Dropshipping is a type of business model which enables a company to operate without maintaining inventory, owning a warehouse to store their products, or even having to ship their products to their customers themselves. How it works is that the retailer partners up with a dropship supplier that manufactures and/or warehouses products, packages the products, and ships them directly to the retailer’s customer, on the retailer’s behalf.
In simpler terms, this is how dropshipping works:
- The customer places an order for a product on the retailer’s online store.
- The retailer automatically or manually forwards the order and customer details to the dropship supplier.
- The dropship supplier packages and ships the order directly to the customer in the retailer’s name.
This kind of business model is extremely attractive as it eliminates the need for the store owner to have a physical business location such as an office space or warehouse—instead, all they need is a laptop and an internet connection.
Video Overview of Drop Shipping
PROS OF DROPSHIPPING
As a business model, dropshipping has several different aspects that prove to be beneficial, such as:
- It’s Easy to Set Up: It doesn’t take an entire village to set up since it essentially involves just 3 steps—find the supplier, set up your website and start selling the goods! To someone who is new to the ecommerce industry, this business model is relatively easy to understand and implement.
- The Cost of Setting Up Your Dropship Business is Next to Nothing: In traditional business models, the majority of the costs are related to setting up and running the retail operations, such as purchasing inventory. Since dropshipping eliminates that step, and thus the cost of it, all you have to pay for is the associated costs of running your website (hosting, theme, apps, etc.).
- You Don’t Have to Worry About Exorbitant Overhead Costs: As previously mentioned, the business owner is not required to purchase inventory thus the costs of renting or buying warehouse/office space and the other smaller yet substantial costs pertaining to it (electricity/phone bills, stationery, etc.) aren’t an issue. The fixed costs of managing the website is all that a business owner has to worry about.
- The Risk of Dropshipping as a Business Model is Significantly Lower: If the business doesn’t sell products it still doesn’t lose anything, so there is little to no pressure about having to sell your inventory.
- The Business Can be Run from Anywhere & is Location Independent: No office, no warehouse, no employees and no hassles. Little to no commitment to a physical space means that you could be sitting at a beach, sipping on mojitos while still turning profits. All you need is your laptop and the internet.
- There is Lots of Variety When it Comes to the Products You Want to Sell: There is a drop ship supplier for almost anything that you would like to sell! You can rely on one great product, sell several products at once or mix it up; it’s all up to you. Find your niche and there is bound to be a supplier that caters to it.
- More Time & Resources to Scale Your Business: In traditional retail business models, if you want more profits you have to do more work and invest that much more of your resource pool. With dropshipping all you have to do is send more orders to your dropship supplier and then let them handle everything else while you earn the profit and are left with more time to develop your business plans and scale!
- Reduced Losses on Damaged Goods: Since the shipment goes directly from the supplier to the customer, there are fewer shipment steps involved which drastically reduces the risk of damaged items while moving from one physical space to another.