What Is Dropshipping? And How Does It Work?
- 14 October 2020
- Posted by: Srushti Mandekar
- Category: Updates
You probably must have heard of dropshipping as one of the easiest ways to earn money online, without putting any capital or holding any inventory, right? Well, it is not wrong.
Normally, the company that markets the products, is also the one who produces and delivers it to the consumer. But in dropshipping, you don’t have to worry about the production and delivery department. You can just list the products which you’re interested in selling on your website and receive orders, then purchase it from the manufacturer at wholesale rate. The manufacturer will take care of the warehousing, packaging, and delivery of products to the consumer.
It is that simple! You don’t even have to touch the product. You just purchase their merchandise under your brand and market them directly. The warehousing also falls on their part, so you don’t have to stack the boxes at your garage or storerooms, including packaging. They will take care of rest, on your behalf. Due to this, the necessity for investment is reduced as you receive the order and forward it to the manufacturer. They’re going to look out of the remaining. You still get your cut in price.
How does it work?
How Dropshipping Business Model Works In A Nutshell –
Picking a sales channel: Choosing the most appropriate sales channel for your products is crucial. It coulbe you own website or and eCommerce platform like Amazon or eBay.
Choose the product: Search for products you are interested in buying from independent suppliers or integrate with a dropshipping marketplace.
List it on your website: Import the product on your website.
Set your price: You have full control on profit margins. Though, it is recommended to keep the price affordable for better sales.
Accept customer orders: customers will choose products from your website which they’re willing to buy. Then, check out and pay on your site.
Forward customer order to your website: send product information and customer details to the supplier and pay the supplier on customers’ behalf.
Fulfill the order through supplier: supplier will ship the product directly to the customers’ address. You will be provided with a tracking number so you can keep your customer updated.
This is the flow of dropshipping. You just have to put in efforts and you’re good to go.
Pros and cons of dropshipping:
Although dropshipping is a great way to start a new business, it has some limitations too. Let’s take a look at them!
Easy to start: Running an ecommerce business is easier when you don’t have to worry about the product and delivery part.
Almost no capital: Probably the biggest advantage of dropshipping is not having to invest thousands of rupees. You can start your business right away without any capital or land.
Minimal risk: you don’t have to pay a penny unless the sale is already done and have been paid by the customer. There is no tension of facing huge losses.
Flexible location: you can sit in any corner of the world, obviously unless you have internet connection, and start a dropshipping business providing products to customers shopping from anywhere.
Wide selection of products: you can select any and every trending product to list on your website as you don’t have to pre-purchase or even manufacture any of it.
Low margin: You put less money in, but you also get less money out. The margin is over 20-25% per product and the conversion rate is also low.
Highly competitive: As it is very easy to start, people don’t hesitate to give it a try. Anyway, there are always entrepreneurs looking for business with low overhead.
Shipping issues: You are going to be blamed for problems you’re not even at fault. You have to take responsibility for mistakes supplier does when fulfilling the order. It can even damage the reputation of your business.
Less customization: you can sell only products which the supplier is offering. For example, a customer wants size customization or print customization, you cannot fulfill those requirements as you don’t have control over the products.
Dropping does have potential if you’re willing to pour time and systematically handle your part of the job. Like every business, dropshipping also has its pros and cons. Don’t play blind and you’ll be able to reap decent profits.
To learn more about dropshipping, sign up for our FREE course, and learn how you can build a successful dropshipping business model from scratch. Click on the button below to get the course.