Those interested in the eCommerce business model will often hear about dropshipping. This online business structure has recently gained traction among people of all ages and occupations.
In essence, the dropshipping business model is about not keeping the products in your store but ordering them from a wholesale business whenever your customer demands them. Thus, the products are sent directly to the customer through a third-party supplier.
However, all this is just the tip of the iceberg. There’s much more to a dropshipping business than delivering items to your customers at a profit. Let’s look at the dropshipping model in detail.
How is Dropshipping Different from a Regular Business
The retail business model is much different from the dropshipping business model because it involves a brick-and-mortar facility where you can keep your inventory.
Typically, a dropshipping business requires you to open an online store, collect orders, and ship them to your customers at more competitive prices. A drop shipper is a middleman that connects the customer to the retail store by driving traffic toward their online store.
When a drop shipper does that, all three parties take the benefits of dropshipping business. The drop shipper receives part of the profit that the retail store earns, and the customer receives their product seamlessly and at better prices.
So, despite all the hype, is dropshipping business worth it for aspiring entrepreneurs? Should you pursue it, or should you look for something else? For you to decide, we will present you with some benefits and downsides of the dropshipping business here.
The Mechanics Behind Dropshipping
It is common for new entrepreneurs to dive deep into the dropshipping world without fully understanding the basics. Although the concept is not that difficult to grasp, it’s still important to have a fundamental understanding of running a dropshipping business.
This form of supply chain management involves three parties known as manufacturers, wholesalers, and retailers. Manufacturers, as the name suggests, produce the products and sell them at the cheapest cost.
However, they don’t directly sell to consumers. Wholesalers buy products from manufacturers and then sell them to retailers for a profit margin. The supply chain ends at retailers who sell the products directly to consumers.
Dropshipping involves customers placing orders with you. When you receive an order, you direct it to your partner, either a wholesaler or a manufacturer, who ships it to the customer.
You are charged by your supplier, a cost which you cover with the payments from your customers. Ensuring a shorter supply chain is crucial to reaping higher profits because there are fewer parties involved.
Benefits of Dropshipping
The current valuation of the global online dropshipping industry currently stands at around $128 billion, which is not an amount to be taken lightly. It means that the dropshipping business is thriving worldwide.
But, why is it the case, and what are the benefits of being a dropshipping supplier? Let us take a deep dive into them.
One of the biggest reasons that put people off business is the headache of setting one up. The first thing you need to start a traditional retail business is to have loads of experience.
You need it to select a suitable warehouse and then manage inventory. Moreover, you must have an experienced team too to handle the stock.
However, you do not need that experience if you start a dropshipping business. All you need to have is a stable internet connection, and you can become a dropshipping supplier today.
You won’t have to wait long after setting up the store either, as you are ready to go within a few hours. You do not have to pack and deliver, and handling returns isn’t your job either.
Easier on Your Wallet
Another reason that makes starting a business difficult is the finances you require. With a dropshipping store, you do not have to invest thousands of dollars to get started.
Traditional retailers have to set aside large sums to afford warehouse space and a team to handle the inventory, on the other hand.
In addition to that, you spend money only when the customer has already purchased the product and paid you for it. So, there is no financial risk of buying the inventory in advance and waiting for orders.
The online dropshipping store is all about processing your orders without managing inventory continuously alongside it. The fundamentals of your business model won’t change much as you start receiving more orders.
All you need to do is focus on sales and marketing, which is good enough to keep your online shopping business progressing.
Whenever you scale up, there are no additional business costs that you have to bear. The savings you make can be allocated toward your marketing efforts.
As an online business, you need to focus much more on the marketing side because the more you do it, the more sales you will generate in the long run.
In addition to that, there is little to no extra effort required when you scale up to manage orders. Almost all of that is done by the retail store as you only receive the order from the customer and direct it to the retailer.
Entrepreneurs who want to be their boss can find a perfect solution in dropshipping, as it provides the flexibility that no other business model can. Whether you want to work from home or want to have a different setup, everything becomes more convenient for you.
You work at your own pace and whenever you like. Just grab your laptop and work wherever you want to. Moreover, you can also make your own business decisions without any pressure.
Listing products become much more flexible, and you can automate your store if you go on a vacation to let your business run without any intervention.
A Wide Variety of Products
You don’t need to have a physical place to maintain your inventory, which can have its usual limitations. Instead, you have an internet space that can handle as many products as possible. All you need to do is stay on top of trends and regularly add trending products to your store.
It only requires you to spend some time on the internet instead of spending lots of money. Whenever other retailers add a new product, you can immediately list it in your store without spending any money.
No Office Required
You do not need an elaborate office to run a dropshipping business. If you have a laptop connected to the internet, you can create an office anywhere you like and continue to manage your store seamlessly.
So, you save all the office expenses spent on your advertisement. Luckily, no matter how much your business grows, your costs will still be a fraction of what traditional retail businesses spend.
Experimenting with Products
Whenever you launch a new product, you’re skeptical of its success. You worry if your potential customers will like it or not, and it’s even more worrying if you have spent money on that product.
However, testing new products on an online store is much easier, whether a new product line or just a single product. So, you can experiment endlessly with new products without spending a penny if you run an online store.
Cons of Dropshipping
Just like any other business model in the world, dropshipping has some cons as well. Depending on your future plans and expectations, these cons may seem very formidable. However, for a beginner seller, the downsides are not as intimidating when compared to the pros. Let’s take a look at some of the major cons that comes with dropshipping.
Thin Profit Margins
Dropshipping can be a low-margin affair, especially in the beginning when you don’t have many orders on your hand. Profit margins also depend upon the type of products dropshipping suppliers sell.
If you deal in products that sell in a highly competitive market, you have fewer chances to attract potential customers and fewer chances of generating sales. However, it doesn’t mean that generating profits from your online store is impossible.
If you do your market research carefully, understand the competition you’ll face by selling them, and target customers effectively through your marketing, you will boost your sales.
That’s why it is so important to have an effective marketing strategy with carefully optimized advertisements that target your audience in the right manner.
Dropshipping model is simple, right? Customers order a product, and you fulfill it through a retailer. It works when you deal with a single retailer.
However, the supply chain can get a little complicated if you order from multiple retailers, making it hard to keep track of every order. The chances of confusion increase significantly.
The shipping complexities are compounded when different retailers have different shipping standards, which can be problematic for your customers. Moreover, the shipping costs can also become a major hurdle when shipping multiple products at once.
For instance, if a customer wants four different products from multiple suppliers are selling them, it can be an issue for a dropshipping supplier.
Suppliers might have different order fulfillment methods, so sending products to your customers through four different sources can be challenging. Moreover, you will also need to pay separate shipping fees, which you won’t like to be paid by the customer to retain.
Similarly, not every supplier needs to have the same billing and processing mechanism, so you will need to ensure that you communicate with your suppliers regularly to keep your supply chain robust.
Lack of Control
While the dropshipping model does give you entrepreneurial freedom over many things, some aspects still aren’t fully under your control, such as introducing new products, ensuring orders are fulfilled, and timely shipping.
Remember that the dropshipping freedom comes from the fact that you don’t have to do lots of things in the process, a responsibility you relegate to your supplier.
However, it can cause problems too if the third-party supplier doesn’t fulfill its orders and causes shipping delays.
It hurts your reputation, and customer retention becomes challenging if orders aren’t shipped properly. However, with the right customer care strategy in place, you can manage such problems whenever they occur.
Another problem is that you don’t own the stock you sell, so keeping track of in-stock and out-of-stock items becomes tough. Since you source your items from multiple retailers, inventory takes no time to change.
So, you’ve to proactively ensure that you keep only those items in your eCommerce store that are available and keep track of new items. Add them to your online inventory as soon as the third-party suppliers list them. Luckily, different apps are available that can tackle this issue easily.
Your supply chain problems aren’t just limited to shipping costs. You may face multiple other problems too, and sometimes you will be blamed for something that isn’t even your mistake. Your supplier can make many mistakes that cost you your reputation and money.
For instance, if the product packaging is not up to the mark, it might get damaged during its journey, hurting customer expectations.
Similarly, sometimes the shipment is missing one or more times, which can cost you another shipment of the missing items. Besides that, sometimes retailers ship products different from what customers order, costing you extra money.
Lack of Customization
You are constrained regarding product customization and branding since they are not your products. When you have your store, customer purchases customized products, and you have the freedom to be creative and add your touch to them. It helps you enhance the customer experience.
However, that breathing space is pulled away if you rely on a supplier for your products. Sometimes suppliers can listen to you and customize products as demanded, but that’s rare.
Moreover, the manufacturer usually won’t make as many customized products as your demand due to financial constraints. So, you have to make do with whatever the supplier offers.
Popular Dropshipping Platforms
The best way to start your dropshipping journey is to set up an online store. Today, there are dozens of popular online platforms where you can set up shop. You can even launch your stores on multiple platforms to maximize your sales. However, this is not recommended if you are just starting out.
Depending on which platform you choose you will have to deal with different policies, costs, and business tactics. Let’s take a look at some of the most popular dropshipping platforms on the internet.
On eBay, you need to create an eBay seller account, which you can have more than one. Different countries have different eBay websites so make sure you create your account on the right one targeting your local audience.
eBay is the largest auction site and one of the biggest online stores, so you can generate decent revenues through it. One thing to note is that you cannot dropship items from other platforms such as Amazon on eBay, and doing it could even result in the removal of your listings.
This guide on dropshipping on eBay in 2022 by ZIK Analytics will give you a step by step tutorial on what you need to know to succeed in this space in 2022.
We’ve also released the ZIK Analytics eBay Dropshipping Course which has gotten the industry in a stir. We know that we are biased, but we truely believe that it is the most comprehensive course in this space that we have seen!
Amazon is another excellent dropshipping platform. They’ve recently made some changes to their policy which you should be aware of. For instance, you cannot mention the name of the supplier or manufacturer on invoices, external packaging, and any other material in the shipment.
The drop shipper itself should be mentioned as the seller. Moreover, it is now the drop shipper’s responsibility to accept and process returns.
Just like eBay, you cannot do retail arbitrage, which is buying items from other dropshipping platforms and shipping them to your customers.
If you’re into vintage and handmade products, Etsy is a great platform for your dropshipping business. Vintage products must be at least 20 years old to be called vintage.
Moreover, you also need to disclose the source of your products and mention sustainable characteristics such as recyclability, etc.
You can promote Etsy products on Shopify apps. However, it might result in too much traffic towards your product, and the seller may not be able to fulfill that many requests, as the product could be limited in numbers.
If you don’t like those options, you still have Shopify to make your mark in the e-commerce industry. Shopify provides you with multiple apps to run your business, and you can expand gradually as you gain experience.
You need to pay some dropshipping fees, but they are worth it.
Is Dropshipping Worth It?
Many people think of dropshipping as a get-rich-quick scheme that is far from the truth. Dropshipping requires hard work, like all businesses. It comes with its advantages and downsides.
However, succeeding in the online drop shipping space requires a solid understanding of its complexities. If you plan well and execute your strategy perfectly, you have a high chance of success.