses. But of course, there are a number of e-commerce applications that can help online stores keep track of everything with the utmost ease. This further helps in avoiding delays in deliveries and helps keep the stock numbers accurate on the seller's site.
Shipping Complexities
Dropshippers typically work with a number of suppliers which means the product will be sourced through different suppliers. This also means that the online store will not have any control over the supply chain.
Here's an example, if there is an order for multiple products, and all of those products are available only through different suppliers, it becomes a burdensome task to manage the orders, it could have different shipping costs and shipping times, making it even more tedious.
Right Approaches to Dropshipping
If you want to start a dropshipping business, then it should be done the right way. Here is an outline of how to start a dropshipping business the right way:
- Identify Niche or Products You Want to Sell - this is one of the most important aspects of starting a dropshipping business. It is crucial to look for products that will do well in the market as well as offer less competition.
- Finding Suppliers - the third-party supplier should be dependable and have a reputable name to help you bring in profits to your business.
- Choosing Website Provides - this is yet another important aspect of starting a dropshipping business. The online store will be where your products will be displayed and it is where customers will place in order, so it is important to choose a website provider who can offer a fast and responsive website that works across all devices as well as looks appealing.
- Marketing and Advertising Products - when the website is up and running, it is important to market and advertise the products as well as a business on social media platforms. This will help garner attention as well as can help boost sales.
Key Players in Dropshipping
Here are the people involved in making a dropshipping business successful.
Retailer
The retailer is the individual starting a dropshipping business, he acts as a middleman between the manufacturers and the customers. The retailer also decides which products to sell and also sets the prices for them. This also means that the online store will be responsible for all the taxes incurred.
Supplier
The supplier is the manufacturer and order fulfillment center. They are responsible for manufacturing and delivering the products on time. The supplier will also take care of warehouse and inventory management.
Customers
The customer is a pivotal player in the dropshipping business, as customers start the process by placing an order and purchasing products.
How to Choose the Best Dropshipping Suppliers?
When starting a dropshipping business, it is extremely important to choose the right suppliers. The main reason for emphasizing finding the right suppliers is because the supplier represents your brand/business and if the supplier isn't a reliable one, then as a result of the same, the business/online store could face repercussions from customers. This is why choosing the right supplier is imperative, here are a few things you should consider while looking for a supplier:
- Good product quality and consistency in the same.
- Reasonable shipping times
- Shipping costs
- Reliability of supplier
- Customer support service
- A supplier with multiple warehouses
- Return Policies
These are some of the most important things to consider when looking for a supplier.
Tips for Success in Dropshipping
Remember these tips to start a successful dropshipping business:
- Choose the right niche to stand out. Look at the market trends and identify market gaps, this can help you choose the best products to sell.
- Make sure you find suppliers who are reliable and offer their shipping prices along with fast delivery times.
- Offering excellent customer service is essential to running an online business.
- Advertising and Marketing your store as well as your products is extremely important. It can be done through a number of methods, all the best way to do it is by using social media. There are plenty of e-commerce platforms that allow online dropshipping businesses to integrate social media platforms into their online store to help them market their products.
Check if Dropshipping is for your Business
If you're looking at starting an online dropshipping business, then you should first ask if it's for your business. To understand if drop shipping will work for your business or not you should conduct market research and look at the type of products you are trying to sell. If you are trying to sell high-end products then the dropshipping business model might not exactly work for you. On the other hand, if you're selling everyday products and daily essentials, then it can be profitable. This is because high-end products cannot be sold in large numbers whereas everyday essentials can be sold in large quantities. Since profit margins for dropshipping business are low it makes sense to sell everyday products rather than high-end products.
Dropshipping Alternatives
There are, of course, alternatives to dropshipping, here are a few
- Print on Demand - POD or print-on-demand is a business model similar to dropshipping. The main difference is that the drop shipping supplier may stalk upon products, meanwhile, POD suppliers only manufacture a product when a customer places an order for it.
- Dropshipping Agents - this is similar to the dropshipping model itself. But in this case, an online store may take the services of a private dropshipping agent to find the best suppliers and deals.
- Whitelable - In this model, suppliers manufacture generic products but add different banding labels, depending on the online stores they're partnering with. This is one of the most common dropshipping alternatives.
- In-House Fulfillment - Here, the online store manufactures as well as delivers the product without the help of any 3rd-party manufacturer or suppliers.
It goes without saying, dropshipping is one of the most beneficial business models out there. It does not require an online store to have products in stock or take care of inventory management. The online store has to just relay the order details to the supplier, and he will take care of the rest. Using this business model eliminates the need for inventory management, warehouse management, warehouse locations, investments, and upfront costs.
If you're looking at starting an online dropshipping business, then make sure to keep these in mind:
- Find the right products
- Find the right supplier
- Find the right website provider
- Market your products
It will help you start in a rather hassle-free manner.
FAQs on Dropshipping
1. How to start dropshipping?
To start a dropshipping business, one must first find the right products to sell and then find the right suppliers. After which, these products can be listed on the retailers' websites.
2. What is dropshipping with example?
Dropshipping is a business model where the online store does not have the need to keep products in stock, but partners with suppliers and order fulfillment centers to source and deliver products. For example, if a customer places an order for a vase on an online store. The store owner will forward the order details to the supplier. Now, the supplier will either manufacture or source the product and then deliver the same to the customer.
3. How does dropshipping work?
- Customer places an order on a website
- The online store owner send the order details to suppliers
- The supplier will manufacture or source the product
- The manufacturer will also deliver the product to the customer
4. Is dropshipping legal?
Yes, dropshipping is legal.
5. Is Amazon a dropshipper?
Yes, you dropship products with Amazon.
6. Who pays first in dropshipping?
The customer pays first in dropshipping.
7. Can I start dropshipping for free?
Yes, you can start dropshipping for free.
8. Is drop shipping easy?
Yes, if done the right way, dropshipping is very easy.
9. What is ecommerce dropshipping?
E-commerce dropshipping is a online business model where online stores don't store products but take the help of third party suppliers to source and deliver products.
10. what is shopify dropshipping?
Shopify dropshipping refers to Shopify stores that use the dropshipping business model.
