What Exactly is Drop Shipping: A Complete Guide
So what is dropshipping? It’s a retail fulfillment method where the retailer doesn’t have to store their merchandise. When a purchase is made using this method, the product is bought from a third party, and they ship it directly to the buyer. The retailer never has to handle the product directly.
With this business model, the retailer can sell inventory that they don’t own and don’t stock. They buy it from a wholesaler or manufacturer as they need it to fulfill orders.
- An order is received
- It is forwarded to the supplier
- The supplier ships the order
It’s a clean, simple way to do retail.
Easy to Get Started
Having an e-commerce business is much easier if you don’t have to handle your physical products. Dropshipping allows you to operate without:
- The cost of a warehouse
- Packing and shipping orders
- Tracking inventory
- Dealing with returns or inbound shipments
- Managing stock levels
Related: Best eCommerce Platforms for Your Business
Little Capital Required
Inventory is the largest investment for new retail businesses. It’s very costly to stock a warehouse, so it is a financial risk. This risk can be alleviated by using dropshipping. Instead of buying an extensive inventory and wondering if it will sell, you can start a dropshipping business with no inventory at all and begin making money right away.
You won’t have to purchase any products until you have already made the sale and paid by the customer. This is a far less risky business model.
Without these upfront inventory costs, you can put your efforts into sourcing products.
Flexible Location
A dropshipping business can be operated from your kitchen table. There is no need for anything more than an internet connection and a laptop. You only need to be able to communicate with your suppliers and customers.
Low Overhead
As already mentioned, you can operate your dropshipping business from almost anywhere, so you can keep overhead costs relatively low. Many successful dropshipping retailers operate as a home-based business.
There are a few recurring costs, which are likely to increase as your business grows - but will be relatively low compared to those of a brick and mortar business.
Easy to Scale
More sales will always mean more work, but in the dropshipping business, most of the heavy lifting will be done by your supplier. Most dropshipping businesses scale upward smoothly, without too many complications.
It’s Profitable
A dropshipping business can be profitable for the owner. The business model is low-risk and lets you sell without all of the running costs of traditional retail. Because there is less outlay of costs, making a profit is easier to accomplish.
It’s Allowed
Dropshipping, also called ‘product sourcing,’ is allowed on the largest online selling platforms.
On Amazon
On the Amazon Seller Central page, they list two exceptions to dropshipping:
- You can’t use another seller’s name or contact information on your invoices, packing slips, etc.
- And you can’t purchase from another online retailer and have things shipped directly to your customer. In other words, you can’t buy something online and use your customer’s name and address.
On eBay
Dropshipping is allowed on eBay, but the seller is held responsible for the safe delivery of the item, within the specified delivery time, and for the customer’s satisfaction.
Related: How to Start a T-Shirt Business: A Complete Guide
Wide Product Selection
Because you don’t have to stock the items yourself, you are free to list any trending items on your site that your supplier has in stock.
Some Product Ideas
Here are a few product ideas that sell well:
- Inexpensive watches and jewelry
- Funny Mugs
- Novelty t-shirts
- Tote bags
- Motivational items
- Marketing items (t-shirts, pens, notebooks, bags, etc. - all with your logo)
High-Maintenance Products
Some products are best sold via the dropshipping model because they cost more to store and ship.
Examples of such high-maintenance products are:
- Heavy items
- Very large items
- Valuable item
- Fragile items
- Items that require special conditions
This is why the dropshipping method is such a good opportunity. It allows you to sell items that would otherwise be impossible to stock or too expensive to ship.
Choose the Best Suppliers
With a dropshipping business, you are in partnership with your supplier, so you should choose wisely. In matters of the quality of the items, ensuring they’re shipped out on time, and legal compliance - you are at the mercy of your supplier.
Ensure that the condition of the products is as advertised and that the shipping they offer is agreeable to you. You will be dealing with this supplier for a long time (hopefully), so you need to be okay with the way they do business.
Here are a few questions to ask:
- How long does it take you to fulfill an order - from the sale to delivery?
- Are orders insured?
- How do you handle returns or damaged products?
- Consider their customer support.
- Do you offer fraud protection?
Research them online. Look for reviews or references to them online.
How to Incorporate Dropshipping into Your Business
Dropshipping works best in an established e-commerce business.
Here are the basic steps to incorporating dropshipping into your business:
- Research what products you would like to sell.
- Look into how your competitors are selling the same product, specifically the price.
- Find the best supplier.
- Complete the fulfillment process that is in the best interest of you and your supplier.
- List and market your new product. Ensure that you state any special conditions, such as changing shipping times or locations.
Related: The Best Online Selling Sites for Your Apparel Company
Go International
The world is getting smaller, and dropshipping makes it possible to reach customers in other markets. International shipping can become expensive, and it may be challenging to get an accurate quote for fees and customs and duties. These vary widely from country to country.
You’ll need to see if your supplier ships internationally and if their fees work for you and your customer base. It takes more time to process international orders, so there may be additional fees from your supplier.
In Summary ...
We don’t want to give the impression that there are no disadvantages to dropshipping because there are. But it is an exciting development in the field of e-commerce. It opens the door for new entrepreneurs to enter the industry. With a lot of hard work, ingenuity, and time, you can create a profitable business.