What is Dropshipping?

1) Understanding dropshipping

Dropshipping is a retail fulfillment method that eliminates the need to keep products in stock. As a result, you reduce costs and headaches without worrying about physically handling products. Instead, you sell products via an online store, shipped directly to your customer from your wholesaler or manufacturer.

Although supplier fulfillment might sound dicey, partnering with the right providers is seamless and headache-free.

On the negative side, you can face challenges if you don’t align your business with the right suppliers and fail to meet your customer’s needs.

2) Understanding dropshipping

Dropshipping follows a logical process from the moment a customer selects a product for purchase. From the retail side, you choose the range of products you wish to sell from a wholesaler or manufacturer to sell on your online store.

You set your prices based on your strategy, ensuring you factor in critical costs, including the wholesale price, shipping fees, and desired profit margin. Additionally, you want to remain competitive and not over or undersell the product’s value. Once that is in place, orders are fulfilled in a few simple steps:

• You purchase the product from the supplier using your customer’s shipping information
• The supplier ships the product directly to the customer
• They can send the product as is or use private labeling for your brand to make the packaging appear as if it came from your store to protect your brand integrity and build trust
• The customer receives the order

3) The benefits of dropshipping

There are several reasons e-commerce business owners choose the dropshipping model, including:

Low startup costs and low overhead: You don’t have to purchase your products upfront, so you don’t have inventory or storage costs. There is no worry of:

• Warehouse fees
• Warehouse and inventory management
• Packing and shipping your orders
• Complicated accounting trying to reconcile inventory with sales
• Receiving inventory
• Low profit margins

Wide product range: You can use as many or as few products as you desire to suit your business model. You create a brand and can use online supplier databases to search and find the ideal items that meet your target customer’s needs. All of this is done without worrying about inventory.

You access product information from your suppliers and feature them on your eCommerce site. This is made easier with a product information management system (PIM) to store product information and digital assets downloaded from your suppliers and shared quickly with your customers on your eCommerce site. 

Location independence

Because your store is online, you can operate from anywhere and expand your reach as far and wide as you wish.

Easy product testing

You can test customer response to your products and control marketing efforts focused on the top sellers. You can find logical fits for your brand and develop ideas such as item kitting, selling certain items in bulk with price breaks, etc., to create a unique value proposition.

Scalability

Your business is scalable, enabling you to expand by simply downloading info from your supplier catalogs, branding it, and uploading it to your e-commerce sites to have a growing, wide product range. 

4) Key considerations

While all this sounds simple, you still need to have a plan and strategy that enables you to succeed, including:

• Reliable third-party suppliers: You must find high-quality suppliers for your product selection that a) offer well-made products that protect your brand and b) ensure products are shipped to customers quickly.
• Price optimization: Because other retailers are selling the same products as you, you must devise an effective, competitive pricing strategy that prices out the competition. You can’t just undersell competitors because this can eat into your profits. So, you have to be competitive while considering all your costs. Although your expenses are much lower than other business models, you still have some overhead.
• Customer experience: You want to create exceptional customer experiences with a unique and intriguing brand. This ties back to your suppliers as you have to ensure they are transparent and communicative to deliver consistent, positive experiences with your customer orders.
• Marketing efforts: Your brand is essential, and products should be treated the same way by third-party suppliers as if you were dropping them at the customers’ doorstep yourself. You also want to control marketing to create brand awareness.