Let’s start with what dropshipping actually is.
Dropshipping is a method of retail where the store never physically holds the products it sells. Instead, when the retailer sells one of the products it stocks on its website, they buy the item from a third-party supplier who then ships the item directly to the end customer.
So, the online seller never actually sees, holds or ships the item, they are effectively advertising it for the supplier and marketing up to the price of the product so they can make a profit.
To break it down, here’s how the process flows:
1. The retailer “stocks” products on their website or marketplace
2. The retailer doesn’t actually hold these products, they are held by the supplier or wholesaler (who could be anywhere in the world). These products may cost £1 per unit from the supplier, while the drop-shipper
lists them at £3 each (making a profit of £2 from the sale).
3. When a customer orders a product from the drop-shippers website, the merchant receives a notification. The merchant then forwards that order to the supplier, either manually or automatically.
4. The supplier fulfills the order and ships it directly to the customer under the drop shipper’s name.
Benefits of Dropshipping
Easy to Get Started – Running an e-commerce business is much easier when you don’t have to deal with physical products. With drop-shipping, you don’t have to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
Low Overhead – Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop for less than $100 per month due to the right platform and good hosting. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
Flexible Location – A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.
Wide Selection of Products – Because you don’t have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list it for sale on your website at no additional cost.
Easy to Scale – With a traditional business, if you receive three times as much business you’ll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work. Sales growth will always bring
Additional work – especially related to customer service – but the business that utilizes dropshipping scale particularly well relative to traditional e-commerce businesses.
The Cons of dropshipping:
- Not all wholesalers offer drop-shipping
- The wholesale cost is based on one product only
- Must spend time researching to pick the right product(s) to sell