What is Dropshipping? Benefits, challenges and strategies.

Dropshipping is gaining popularity globally in recent years. This article will help you have a better understanding of what dropshiping is and its related aspects.

What is Dropshipping?

Dropshipping is a retail fulfillment model in which the store does not have any products in stock. Unlike traditional retailers, dropshipping has no inventory to buy, no packages to ship, no warehouse to maintain.

Instead, the store purchases the item from a third-party supplier and has it shipped directly to the customer. Buyers order through e-commerce site of dropshipper, then orders are transferred to the manufacturer, distributor or wholesaler third party packaging and delivery.

With dropshipping, the benefit you get is the difference between the supplier’s price and the actual selling price to the customer.

How Dropshipping work
How Dropshipping work

Of course, dropshipping has both benefits and challenges to consider before getting started.

Benefits of dropshipping

Dropshipping is a great business model for aspiring entrepreneurs to start with because it’s easily accessible.

1. Less capital required

Perhaps the biggest advantage of dropshipping is being able to launch an ecommerce store without having to invest thousands of dollars in inventory first. Traditionally, retailers had to arrange large amounts of capital to purchase inventory.

With the dropshipping model, you don’t have to buy a product unless you’ve already made a sale and have been paid by the customer. Without a significant upfront inventory investment, you can start sourcing products and launch a successful dropshipping business with very little money. And because you don’t commit to selling off pre-purchased inventory, like in a brick-and-mortar retail business, there’s less risk when it comes to starting a dropshipping store or testing a new product line.

2. Easy to get started

Running an ecommerce business is much easier when you don’t have to deal with physical products. With dropshipping, you don’t have to worry about:

  • Manage or pay for a warehouse.
  • Pack and ship your order.
  • Track inventory for accounting reasons.
  • Handling returns and inbound shipments.
  • Continuously order products and manage inventory levels.

3. Low cost

Because you don’t have to deal with purchasing inventory or managing inventory, your overall costs are pretty low. In fact, many successful dropshipping stores are run as home-based businesses, requiring only a laptop and a few recurring expenses to operate. As you grow, these costs will likely increase but will still be lower than in traditional businesses.

4. Flexible location

A dropshipping business can be run from anywhere with an internet connection. As long as you can communicate with your suppliers and customers easily, you can run and manage your business.

5. Wide selection of products for sale

Since you don’t have to pre-purchase the items you sell, you can offer a wide range of trending products to your potential customers. If a supplier has an item in stock, you can list it for sale on your online store at no additional cost.

6. Easier to check

Dropshipping is a useful practice both for opening a new store and for business owners looking to test customer interest in additional product categories. Again, the main benefit of dropshipping is the ability to list and potentially sell products before committing to buying large amounts of inventory.

7. Easier to scale

With a traditional retail business, if you receive three times the number of orders, 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 support – but businesses that utilize dropshipping scale particularly well relative to traditional ecommerce businesses.

What is Dropshipping?

Challenges of dropshipping

All the benefits we mentioned make dropshipping a very attractive model for anyone getting started with an online store, or for those looking to expand their existing product offerings. But like all approaches, dropshipping has its downsides, too. Here are a few shortcomings to consider.

1. Low margins

Low margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Because it’s so easy to get started, and the overhead costs are so minimal, many competing stores will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. Since they’ve invested so little in getting the business started, they can afford to operate on minuscule margins. If start dropshipping on Amazon alongside your Shopify store, your margin on that sales channel will be much thinner.

Typically, these sellers will have low-quality websites and poor (if any) customer service, which you can use to differentiate your business. But that won’t stop customers from comparing their prices to yours. This increase in fierce competition will quickly hurt the potential profit margins in a niche. Fortunately, you can improve this by choosing a niche/vertical that is best suited for dropshipping and improving the quality of your website. Magetop will help you easily own a professional website and attract customers.

2. Inventory issues

If you stock all your own products, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change on a daily basis. Fortunately, these days, there are a handful of apps that let you sync with suppliers. So dropshippers can “pass along” orders to a supplier with a click or two and should be able to see in real-time how much inventory the supplier has.

3. Complicated shipping

If you work with multiple suppliers – as most dropshippers do – then the products on your online store will be offered through a number of different dropshippers. This complicates your shipping costs.

Suppose a customer orders three items, all of which are only available from separate suppliers. You will incur three separate shipping charges when you ship each item to a customer, but it may not be wise to pass this on to the customer. And even when it makes sense to include these fees, automating these calculations can be difficult.

4. Supplier error

Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway?

Even the best dropshipping providers make mistakes when fulfilling orders – mistakes for which you are responsible and apologetic. And mediocre and shoddy suppliers will cause endless frustration with missing items, damaged goods, and low-quality packaging, which can damage a business’s reputation.

5. Limited customization and branding

Unlike make-to-order or print-on-demand products, dropshipping doesn’t give you much control over the product itself. Usually, dropshipped products are designed and branded by the supplier.

Some of Alibaba’s dropshipping suppliers can accommodate your business’ product changes, but even then, the supplier has the most control over the product itself. Any changes or additions to the product itself usually require a minimum order quantity to make the product viable and affordable for the manufacturer.

Strategies for successful dropshipping

Dropshipping isn’t a perfect, stress-free way to build a successful online business – you always have to work hard to start a dropshipping business. This model has certain advantages, but comes with some built-in complications that you will need to deal with.

Here are some strategies you can refer to:

  • Research deeply to choose the right niches and suppliers.
  • Use multiple suppliers to improve success rates and provide a backup plan.
  • Choose products carefully to make sure they are available or interchangeable.
  • Track data and analytics to see what’s working and what needs tweaking.
  • Prioritize customer service and support to keep shoppers coming back.

Hopefully, the above information has helped you better understand dropshipping and make appropriate decisions.

Thank you for reading!

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Rosily Cat

Hi, i'm Rosily Cat. Today, e-commerce is becoming an inevitable trend in the digital age. Anyone can enter the industry in a variety of roles. I hope that my articles will bring you useful, updated information about e-commerce and related aspects!

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