What is Dropshipping and How it Works?
Posted by Wholesale Blades on 11/30/2022 to Dropshipping
Dropshipping can be defined as an order fulfillment that allows ecommerce businesses to outsource, store and ship products to a third party - often a supplier. A dropshipping model often appeals to entrepreneurs seeking low overhead and efficiency, however, it can come at a cost. Here is a detailed guide that covers what dropshipping is, how it works, and what key players are involved in it. Here we go!
Dropshipping is a sort of retail fulfillment method for online shops, where merchants buy products from a third party supplier rather than warehouse inventory as customers make orders. Then, the products are shipped directly to the customers. This is how the seller does not need to handle the products directly.
For a retail store manager, as far as order fulfillment and shipping are concerned, it is often a hands-off procedure. The merchant does not need to stock items, fulfill the orders physically, or order stock in bulk. Rather, the third party supplier would ship the items on the behalf of the merchant.
For the retail store manager, when it comes to shipping and order fulfillment, this is a mostly hands-off process. The merchant does need to have the products in his stock, rather he can just ask the supplier to deliver the products stocked by them directly to the consumer.
Dropshipping is excellent for entrepreneurs since running a store does not demand a lot of operational capital like a traditional retail model. You don’t need to open a physical store, keep the lights on, hire workers, stock items and pay overhead. Rather, you just need to open an online store and purchase wholesale from suppliers who stock the products in their warehouses.
How Does Dropshipping Work?
A couple of the most common approaches for dropshipping are to look for a supplier around your area or anywhere else using some supplier databases, or to look for an app which can connect your store to millions of suppliers.
There are a lot of apps that help independent businesses find items to sell. You can use these apps to browse different suppliers and import products that pique your interest directly with just a click of a button.
As a consumer purchases a product, you would be able to fulfill their orders in an app. Fortunately, different apps automate this procedure. Being a store owner, you all need to check that the information is correct and click the button of “Order”. The product is then delivered directly by the supplier to the customer wherever they are in the world.
Dropshipping can be considered a no-hassle and a quick to get rich scheme. However, it isn’t. Like other ecommerce websites, it can take dedication to get your business up and running successfully. If handled well, dropshipping companies can be more convenient and reliable partners to most growing ecommerce stores to expedite order fulfillment process.
Also Read: Dropshipping Tips for Beginners
Dropshipping Business Model - Key Players
It is time to unpack some of the key players involved in the dropshipping business model, starting with the ecommerce business i-e seller of record.
- Seller of Record
The process of dropshipping begins with you. As the SoR, the seller of record, you are the individual figured out as selling the product to the customer. You determine the price and record the purchase and revenue. Even when a third party stocks and delivers the products, you are the seller of record as you own the items before they are shipped to the end consumer. For Amazon sellers, Amazon does allow dropshipping as long as you are the seller of record and determine yourself as such.
Manufacturers manufacture the products and sell them to retailers and wholesalers. You can buy products from manufacturers, however, the bulk purchase amounts they may need may potentially be a barrier to scaling or starting your business. A few manufacturers tend to offer dropshipping services too.
In a product supply chain, wholesalers purchase from manufacturers and sell to wholesalers or retailers at a specific markup. They may function as a middleman, commonly, they don’t sell to the end customer but may offer dropshipping services to the retailers. Identify which dropshipping providers may be good for you based on your fulfillment needs and business model.
Is Dropshipping the Right Idea?
Generally, it depends on your business. Here are a few things to consider in dropshipping:
- Build Your Brand
Your brand is the feel and look of a customer-facing feature of your business. Building a great reputation for your business can help enhance customer loyalty. While you may create a branded online presence, dropshipping provides you less control over delivery, product quality, and the aesthetics of your final package. In case the packaging and products are short of expectations, a customer may prefer not to buy from your brand again. Dropshipping suppliers provide room for customization of products. Such limitations may make it harder to set your brand apart from your competitors.
- Control Over Product Quality
Quality of product can have a great impact on different aspects of your business such as brand loyalty, returns and acquisition. While you may inspect the product quality at the beginning of your dropshipping relationship, you may likely have restricted control over the quality you sell. In case the product does not meet customer expectations, your business may receive negative reviews by customers.
- Shipping Time
E-commerce customers often demand the quickest shipping. According to a survey, around 84% of the people determined delivery or shipping as an important part of their online shopping. Longer shipping times can affect your business negatively. When working with dropshipping suppliers, review its delivery timeframe and standard shipping cost. For sellers, it is important to seek quick order fulfillment service.
Read More: Why Dropshipping is a Good Idea?
How to Start Dropshipping Business Today?
- Stay committed to starting your dropshipping business
- Select a dropshipping idea
- Conduct competitive research
- Seek dropshipping suppliers
- Build your ecommerce store
- Select the right business structure
- Get your finances right
- Do some marketing
- Improve your offerings.