What Is Dropshipping And How Does It Work: Pros/Cons In 2024
What is dropshipping and how does it work?
That is one of those questions that require a long and in-depth answer. And that’s not an exaggeration, not at all:
Dropshipping is a complex business model to master if you have no previous experience. It’s a retail fulfillment method that doesn’t require keeping products in stock.
Once a client orders a product, the dropshipper will purchase it from a third-party supplier who will ship it to the customer.
Of course, making money dropshipping involves much more than that. But you can do it:
All you need to start is a basic understanding of the fundamentals:
- Is dropshipping worth it?
- How does dropshipping work step by step?
- Can you do dropshipping for free?
This post contains affiliate links – take a second to see my affiliate disclosure.
What Is Dropshipping And How Does It Work In 2024?
What Is Dropshipping?
Dropshipping is a business model where you’ll sell products without keeping them in stock. Think of it as an order fulfillment method you can use to earn money as an online store owner.
So, you’ll own an online shop, purchase items from a third party, and they’ll ship them to the customer when an order comes in. To clarify, the third party in that equation might be a manufacturer, a wholesaler, or a retailer.
The bottom line is that you won’t have to deal directly with the products you sell in your store. Of course, that’s the most simple definition of drop shipping ever!
Plus, there is much more you need to learn if you want to succeed in the industry. And you want to do that, considering how profitable the dropshipping is according to statistics.
Shall we get started?
How Does Dropshipping Work?
As you already know, the dropshipping business model is a retail fulfillment method that doesn’t require securing a warehouse space or keeping unsold inventory. That industry can be very profitable, which is the main attraction for aspiring online business owners.
The worst thing they can do is jump into the field without an in-depth understanding of its inner workings. So, I will help you avoid that by covering everything on the topic:
What Is Dropshipping And How Does It Work?
At its core, dropshipping is an online business about supply chain management. But what is a supply chain?
A supply chain is a web of suppliers, manufacturers, and retailers. With that said, dropshipping becomes possible thanks to the following parties:
- Manufacturers: These are the people that create the products. Typically, they don’t sell to potential customers but to retailers and wholesalers.
- Wholesalers: Think of them as individuals who purchase products from manufacturers, stock them, and then resell them to retailers.
- Retailers: You guessed right – the retailers are the ones to sell directly to the clients.
Here is what the dropshipping process looks like once you launch such a business:
- A person finds your store online, likes a product, and places an order to buy it.
- You’ll let your dropshipping partner (wholesaler or manufacturer) know about the order.
- They’ll ship the product to the customer.
- Whoever your dropshipping partner is will charge you.
- And then you’ll charge the customer.
An Important Note:
Do you want the highest profit margins possible? Assuming you do, keep the supply chain as short as possible:
There will be more profits for you if fewer parties receive a cut.
What Is Dropshipper?
Generally, a dropshipper can be a person, business, or company that accepts customer orders and sends them to a dropshipping supplier for fulfillment.
Sometimes, the drop shipper and supplier can be the same individual. However, I’ll cover drop shippers as sellers of products someone else fulfills in this article.
Again, drop shippers own online stores where they sell products. They are in the business of making money online through the dropshipping model.
What Is A Dropshipping Supplier?
A dropshipping supplier (also called a dropship supplier) must fulfill customer orders on behalf of drop shippers. What else do they do?
Overall, dropshipping suppliers have similar responsibilities. For instance, they store the products, take care of the packaging before shipping, and ensure products travel to the correct customer places.
How should drop shippers decide who to work with from all different suppliers? The choice is between an individual supplier, a directory of suppliers, and even manufacturers operating as such.
What Is A Wholesale Supplier?
There is more basic terminology you should know before you decide to offer a dropshipping service:
By all means, what is dropshipping and how does it work is an extensive topic that entails plenty of coverage.
Wholesale suppliers don’t participate in the dropshipping process. Instead, they sell products in bulk to retailers, which sell them to consumers.
Should You Do Dropshipping?
As you already know, dropshipping is a popular business model many people use to earn an income. More importantly, the industry has a steady growth each year and is now worth billions of dollars.
None of that is the point, though:
Building a profitable business through an eCommerce store is not for everyone – not all people will become successful dropshippers.
So, there is a different question to answer:
Is Dropshipping Worth It For You?
Dropshipping will be the perfect small business for you if you belong to any of these categories:
- People With Marketing Knowledge And Skills: Developing a successful business in the dropshipping industry requires in-depth expertise. Scoring tons of eCommerce sales is impossible without traffic to your online store. You must learn search engine optimization, content, and social media marketing.
- Individuals Who Understand The Importance Of Selling A Variety Of Products: Product quality matters the most, but quantity is no less essential. Dropshipping will allow you to sell many different products without keeping your own inventory, but that comes with less control over their quality.
- Business Owners Who Can Handle Customer Service: Dropshippers are not responsible for product fulfillment. Be that as it may, they are the ones the customer base will reach out to if issues occur. Your business won’t survive unless it provides a positive customer experience – you must be ready to offer reliable customer support.
How To Start Dropshipping For Free
I need your undivided attention – this is probably the most essential paragraph of the article.
What is dropshipping and how does it work is a question that will need less explanation once I walk you through the dropshipping process step-by-step:
1) Find A Dropshipping Supplier
Above all, you can’t build an e-commerce business without partnering with a dropshipping supplier. How do you go about that?
Firstly, you can do market research to find a supplier who offers the exact products you want to sell. Once you pick the supplier, you must sign an agreement so they can manage the product storage, packaging, and shipping.
Secondly, you can dropship products from multiple suppliers, which will become possible if you decide to use the Shopify App Store.
2) Launch An Online Store And Start Shopify Dropshipping
As you can guess, your next step is to set up an online store. Your dropshipping store will be where you list new products from your supplier for sale.
Why Is Shopify Dropshipping The Best Choice For Your eCommerce Business?
Nowadays, Shopify is the top eCommerce platform allowing users to create, customize, and manage an online store. Shopify has many advantages for store owners looking to build eCommerce businesses with less risk:
The platform eliminates the need for initial investment – it offers a free trial, and your first month after the trial will cost you only $1.
Ultimately, choosing Shopify is more than a good idea since the platform provides many top-notch tools for product offerings, inventory management, and simple payment processing for ultimate customer satisfaction.
3) Receive A Customer Order
Sooner or later, your first customer order will arrive. Congratulations:
Your e-commerce store is already making money!
Once the client pays and gets an order confirmation, they will wait for the delivery.
4) Forward The Customer Order To Your Dropshipping Supplier
Naturally, you must send the order and its details to your supplier. While that step needs no further explanation, I should mention that the process can be automatic if you use a dropshipping app.
5) The Supplier Ships The Product
The dropshipping supplier will package and ship the product on your behalf.
6) The Customer Receives The Product
Finally, the client will get the product – the supplier is responsible for that while your store manages the customer service.
What Are The Benefits Of Dropshipping?
1) Low Start-Up Costs
Launching a drop shipping business is cheaper than starting a traditional retail business. Let’s talk about that:
Dropshippers don’t have to purchase inventory, which makes dropshipping the type of business with a low barrier to entry.
Furthermore, they don’t have to keep products they can’t sell – there is no need to see such products as a loss.
Ultimately, dropshipping is the perfect choice for anyone looking into businesses with low overheads.
2) Easy To Start & Scale
By all means, dropshipping is one of the easiest online businesses to start with no investment:
All you need is an internet connection.
Since you’ll work with a third-party supplier, you don’t have to pack/ship orders, track inventory, or manage returns. Instead, you can focus your marketing efforts on developing and scaling your business.
3) You Can Sell A Wide Variety Of Products
As you already know, dropshipping is an online business that doesn’t carry an enormous financial risk – you can start it by buying a domain name. But that’s not the only advantage:
Considering dropshipping doesn’t require building an inventory, you can quickly add new trendy products to your store. Don’t hesitate to add new items to your product categories – there is no unsold inventory to consider!
4) Flexible Location
A dropshipper doesn’t own a retail store – not buying or renting a physical store makes the business model an attractive option for people who want a location-independent income source.
Owning a dropshipping company will allow you to work from anywhere if you have internet access. You can communicate with your supplier or business partner regardless of where you live and work.
What Are The Drawbacks Of Dropshipping?
So, can you answer already the one question at the center of this article – what is dropshipping and how does it work? Maybe you can, but I don’t think you’re ready to:
While dropshipping is a business you can build with minimal risk and less hard work, the venture is not without its challenges:
1) Low Profit Margins
How much money can you make from dropshipping? Chances you, you’ll earn more from owning an online shop than a mortar store.
Unfortunately, dropshipping accessibility leads to a lot of competition – many other online stores will sell similar products. Typically, reducing the sales price of a product is the most common way to undercut a competitor.
That will result in low margins for your profit, especially if your supply chain is longer than it should be.
2) Possible Issues With Inventory
Do you know what happens when the products you sell become less available? I’m sure you can picture the situation:
Most suppliers fulfill orders for multiple online retailers. Subsequently, product availability often fluctuates.
Of course, that’s not the case when you stock your inventory in your storage space, but that’s not how dropshipping works!
3) Shipping Complexities & Supplier Errors
Imagine a scenario where a client orders five products from five different suppliers. Should I tell you what to expect?
Prepare to pay the shipping costs for each item. These items will most likely arrive at different times.
One way to avoid calculating shipping costs separately for each client is to leave these costs to the clients. However, that will make your product less competitive since you are now selling it at a higher price.
4) No Control Over Customer Experience
Generally, dropshippers rely on their suppliers to deliver the products to the customer on time. If that supplier fails, you’re the one who has to deal with customer dissatisfaction.
Losing the client’s trust and receiving negative reviews will have a massive impact on your business. Still, the lack of control over customer experience is part of the game when doing dropshipping online.
How To Choose A Dropshipping Supplier?
What is dropshipping and how does it work is a topic I can’t complete unless I cover choosing a dropshipping supplier. As you already know, the effectiveness of your supplier can make or break your business.
Ideally, you want to create drop shipping arrangements with the manufacturers of the products you sell in your store. That’s a tried-and-true way to pay less additional fees by cutting a few middlemen and increasing your profits.
Here are a couple of questions to ask potential suppliers before making a choice:
- How Much Money Do You Charge? (Assuming the wholesale price doesn’t allow you to earn enough profit, look for a supplier elsewhere).
- What Is Your Shipping Process? (Pick a supplier offering tracking numbers you can provide clients during shipping. Also, ask to see warranty and return policies – if such doesn’t exist, keep searching!).
Related: Why Salehoo Is The Best Supplier For Your Dropshipping Business
How To Make More Money Dropshipping
Make The Online Shopping Process Easier For Customers
Are you planning to sell products on a website or online store? Generally, that doesn’t matter as much as you might think it does:
People don’t care about the type of online marketplaces they shop at if their experience is simple. They want a shopping process that is easy from start to finish.
So, ensure that your website or online shop is easy to navigate, especially on a mobile device – your dropshipping business must offer a user-friendly experience to potential customers.
Choose Your Products Carefully
By all means, just because you can sell all types of products in your store, it doesn’t mean you should. On the contrary, you should be as selective about your products as possible:
Each dropshipping business owner must aim to offer the best of the best to their customer base. But how do you do that?
Start by researching and analyzing the latest trends to see what products are easy to market and ship. Then, focus on items your clients can’t easily find locally.
Put Some Effort Into Marketing Your Store
Chances are, most of you are familiar with a well-known saying – if you build it, they will come. While that phrase has merit for some businesses (affiliate marketing), it doesn’t apply much to others.
Dropshipping is about selling products many other businesses offer – you should do all you can to put the odds in your favor when attracting as many customers as possible.
Implementing SEO to rank on the search engines is a good start, but it might not be enough. Consider promoting your dropshipping business on social media platforms and through paid advertising (Facebook Ads).
What Is Dropshipping And How Does It Work FAQs
Is Dropshipping Legal?
Dropshipping is a legitimate business model many use to earn an online income. Business owners should pay extra attention when choosing a supplier to avoid any activity that might be illegal.
Additionally, dropshippers must be careful with intellectual property and trademarks.
Is Dropshipping Profitable?
A successful online store is more than a lucrative business if you work hard to develop it first. Once you do that, you can make thousands of dollars in profit monthly.
Many ways exist to increase your earnings, such as creating a short supply chain, offering competitive prices, and providing a top-notch customer experience. Besides, you can learn as much as you can about retail arbitrage to make it work in your favor.
Is Dropshipping A Risk?
Starting any online business involves some risk, but dropshipping is less risky than other online ventures:
Considering you can begin dropshipping with little to no investment, getting into the industry is preferable to other business models.
What Is Dropshipping And How Does It Work: My Closing
I think you know enough about today’s topic at this point!
Again, dropshipping as a business is more than worth the try. It’s suitable for beginners, and much free information exists online to help you master it.
Now, is there something you don’t understand about dropshipping? Ask me anything on that subject, and I will answer your questions.
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