Dropshipping

Dropshipping is a business model that allows entrepreneurs to sell products online without storing any inventory. You don’t need to own a warehouse or even ship your products!

How Dropshipping Works

• A customer places an order for a product on a retailer’s online store
• The order is processed manually or automatically by the retailer and the order information is sent to their dropshipping supplier
• The drop shipping supplier prepares, packs, and ships the product to the customer in the retailer’s name
• The customer receives their order and thinks it came directly from the retailer

Dropshipping is an attractive business model for small businesses or entrepreneurs who are just starting out in ecommerce because there is no need to invest in the production of a range of merchandise or rent warehouse space, nor do they have to prepare shipments and package products.

Dropshipping can also be incorporated into larger business models. This service comes in handy if the company needs to free up its warehouse and/or simplify some of their logistical processes.

The Advantages of Dropshipping

• The Ease of Use: Since the dropshipper takes care of the whole process, you as the online merchant free up your time to focus on other money-making activities.
• You Can Sell a Greater Variety of Products: There’s a good chance that a dropshipping service has more resources at their disposal than you do so you can sell more products to your customers.
• Dropshipping is Location Independent: It doesn’t matter where you’re based, you could be traveling the world and still sell your products online.

The Disadvantages of Dropshipping

Since a third-party company handles all of your products, there are also a few drawbacks to drop shipping:

• The Profit Margins on Each Item are Usually Much Smaller: Namely, because the dropshipping service charges for their expenses and effort. Once they subtract the price for production, packaging, and shipment, you can then add your profit margins on top of the base price of the item. This also means that while you receive only a small profit, your customers are paying an increased rate.
• The Product is Shipped in Your Name so You’re Responsible if Something Goes Wrong: Any negative experiences with the product feed right back to you. And unfortunately, since a third-party company handles your products without your input, you have little (or no) control over the quality of the products.
• No Authority Over Your Brand: Products are packed in the standard procedure by the dropshipper, so you don’t get a chance to add personalized notes or trinkets to add to the unboxing experience of your packages. But since this is a popular request, more and more dropshipping services are starting to offer a more personalized service. You just need to do your research (and possibly pay a bit more) to access one.

The typical profit margins for drop shipping can range anywhere between 15% and 45%. Needless to say, it can be a profitable business model if you find the right niche. Once your drop shipping business is off the ground, it can be a good way of making a profit with minimal effort.

Learn more about dropshipping in our Dropshipping 101: What is Dropshipping? article and find high-quality drop shipping suppliers with our Dropshipping Suppliers Directory.