Dropshipping is a form of selling online. Unlike traditional sale process, dropshipping has one characteristic that actually makes it unique. In dropshipping, the store that sells the products does not store those products. To find out how this entire process works and how it is an opportunity to make money online, keep reading this chapter.
What is dropshipping?
Dropshipping is a business model which allows many benefits and opportunities for selling products online. Here is how the whole process works:
- You find the products you want to resell
- You promote the products on your website, in your online store, on a marketplace, etc.
- The customer orders the product from you
- You forward the order to the supplier with the details about the customer
- The supplier packages and ships the product directly to the customer
Judging by the process, you can see that you as a seller actually have nothing to do with the actual product. You are not involved in manufacturing, packaging or shipping. Your only job is to promote the products and reach online users with that promotional activity.
The main reason why this is such a popular business model is that it requires almost no investment and nothing except for the internet connection and a computer. This means that almost anyone can start using this business model to generate income online.
Advantages of dropshipping
Take a look at the advantages and why this could be an interesting option for you to explore:
Easy to set up
You do not need any preparation, as your only tasks include finding the suppliers and presenting the products on your website or blog.
With this kind of setup, your costs are pretty low, if there are any at all.
No storing supplies
Not only does storing supplies require organization, but it also needs physical space where your products will be stored. With dropshipping, you do not need any of these.
You can switch between suppliers, you can collaborate with multiple suppliers at the same time, etc. This gives you more flexibility in terms of different types of products to offer, availability, shipping method, etc. This also reduces the risk of products being out of stock.
Are you planning to relocate temporarily or to spend a month in the Bahamas (or any other exotic island that comes to your mind)? With dropshipping, bring your laptop and your business will be with you no matter where you go.
Dropshipping is a business model that enables you to quickly increase your profit, without actually working more. You just take care of having more orders which are directly sent to the supplier, who will handle everything.
While these benefits might seem like everything you ever hoped for from a business, you also need to have in mind that dropshipping has some disadvantages as well.
Disadvantages of dropshipping
Before you start with dropshipping, consider the negative side of this type of business model:
Lower profit margins
Unlike working with manufacturers directly, suppliers will not provide competitive prices, which will reflect on your profit margin.
Liability and reputation
The customers do not care if you are merely a middleman. You are their seller, and they will complain to you when something goes wrong, even if it is not your fault. This means that your reputation is on the line and you are reliable for any damages. Therefore, you need to think carefully about the suppliers you want to work with.
If you were to pack the products yourself, you would probably use branded packaging, offer freebies, notes, etc. All of these are a great way to reinforce the influence of your brand and create a connection with the buyers. Also, this is something you cannot achieve through dropshipping. Some suppliers might be willing to do this for you, but it will usually require payment from you, which again, lowers the profit margins.
Multiple products and suppliers
Although this is a benefit on its own, allowing you to provide a variety of products, the problem might occur when a customer orders several products sent by different suppliers. You will not be able to charge the customer increased shipping costs, but instead, you will have to cover these costs.
Many different dropshippers may be reselling the same product, which means you might face fierce competition, depending on your niche. At the same time, you need to be aware that your competitors are also the suppliers themselves. And their biggest advantage is that they often can offer a better price than you can.
No inventory to keep track of
You cannot really keep track of your inventory, so this is not something you can feature on your website. The result is that the customer may order from you and only after you contact the supplier will you get the information if the product is available. In case you do not have products to sell, you will need to issue refunds for prepaid products.
Although as a business model it is far from perfect, dropshipping is quite casual, stress-free way to sell online. There is almost no effort in setting up such a business, and there is no hustle of tracking inventory, storing products, and shipping. The margins vary depending on the niche and the type of product, so it is recommended that you explore those before starting out. One way to get better margins is to work with manufacturers directly, instead of working with suppliers.
As a low risk and low investment business model, dropshipping is perfect for beginners. It is also for people who want to sell a variety of different products. It could also be a “side business project” for someone already making money online or having a full-time job.
Dropshipping is not for you if you want to work on branding and create an influential brand name. Also, if you are not comfortable with profit margins, and you want to earn more money, dropshipping might not be an ideal solution for you.
Finally, when you decide that this is a type of business model you want to pursue, you will approach this like with setting up your webshop. You will need a platform through which you will sell, you will need to present the products in an engaging way, and you will need to explore online marketing to promote the products.