Dropshipping: What is it and how does it work?
Let’s start with a definition of dropshipping.
Dropshipping is a retail method in which the seller never physically possesses the products they sell. Instead, when a retailer sells a product from its website, the item is purchased from a third-party supplier, often the manufacturer, who then ships the item directly to the end customer.
As a result, the online seller never sees, holds, or ships the item; instead, they are effectively advertising it on behalf of the supplier and marking up the price of the product to make a profit.
What is the Process of Dropshipping?
Here’s how the process works in detail:
1. The retailer has products “in stock” on their website or marketplace.
2. These products are not held by the retailer; rather, they are held by the supplier or wholesaler, who could be anywhere in the world. These items may cost £10 per unit from the supplier, but the drop shipper lists them at £30 each, (a £20 profit on the sale, before costs).
3. The merchant is notified when a customer orders a product from the dropshipper’s website. The merchant then either manually or automatically forwards the order to the supplier.
4. The supplier fulfils the order and ships it to the customer directly. This can be with the sellers own custom packaging, plain packaging, or their own.
The Benefits are there in Starting a Dropshipping Business?
Dropshipping, like any other business model, has advantages and disadvantages; it’s just a matter of weighing them and determining whether they strike the right balance for your circumstances and needs.
It is simple to get started.
A dropshipping business is relatively simple to establish, especially when compared to starting an eCommerce business. Consider all of the research, planning, budgeting, website development, and other activities that must be completed before you can launch your business.
So, if you want to become an online retailer quickly, starting a dropshipping business could be the way to go.
Dropshipping does not necessitate the initial resources required to launch a traditional online store, such as capital, office space, warehouse space, commitment, and so on.
As previously stated, starting a dropshipping business is as simple as locating a supplier and selecting a marketplace (or building a website, which is easier than ever with the amount of site-in-a-box services available today). You don’t have to pay for a warehouse, pick and pack shipments, or keep track of stock levels.
What Investment is needed for dropshipping?
The best thing about the dropshipping business model is that you don’t have to buy and store the inventory you sell. You only buy the stock after you’ve sold it and received payment from the customer, keeping the difference in those two amounts.
This is fantastic because it means:
To begin with, you do not require capital to purchase stock.
You are not required to physically hold stock and pay for it to be stored.
If the goods do not sell, you will not be out of pocket because you did not invest in a large number of units of each product line, which would otherwise be left gathering dust if no sales occur.
These factors allow you to start a successful dropshipping business without having to invest thousands of pounds or dollars in inventory upfront.
How Adaptable is Dropshipping?
Many modern retailers who start their businesses as an experiment alongside their existing jobs value flexibility. A dropshipping business can be run from almost anywhere with an internet connection, making it an excellent option for those looking for flexibility in their eCommerce venture.
You can run and manage your business as long as you can easily communicate with suppliers and customers.
Many successful dropshipping businesses are run from home. You may not even need to quit your job to start your own store because you can often work it around your current obligations. Until you are ready to, of course.
Dropshippers have Access to a Wide Variety of Stock
Because you don’t have to stock or store the products you sell, you can display a much wider range of sale options.
There’s also no need to worry about the initial cost of the products or the cost and space required to house those products, which means you can sell anything from hair products to speedboats.
Is Dropshipping Scalable?
The truth is that growing a dropshipping business is far easier than growing a traditional online store.
As your order volume grows, the work shifts to the supplier rather than you, allowing you to expand your business without incurring the costs of hiring additional staff to assist with the additional sales work. This enables you to scale more easily and quickly than traditional eCommerce stores.
That said, this does not need to be the only arrow in your quiver, so to speak. Once the profits are rolling in from dropshipping and you become aware of successful niches in your market, you may want to consider beginning the journey into sourcing your own stock.