If you’ve dabbled in the e-commerce industry or have ever tried to explore it, you have most likely come across the term ‘dropshipping’.
For someone who is new to the e-commerce scene and is planning to venture into it, you may be wondering what is dropshipping. The process may seem slightly daunting as it is often difficult to find a reliable source who gives you all the necessary information.
So to help with that, I’ve come up with a primer of sorts on what is dropshipping to empower you with everything you need to know before stepping into the industry.
What is Dropshipping?
Dropshipping is a retail fulfilment method where an online seller isn’t required to keep stock or store inventory. This business model allows a company to operate without owning a warehouse to store the products it sells or having to ship products to their customers. Instead the retailer partners up with a dropship supplier who either manufactures or warehouses products, has complete inventory control, and ships it directly to the customers.
How does it work?
- The customer places an order from the retailer’s online store
- The retailer intimates the supplier about the order, giving them the details about the order and customer
- The dropship supplier procures the product from his inventory, packages it and ships it to the customer directly on the retailer’s behalf
The dropshipping method can prove to be a cost-effective strategy for online retailers. It eliminates the cost of owning and maintaining a physical space to store products and dealing with the complexities of warehouse management. Through this method, the merchant never sees or handles the product; all they need is a laptop and internet connection to keep track of incoming orders.
Some of the leading companies that have made a name for themselves in the world of dropshipping business are Oberlo, Doba , SaleHoo, Wholesale Central and many others. You can find some useful information about these companies here. E-commerce websites like eBay & Amazon allow big & small sellers, who act as dropshippers, to place their listings in front of a large audience with certain processing fees. Although Amazon itself stocks and sells lots of products, many of the items listed are sold by third-party sellers through Amazon’s platform. Amazon also offers their own fulfilment process (Fulfillment by Amazon) which is one of the most advanced fulfilment networks in the world that allows you to sell your items without having to deal with packing, shipping or warehousing.
Dropshipping: Yay for whom, Nay for whom?
Dropshipping as a business model packs a wide range of benefits under its umbrella. The biggest advantage is that it eliminates the need to manage the inventory of products, which saves new or small business owners much needed time and monetary resources.
It would be in your best interest to know whether this method is suitable to your business or not before you adopt this strategy. Dropshipping method can be ideal for first-time sellers, or those who want to add a greater variety of products to their online stores without investing a large capital.
On the other hand, it would not be recommended for retailers who are looking to expand their brand, or who are most focused on getting the best margins.
On average, the profit margins for a dropshipping business can range from approximately 15%-45%. On the other hand, consumer durables and luxury items like clothing, jewellery and electronics may yield up to 100% profit margin.
Dropshipping is a lot about finding the right niche and supplier while entering the market. A good strategy to ensure higher profit margins could be to source products directly from a manufacturer rather than a supplier or vendor in order to cut out the middlemen.
A definitive merit of dropshipping is that you can test your products and ideas in real time and learn what works and what doesn’t. This business model provides a safe place to experiment and gives retailers working knowledge of this industry.
So this was an introduction to dropshipping. We’ll delve deep into further specifications in our upcoming posts. If you are out to try or are already working on dropshipping model for your e-commerce business, we would love to hear your stories.