What is Dropshipping?
Dropshipping is, put simply, the process of buying and selling products without actually handling these products. As a dropshipper, you will be selling products that you do not own, but that you are able to buy. When sold, you contact a wholesaler and have the product shipped directly to your customer for a fee lower than your sale price. It’s that easy.
As a dropshipper you’ll search for a wholesaler/dropshipping supplier and advertise their products on your online store. As soon as a customer purchases from your online store, you simply place an order form the wholesaler to your customer and never actually need to handle the product yourself. This is the most important difference between dropshipping and standard retailing – the merchant does not purchase products before selling, only as they are ordered.
The Supply Chain
To fully understand the process of dropshipping it is important to be aware of the supply chain. This is simply the journey a product takes from it being manufactured to it arriving in a customer’s hands.
- First, the product is made by the manufacturer. Manufacturers simply create the product from scratch. Buying from manufacturers is the cheapest way of getting stock, however this would also require you to store the product and many manufacturers also require
- Then, products are purchased in bulk from manufacturers by wholesalers.
- This is where you come into the equation. Wholesalers sell the products to you, the retailer. As you sell products through your business, you will purchase them from the wholesaler to be sent to customers.
The Pros and Cons of Dropshipping
Dropshipping completely avoids any issues a retailer may have with storage as they will not be required to handle the products they sell. In not having to store inventory, merchants can maximise their profits as they will not need to pay for a location to store products (warehouses, lockups etc.). Any products sold will be shipped directly from a wholesaler to the customer, yet the retailer will still make profits from this.
You will not lose out by paying for products that do not sell. Many companies fail to succeed through buying way too much inventory that simply doesn’t sell. Dropshipping avoids this issue as only products that have already been paid for will be ordered, therefore these products can be purchased using customer payments and the retailed will never be out of pocket.
Dropshipping is easy to get started with and fairly low-cost.
You will not need to worry about paying to store products, packaging and posting any sold items, handling returns, ordering products to store and managing stock level (what is in/out of stock and so on)
An online dropshipping business can be run from virtually anywhere in the world with internet connection giving you complete freedom to travel rather than being tied down by a job to a specific location.
Dropshipping gives you the ability to sell a wide range of products – anything a wholesaler has in stock (which is usually a very diverse list)
As your dropshipping business grows, your running costs will stay fairly stable. If your business doubles in size, your financial output will not need to double and will likely stay the same.
Although not having to store products is, for the most part, an advantage, it could also be a problem as it may be difficult to keep track of which products are in stock when they are being stored externally. This may cause issues with customers placing orders on items that are not actually in stock and could affect your sales if not kept track of.
You may sometimes be required to pay for shipping costs multiple times as products are not being bought in bulk to ship but are purchased as they’re ordered. Say four customers make purchases on the same item but on different days. You will then need to make four separate orders of the same item rather than paying for all four at once. If not done properly, this could have a negative impact on your profits.