If you are involved in e-commerce, you must have heard of dropshipping. What is dropshipping? This e-commerce model allows businesses to outsource product procurement, storage, and shipping through third-party fulfillment services, streamlining the entire process from order to delivery.
To put it simply, in this model, the online store sells the product and passes on the order to its third-party supplier, who further ships the order to the customer.
It seems like an easy money-making process, but it also has its own trade-offs. Read on.
What Is the Process of Dropshipping?
The unique part about this model is that your order lifecycle is completely off your plate. The exact logistics of your fulfillment and dropshipping process depend on how you have arranged it. Usually, it follows these general steps.
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The seller signs an agreement with a drop shipper.
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Customers visit your online store, select a product, and place an order.
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The drop shipper sends the order to the supplier. Drop shippers may automate this process through their online platform.
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The customer receives a confirmation message or email.
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The supplier handles the packaging and shipping. They pick the product from their inventory, pack it, and send it to the customer. Or the drop shipper arranges shipping according to the customer’s location.
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The customer receives the order. Once the customer receives their package, the order lifecycle is completed unless there is an issue related to it.
What Are the Key Players in Dropshipping?
The dropshipping business model involves the following key players. All of them are an important part of the process.
Seller of the Record
The dropshipping process starts with the seller of the record (SoR). SoR is the person who is identified as selling the product to the end customer. They set the price and record purchases. The revenue and sales tax responsibility is also on the seller of the record. SoR owns the products before they are shipped to the customer.
Manufacturer
The products are produced by the manufacturers and then sold to wholesalers and retailers. Goods purchased directly from the manufacturers are generally sold in bulk, and the amount required may be a hurdle for small-scale businesses.
Wholesaler and Retailer
In a supply chain, wholesalers buy products from manufacturers and sell them to retailers. They serve as a middleman and do not sell products to the end customer. Wholesalers and retailers are more likely to be your dropshipping suppliers than manufacturers.
Drop Shipper
A drop shipper can help you fulfill the online order. When you have a new order, your drop shipper will arrange all the fulfillment, sending the product to the buyer’s destination. A trusted drop shipper will ensure your cargo stays safe and arrives on time. Some freight forwarders also provide dropshipping services.
Potential Pros & Cons of Dropshipping
Like any other fulfillment approach in e-commerce, dropshipping has its pros and cons. We have listed some of them and this might help you in deciding whether the dropshipping business model is worth trying.
Pros of Dropshipping
Less Startup Investment
Dropshipping sellers have lower overhead costs as they don’t have to invest in physical facilities, prepare for storage ahead of time, and handle shipping charges. Businesses that are looking for minimal investment can go for dropshipping.
Lower Risk
As drop shippers aren’t investing heavily, the risk of losing money is automatically reduced.
No Location Restrictions
Only an online store is necessary. The digital dropshipping process allows operations from anywhere in the world.
Versatility and Flexibility
It allows you to manage and sell a variety of products without considering the sunk costs. You can experiment with different products if you are not sure about which products to sell, without the fear of losing your investment.
Cons of Dropshipping
No Quality Control
Now you may be attracted by the dropshipping model, but it comes at a cost. One of the downsides of dropshipping is that it is hard to monitor the product quality every time. You, as a seller, are not directly involved in the fulfillment and dropshipping process. If a defective item might be sent to the customer, this is not good for the customer experience. And a bad customer review can harm your business a lot.
Low-Profit Margins
As this model requires low startup costs, this field is highly competitive.
Many dropshipping sellers are already keeping little to no profit margin on the products, trying to stand out from other sellers.
Uncontrolled Fulfillment
Since the drop shipper has no control over the selection, packaging, and delivery of products, they can hardly do anything when an issue occurs.
For example, slow delivery is a big factor to consider, especially for international dropshipping that goes through packing, pickup, sea freight, or air freight across borders, customs clearance, and final delivery. Product deliveries can be slower at times, which can harm the business’s reputation and customer satisfaction. So storing a certain quantity of products in a drop shipper’s overseas warehouses is often a choice to shorten delivery time.
Untimely Inventory Updates
Updates on what is available in stock are not instant in dropshipping. If a customer places an order and that supplier is actually out of stock, this will cause frustration. Next time, the customer will think twice before ordering again from your store.
How to Start a Dropshipping Business?
Here are some steps on how to start a dropshipping business as a beginner. Dropshipping is relatively simpler than other e-commerce businesses. Simply follow the steps below one by one, or you can work on them all at once.
Conduct Market Research
Before you select a niche for your business, check out the competition by doing thorough market research to find out the best dropshipping products. This research involves the evaluation of market demand and potential profit margins across different niches. Find a niche that you enjoy, and when you feel connected, you will be motivated to do market research.
Choose a Platform
The selection of the right e-commerce platform for your store is important, as it will help you streamline operations once you launch. Some of the popular e-commerce platforms are Shopify, BigCommerce, eBay, Amazon, Etsy, and WooCommerce. A good platform will serve as a foundation for your store and provide all the necessary tools for managing your store well.
Find a Drop Shipper
Find a reliable drop shipper for your online store. You can check your platform’s marketplace or browse dropshipping marketplaces to find one with a good reputation. Assess for certain factors such as experience, pricing, delivery times, and reputation. A drop shipper normally charges you per order. You might negotiate better prices with them for long-term cooperation.
Create an Online Store
After you are done with the selection of a niche and choosing a platform for your business, it’s time to set up your online store. Here are some quick tips for your store:
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Choose a relevant and catchy domain name that reflects your brand identity and main products.
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Make your page layout attractive, also design your product page by using the themes provided by your platform.
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Add catchy titles and product descriptions that include keywords to attract customers and rank high in the search results.
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Set the payment process according to your platform’s shopping cart builder.
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Before you launch your store, make sure it is working fine across different devices to provide a smooth customer experience.
Marketing
After your online store is set, you should focus on marketing. Use paid ads on social media and search engines to captivate clients in a short time. You can also use social media ad campaigns and influencers for this purpose.
By tracking your progress and looking for areas of problems, you can make decisions on time to improve the overall performance of your dropshipping business.
Tips for a Successful Dropshipping Business
Figuring out what works best for you may take some effort. Here are some practical tips for you that will increase your chances of success and reduce risks.
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Search for the supplier’s reputation through online platforms, reviews, and industry resources. Include ratings from your buyers.
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Request samples from suppliers and make sure that the product quality is up to the mark. Always start with a few products. You can gradually test and add new products to your store.
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Consider all your expenses and research competitors’ pricing beforehand. Add the cost of suppliers, platform fee, shipping fee, marketing cost, etc.
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Find a responsible drop shipper who can always send your order on time, respond to you, and handle problems effectively.
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Offer promotions sales, and bundle offers to attract customers. Respond quickly to their messages. In dropshipping, you don’t have control over product quality and shipping times, so you must overcome these challenges with excellent customer service.
Conclusion
Now that you have understood how dropshipping works and what its pros and cons are, you can decide whether it is best for you or not. It can always be a good start if you are new to the e-commerce business.
Frequently Asked Questions (FAQs)
Is drop shipping legal?
As long as you comply with local business laws and pay taxes according to the law, dropshipping is definitely legal.
How profitable is dropshipping?
Dropshipping is a low-risk but also low-profit business. You may earn a profit of 15% to 20% on average from dropshipping. To run your business successfully, choose your products wisely, market, and partner with reliable dropshipping service providers.
Is dropshipping always done by the website?
In general, dropshipping can be done by E-commerce platforms or independent websites. Dropshipping through social media or mobile apps has also been gaining popularity nowadays.
Is Amazon a dropshipper?
No, Amazon doesn’t provide dropshipping services itself. However, Amazon allows sellers to sell products utilizing the dropshipping business model.
As long as you comply with local business laws and pay taxes according to the law, dropshipping is definitely legal.
Dropshipping is a low-risk but also low-profit business. You may earn a profit of 15% to 20% on average from dropshipping. To run your business successfully, choose your products wisely, market, and partner with reliable dropshipping service providers.
In general, dropshipping can be done by E-commerce platforms or independent websites. Dropshipping through social media or mobile apps has also been gaining popularity nowadays.
No, Amazon doesn’t provide dropshipping services itself. However, Amazon allows sellers to sell products utilizing the dropshipping business model.
