What is dropshipping?

Have you ever heard of dropshipping business model? Do you know what exactly it is? Is it a new business model? This article will elaborate on dropshipping as a shipping process along with how you can start a dropshiping business.

What is dropshipping business?

Dropshipping is an e-commerce-based retail business model wherein the dropshipper does not keep any product in inventory. Instead, once the order is received from the customer, it is forwarded to the manufacturer/wholesaler, who directly dispatches the product to the customer. In other words, it is a customer-facing online store that does not keep any inventory but receives orders. Once the order is placed, it is forwarded to the business that keeps inventory i.e. manufacturer or wholesaler, who ships the product directly to the customer.

How does dropshipping work?

In a typical scenario, dropshipping works as per the below narration.

• The manufacturer/wholesaler is responsible for warehousing and inventory management.
• Dropshipper and manufacturer/wholesaler draw a contract for the business defining their roles.
• Dropshipper sets up an online e-commerce store listing all the products.
• A customer places an order.
• Dropshipper receives the order.
• The order is forwarded to the manufacturer/wholesaler.
• The manufacturer/wholesaler ships the product to the customer.
• The customer receives the order.
• Dropshipper pays the manufacturer/wholesaler.

Advantages of dropshipping business

Here are some of the advantages of dropshipping.

• Low investment: Dropshiping is one of the low investment business ideas. You need to have the right skillsets to set up an e-commerce store. Additionally, you need to have business ties with trusted manufacturers/wholesalers.
• No overhead cost: Since the dropshipper does not handle any inventory or a physical store, there is no overhead cost of maintenance. The dropshipper only needs to update the product listings on the online store regularly.
• Lesser risk: Since the dropshipping involves lesser investment, no inventory and shipping, business risk is comparatively lesser.
• Multi-channel shop: Dropshippers can use various new channels to get orders. For example, a dropshipper can sell through Amazon or Instagram or both.
• Location is no bar: For some businesses location holds a key to success such as starting a steel business. However, it is not the case for a dropshipping business. In fact, dropshipping business model gives you the flexibility to operate from anywhere.

Disadvantages of dropshipping

Here are some disadvantages of a dropshipping business.

• No control over product quality: You and the supplier may be located in different locations and different countries in some cases like reverse dropshipping. In such a scenario, it is not possible to see the product at all. As a result, you have no control over ensuring the quality of the product.
• Delivery timelines: Delivery timelines are completely dependent on your supplier. For example, on your e-commerce store, you may specify delivery timeline of one week. However, if anything delays the process or even if the supplier delays shipping, delivery timelines are not met. This can hamper your reputation.
• Competition: As dropshipping is a low investment idea, it becomes an ideal choice for many entrepreneurs. As a result, the competition may be high in this domain. However, it also depends on the products you sell. The level of competition differs on the basis of the product category.
• Profit margin: Higher competition meaning, you may need to offer products at better pricing. This further translates into lower profit margins.
• Difficult customer service: The dropshipper does not manufacture, package or ship the product. However, dropshipping business is responsible for branding and reputation and achieving customer satisfaction. This can be tricky. For example, if a wrong order is delivered to the customer or the product is damaged, it becomes dropshipper’s responsibility to manage the customer.

How to start a dropshipping business?

Here is a step-by-step guide for you to start a dropshipping business.

• Finding your niche: Firstly, you need to determine what you are going to sell. You can do market research on current trends and take a decision. Clothing, jewellery, home décor, toy and games, etc., are some of the common choices for dropshipping.
• Understand the competition: You will need to analyse the competition in the niche you plan to venture in. You can anslyse how their products are priced, ways of promotion, their social media activities and so on.
• Find a supplier: Then, you need to find a trustworthy dropshipping supplier. Your supplier is the pillar of your business. As a result, you need to take a well-informed decision here. As mentioned earlier, your reputation depends on timeliness and product quality offered by the supplier.
• Product quality: You can order a few sample products and check the quality before finalising on any supplier.
• Building your store: You can establish an e-store on your preferred e-Commerce platforms and marketplaces.
• Marketing: Once the store is set, you will need to run a few marketing campaigns so that customers come and visit your store. There are various types of marketing collaterals such as emails, social media posts, etc., to promote your store.

Frequently asked questions about dropshipping