How Does Dropshipping Work?

If you’re seeking an online business opportunity, chances are that you’ve come across dropshipping. Dropshipping is an online business model that can generate high returns for the aspiring ecommerce entrepreneur. It’s possible to start dropshipping with a small amount of startup capital and some sweat equity. Once you begin to see success, you can scale by allocating more resources to advertising and brand building. But how does dropshipping work, and why should you go for this model to realize your entrepreneurial dream?

Dropshipping is a type of retail fulfillment method for online stores, where instead of warehousing inventory, merchants purchase products from third-party suppliers as customers make orders. The products are then shipped directly to the consumer. This way, the seller doesn’t have to handle the product directly.

These are the parties involved in drop shipping:

  • Manufacturers create the products. They usually don’t sell to the public; they sell in bulk to wholesalers and retailers instead.
  • Wholesalers buy products from manufacturers, and then mark them up before selling them to retailers. Wholesalers usually stock products from a variety of manufacturers.
  • Retailers sell products directly to the public, at a markup.

And here’s how it works:

  • The customer places an order with your business, the retailer.
  • You alert the drop-shipping partner — either the manufacturer or the wholesaler — who packages and ships the product to the customer.
  • The drop-shipping partner charges you, the retailer, for the service, and you charge the customer.

The benefits of a drop-shipping business

Drop shipping is a retail inventory management method that can help your business decrease risk, but there are other benefits as well. This order fulfillment method is popular for ecommerce businesses or other companies looking to mitigate inventory risk and increase business flexibility.

  • It lowers the costs of starting and maintaining a business: Drop shipping drastically reduces the initial costs of starting an online business since you don’t have to invest in building inventory upfront, which can be cost prohibitive for new and small businesses. And because you don’t have to deal with purchasing inventory (or managing storage for that inventory), your overhead remains relatively low. It also means you aren’t stuck with products that won’t sell, and you won’t have to mark down those items and take a loss.
  • Your location can be flexible: Drop-shipping businesses can also be more nimble than businesses with more traditional structures. Because you don’t have physical inventory, you can basically run your store from anywhere you find an internet connection.
  • You can offer customers a wider selection of products: Since you don’t have to invest in building your own inventory, you can stay on top of trends and quickly add new products to your site. You can also quickly switch up your offerings without first having to order new items or clear out backstock.
  • You don’t have to manage inventory: A lack of inventory also means that you won’t have to manage it. Managing inventory can be complicated and time consuming (although inventory management software can make the job much easier). Not having to watch stock, reorder it, and process it means that you and your employees have more bandwidth to work on other aspects of your business to help it grow.

Tips for a drop-shipping business

There are a few best practices to implement to assure success for your drop-shipping business.

  • Make online shopping a pleasure: From ordering to delivery, you want to make the experience as seamless as possible. That starts with a user-friendly e-commerce experience. You want to invest in building an elegant site that is easy to use (on all devices) and simple to understand.
  • Be particular about products: While drop shipping allows you to sell a wide variety of products, that doesn’t mean you should sell everything. Do market research and analyze trends to determine what you should be selling in your store. Think carefully about what is marketable, what is easy to ship, and what is hard for people to find locally.
  • Focus on quality: Even if you thoroughly vet a supplier, you should remain vigilant about the service once you’re working together. For example, if there are several incidents of damaged products, lost packages, or late deliveries, cut ties with the supplier or risk losing the confidence of your customers.
  • Build a trusted business: Your reputation is everything, so not only do you need to follow through on your promises with reliable drop-shipping partners and a great website, you should also work to boost your online credibility to ensure customer trust. This will guarantee longterm success. From building a robust social media presence to creating successful email marketing campaigns, forming strong relationships with your customers will help ensure the success of your drop-shipping business.