Pratikkumar P. Gaikwad | 10 min read | Sep 04, 2020
1. What is Dropshipping?
Dropshipping is a form of retail distribution where the store does not hold the products it sells in stock. Instead, when a store sells a product using a drop-shipping model, it orders the item from a third party and has it delivered directly to the consumer. As a consequence, the seller does not have to deal with the product directly.
Dropshipping is ideal for startups since it takes less than the conventional retail model. You don’t have to open a brick and mortar shop, pay rent, and buy merchandise. Instead, you open an online shop and purchase wholesale from vendors that already have goods and warehouse space.
In short, drop-shippers are serving as intermediaries between suppliers and customers. In spite of this, you’re going to reap the lion’s share of sales by marking up the things you’re offering. It’s an easy business model and one that could be really rewarding. This is a more hands-off operation for the store. The merchant does not have to order inventories or orders in any way. Instead, the third-party supplier will take care of the product itself.
Millions of entrepreneurs flock to drop-shipping because it takes less effort and money to get underway. Maybe that’s why you’re interested. And the best news of all of you? With drop-shipping, you can create a long-term sustainable business right from your desktop.Of course, there are a lot of disadvantages and advantages, and it’s vital that we look at them before you start your own e-commerce drop-ship business.
2. How does Dropshipping work?
Dropshipping involves the selling of products from your online store, which will then be done directly by the supplier. There is no need for packing, shipping, or inventory maintenance — simple, hands-off sales. Here’s how dropshipping works.
Step 1: – The order is put in your online store by the customer.
Your customer shops, as usual, place items on your store in their cart. The payment will be handled as usual.
Step 2:- The order is sent to a third party supplier by your store
For fulfillment, the order information of the customer is passed on to the supplier. You pay the selling price of the item, and you retain the markup and income.
Step 3:- The supplier will deliver the order to the customer
On the packing slip and invoice, orders are delivered with the name, address, and logo of your own shop-the customer never knows that you are a dropshipper.
Step 4:- Your store informs the customer that it has shipped its order
The client receives an email from your online store to let them know that their order is on its way. The email is from you and not from your supplier.
3. Benefits of Dropshipping
Dropshipping is a perfect business model for beginning aspiring entrepreneurs because it is accessible. With drop shipping, you can easily test various business concepts with little downside, allowing you to learn a lot about selecting goods and selling them on demand. Here are a few more explanations of why dropshipping is a popular model.
Requires low funds
You already know the greatest power of dropshipping-a low entry barrier. (We think you wouldn’t be here otherwise.) You spend all of your setup time establishing relationships and making a fantastic website with dropshipping. The biggest tabs are likely to run e-commerce apps and website design.
You don’t have to buy a product with the dropshipping model unless you have already made the offer and the customer pays for it. Without major upfront inventory costs, it is possible to start sourcing goods and with very little money to start a profitable dropshipping company. And because you’re not committed to selling-through any stock bought upfront, as in a typical retail sector, there’s less chance of starting a dropshipping store involved.
Easy to start
You don’t need to be a business wizard in order to get started. You don’t even need any prior business experience, honestly! If you take some time to understand the fundamentals, you can get started easily and understand the rest as you go.
Dropshipping is so easy because it needs so little of you. You don’t need a warehouse to store your goods or a team to help you out. You don’t have to think about either storing or shipping. You don’t even have to spend a certain amount of time in your store every day. Surprisingly, it’s hands-off, particularly once you get moving.
All this means that you can start your business today. In a matter of hours, you can start getting it up and running.
You’ll need some basic information, the right tools, and resources and that’s why we’ve built this guide. You’ll be armed with the skills you need to start your own dropshipping company by the time you’re finished.
Easier to scale and grow
If you want more income you have to do more work in conventional retail market models and spend so much more of your resource pool. Usually, if you get three times the number of orders you would need to do three times the amount of work. By leveraging dropshipping suppliers, the suppliers can bear much of the work handling additional orders, allowing you to develop with fewer growing pains and less incremental work.
When you scale up, your business model needn’t change a lot at all. As you expand, you’ll have to put more effort into sales and marketing, but your daily life will remain more or less the same. If you’re selling well, there’s no reason to think about putting out more money to buy more. Neither would you need to build up more infrastructure around inventory or order management?
One of the benefits of dropshipping is that when you scale, the costs don’t skyrocket. It is easy to keep growing at a fairly fast rate because of this. Also, you can do almost everything on your own, unless you at some stage want to build a small team.
Low overhead costs
As stated earlier, the business owner is not expected to buy inventory so the cost of renting or purchasing warehouse/office space and the other smaller but significant costs related to it (electricity/phone bills, paperwork, etc.) are not a concern. Indeed, many popular dropshipping stores are run as home-based companies, needing nothing more to operate than a laptop and some recurring expenses. As you expand, those costs are likely to rise but remain low relative to conventional brick-and-mortar businesses.
With an internet connection, a drop shipping company can be run from just about anywhere. You can operate and handle your business so long as you can effectively interact with suppliers and customers.
No department, no warehouse, no workers, and no hassles. Little or no dedication to a physical space ensures you can relax at a beach, sip on mojitos while still making money. Everything you need is the internet and your laptop.
Variety of products to sell
Since you do not need to buy the things you sell beforehand, you can offer your future buyers a range of trendy goods. If suppliers stock an item, it can be listed on your online store for sale at no additional cost.
There’s a dropship supplier for just about everything you want to sell! You can focus on one great product, sell many items at once or mix it together; it’s up to you. Find your niche and a supplier that caters to it is guaranteed to be there.
That is one of its greatest advantages. You become your boss and you set your own rules. It is by far one of the most flexible careers anybody can pursue. Dropshipping is also flexible in that it gives you plenty of room for making decisions that work for you. Wherever you want, you can easily list new products, and adjust your strategies on the fly. You can automate everything to run while you’re away if you’re on vacation. You get the idea there is no limit to the possibilities.
4. Disadvantages of Dropshipping
All the benefits that we have mentioned make dropshipping a very attractive model for anyone starting with an online store, or for those looking to expand their existing product offerings. But drop shipping, like all approaches, has its downsides too. Convenience and flexibility come at a price, in general. Here are just a few shortcomings to consider.
One of the drawbacks of dropshipping is that you should initially expect low margins. Since it is so easy to get started, and the operating costs are so low, in an effort to raise sales, many rival retailers will set up shop and sell goods at rock-bottom prices. They can continue to run on minuscule margins because they have spent very little in getting the company started.
That’s not to suggest it can’t be lucrative but you should be mindful that certain niches may have a limited product margin. This issue is particularly troublesome in a super-competitive niche when you are dropshipping. When you compete for the interest of consumers, you can’t afford to make the sort of income that you want. If you pick the right niche you can see bigger margins. You’ll have higher margins in niches with lower competition, but at some stage, the profits will start plateau. But dropshipping depends on a decent amount of revenue to make it successful.
Managing inventory becomes tricky
If you store all of your own products, keeping track of which items are on and off stock is relatively simple. But if you buy from multiple warehouses, which also fulfill other merchants’ orders, inventory can change daily. You must rely on your suppliers to do everything right and to work smoothly. Some entrepreneurs may find this lack of control off-putting, but it’s usually not a problem.
That simply means it can be tricky to manage when something goes wrong. While supplier problems can sometimes cause customer retention problems, with proper damage control, you can mitigate them and keep the customer churn to an absolute minimum.
Complexities in Shipping
Dropshipping seems straightforward: you are processing customer orders and fulfilling your supplier. And this is simplistic for the most part. If you work with multiple suppliers — as most dropshippers do — the products will be sourced through a number of different dropshippers on your online store. This complicates the cost of your shipping. Each of your suppliers may use a different shipping solution, which presents both you and your customers with a problem. Costs can get high, and multiple products can be problematic for shipping.
Different suppliers will have different processing and billing structures in place too. This can get tricky as you have to manage the interaction with your suppliers.
Challenges in Customer service
This is another problem that comes up when orders go wrong or manufacturers collapse. Since you’re just the retailer and you don’t have a lot of power, order processing, and customer service can be hard to manage. Even the best dropshipping suppliers make mistakes in order fulfillment — mistakes you have to take responsibility for and apologize. And medium-sized and low-quality suppliers can cause endless dissatisfaction with lost products, delayed shipments, and low-quality packaging, which could harm the credibility of your company. One of the most disappointing drawbacks to dropshipping is that when your clients complain you have to take the blame. You could be doing everything right and still run into problems if your suppliers have issues.