What Is Dropshipping And How Does It Work?

WHAT IS DROPSHIPPING AND HOW DOES IT WORK?

Dropshipping Business Basics

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Jairene Cruz

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Dropshipping is a popular kind of eCommerce model that most online business seekers and marketers must have stumbled upon. This business gained its popularity in 2006 and has since become a highly profitable means of selling, with very little initial investment.

But what is drop shipping, who is it for, and how does it work? This article hopes to clear things up for you.

What is dropshipping?

Dropshipping is a method of retailing where the products for sale are not kept in stock, but rather are purchased from third-party suppliers to fulfill buying orders.

Dropshipping stores do not have an inventory, and the store owners don't have to handle products directly. When an order is placed, the products are shipped directly by the manufacturer or holding warehouse to the customers.

Think of it as a way of selling products as a middleman, but without the stress of actually having to dispatch anything yourself. This concept may sound familiar because it is the eCommerce model used by a significant percentage of online stores.

The major difference between dropshipping and the traditional retail model is the absence of an inventory, which makes dropshipping mostly a hands-off process and a great business for entrepreneurs.

Some people might confuse this with affiliate marketing, wherein you promote someone else's products as your own, in return for a percentage or a fixed amount of earning. However, the primary difference between affiliate marketing and dropshipping is that with the latter, you promote the products as if they are your own. All the marketing and after-market tasks (such as customer service), falls on your shoulders. In essence, under dropshipping, the company is your own.

Who is dropshipping for?

Although dropshipping sounds like an accessible business, it is not suitable for everyone. This model may not always be the best option for all business types. Nevertheless, dropshipping is fitting for the following types of entrepreneurs:

  • Budget entrepreneurs

Entrepreneurs on a budget would find dropshipping appropriate for their pockets because starting it up doesn't require a tremendous amount of investment. Dropshipping allows low budget entrepreneurs to sell online in the least expensive manner while enabling them to set benchmarks and build processes to keep the cash flows high.

  • Beginner entrepreneurs

This business model is suitable for entrepreneurs looking to start a new business, especially in the eCommerce industry. Diving straight into eCommerce as a beginner is not always the best option because proper knowledge of digital marketing is required.

Dropshipping not only gives you the chance to learn the details of eCommerce while earning money, but it also optimizes your platform before you begin to keep an inventory. It is a good means of business validation in the sense that entrepreneurs get to know what their customers like and what sells faster.

Dropshipping gives entrepreneurs time to create a brand value and gives individuals entirely new to entrepreneurship knowledge about setting up an online store and eCommerce fundamentals at low risk.

  • Ecommerce store owners

Ecommerce store owners are in a better position to be successful at dropshipping. Since these online store owners have already been in the eCommerce game, they would find it easy to determine their target market, what their customers like, the items that would sell well as dropships, and the kind of ads that would convert. It would enable eCommerce owners to expand to a large variety of products without having to keep a large inventory or invest a large amount of funding.

  • Side hustlers

Since side hustlers already have a permanent job, dropshipping would be a suitable way to make some extra passive income. It will not demand much of their time, and they won't have to put in so much to make it work.

How Does Dropshipping Work?

Now that you know what dropshipping is and who it is suitable for, it is essential to understand how the process works.

The process of dropshipping is quite straightforward and includes the following simple steps:

1. Finding a supplier/wholesaler

Finding a supplier or wholesaler is the first step in the dropshipping process. Ideally, the supplier should have the kind of products you wish to sell and will be responsible for fulfilling your orders.

Suppliers could be independent or part of an eCommerce platform. Finding independent suppliers may be difficult for dropshippers, so a lot of people in this business get their suppliers from popular online stores like Aliexpress.


2. Setting up an online store

Setting up an online store basically involves uploading product catalogs. Your store is where customers would place their orders and should contain high-quality images, details of items, and product descriptions. There are different e-commerce platforms where dropshippers could set up their unique stores, the most popular being WooCommerce and Shopify.


3. Receiving orders

After customers see the products up for sale on the e-commerce store, they place orders. The retailer gets a notification each time an order is placed and directs it to the appropriate supplier.

The details of the customers' orders could be forwarded to suppliers manually or automatically. Payments made by customers are also forwarded to suppliers, minus the retailers gain. The retailers typically get to determine how much gain they make but must be reasonable in price additions while setting up their product catalog.

Take note that outrageous prices could scare customers away. Once the retailer forwards the order to the supplier, the supplier then packages and ships the product(s) directly to the customer under the branding of the store owner. The retailer acts as an intermediary and final step between the product and the consumer.

CONCLUSION

Now that you know the meaning of dropshipping and what it is all about, you can decide if its something you would be interested in doing. Dropshipping is a great option for different kinds of entrepreneurs, and when done right, can provide a stable source of income.

Starting up a dropshipping business doesn't require a lot of investment and can be used as a means to get started with online selling. Before going into dropshipping, it is essential to plan adequately. Although it seems like an easy and straightforward process, it still requires some effort to work.

Typically, the amount of effort and resources you put into this business determines how profitable it would be. A good way to begin would be to research your audience, identify the products you wish to sell, and then find your suppliers. From there, you could test several products on your dropshipping store and decide which ones convert the most.

Still can’t decide if dropshipping is for you? Learn about the pros and cons of dropshipping before you make up your mind.

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