What Exactly is Dropshipping?

Dropshipping is a retail fulfillment method where the store owner does not actually keep goods in stock. Instead, the store owner acts as a middleman between the customer and the dropshipping supplier.

When a customer places an order, the store owner purchases the product from the third-party supplier and has it shipped directly to the customer. The customer receives the product with the store owner's branding, even though it is fulfilled by the dropshipping supplier.

This allows the store owner to sell products without having to store inventory or ship orders themselves. It enables a low overhead business model that's easy to get started.

A Brief History of Dropshipping

While dropshipping has boomed in the age of ecommerce, it actually originated long before the internet. Catalog companies in the 1970s and 1980s would operate on a dropshipping model, listing products they didn't have in stock and ordering them from suppliers after receiving orders.

When ecommerce began, dropshipping allowed online stores to avoid high upfront inventory investments. Online marketplaces like eBay and Amazon helped push dropshipping into the mainstream. Tools and apps have since emerged to help automate the supply chain process for today's dropshippers.

How Does the Dropshipping Process Work?

The basic steps involved in fulfilling a dropshipping order are:

  • A customer browses the dropshipper's online store and makes a purchase.
  • The order information is sent to the dropshipper, who then purchases the item from the third-party supplier.
  • The supplier packages the order with the dropshipper's branding and ships it directly to the customer.
  • The customer receives the product, unaware it was shipped from a different location.
  • The dropshipper earns the profit margin between the wholesale and retail price.
  • Behind the scenes, there are tools that automate product listings, inventory updates, order routing, and tracking information to make the entire process smooth and hands-off for the dropshipper.

The Benefits of Dropshipping

There are many compelling reasons businesses choose to use a dropshipping model:

Lower Startup Costs: You avoid upfront inventory purchases, which greatly reduces your overhead. This allows you to get started with little capital.

Easy Scalability: You don't have to worry about managing or funding extra inventory as your business grows. Adding new products is a breeze.

Low Overhead: With no warehouse space or distribution expenses, your ongoing overhead costs are minimal. Dropshipping is an ideal business model with low financial risks.

Location Independence: You can run your dropshipping business from anywhere with an internet connection. There's no physical storefront required.

Wide Selection: You can provide customers a huge product selection without having to stock inventory. Just add new dropshipping suppliers anytime you want to expand your catalog.

Focus on Marketing: While suppliers handle product fulfillment, you can dedicate your efforts to branding, marketing, and customer acquisition.

What You Need to Start Dropshipping

To launch a simple dropshipping store, you only need:

  • A product idea and target audience in mind
  • A website and hosting plan
  • A supplier or wholesaler for your products
  • Payment processing setup
  • Email and communication channels
  • Marketing plans

That's it! Many successful dropshipping stores have been built as side hustles or "stores" on Shopify and other platforms for less than $100 in startup costs.

Finding the Right Dropshipping Suppliers

Choosing reliable suppliers is one of the most important parts of starting a dropshipping business. You want suppliers that:

  • Offer wholesale pricing
  • Integrate with your shopping cart platform
  • Have fast shipping from warehouses near your customers
  • Provide quality products and packaging

Helpful places to find suppliers are trade shows, online directories, existing wholesalers, and dropshipping networks like Spocket or SaleHoo. Evaluate suppliers carefully before selling their products.

Is Dropshipping Right for You?

Dropshipping provides an amazing opportunity to get an ecommerce business off the ground with little risk. However, it does have some downsides to consider:

  • Low profit margins on competitive products
  • Reliance on suppliers for shipping and quality
  • Customer service complications
  • Less control over brand reputation

You'll need persistence and an entrepreneurial spirit to find success. But the flexibility and freedom of starting a dropshipping business makes it tempting for many new entrepreneurs.

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