What is dropshipping? - What is an example of dropshipping?

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What is dropshipping

Dropshipping is a way to sell products online without the need to keep them in stock. When an order is received, the seller sends it to another company who ships the product directly to the customer. The seller is the intermediary between the company and the customer with the product.

This streamlined approach to order fulfillment means you can start a business without leasing warehouse space, managing a supply chain or inventory.

Ahead, you'll learn everything there is to know about dropshipping, how it works, and how to start your own dropshipping business.

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index

• What is dropshipper?
• How does dropshipping work?
• Advantages of dropshipping
• Disadvantages of dropshipping
• Start your dropshipping business with Shopify
• Dropshipping FAQ

What is dropshipper

A dropshipper is an individual or business that uses a dropshipping model of purchasing inventory and fulfillment logistics from third parties instead of warehousing and shipping products.

Because dropshipping relies on third-party suppliers to stock inventory and fulfill orders, a dropshipping operation can be run by dozens of employees or a single business owner.

How does dropshipping work

The dropshipping process is essentially a relationship between a customer-facing store and a supplier.

There are two general approaches to adopting a dropshipping business model. The first is to find one or more wholesale suppliers located in North America (or elsewhere in the world) using a supplier database. Examples of popular online supplier databases include AliExpress, SaleHoo and Global Brands.

If you're not interested in finding suppliers for the products you plan to sell, you can use an app that connects you and your store with thousands of suppliers. For that, use DSers, a Shopify app that helps independent business owners find products to sell.

With DSers, you can browse AliExpress and import products that pique your interest directly into DSers—which is connected to your Shopify store—with the click of a button. Once a customer buys a product, you'll be able to fulfill their order in the DSers app.

Fortunately, DSers automates most of the dropshipping process. As the store owner, all you need to do is check the details are correct and click the order button then the product will be shipped directly from the AliExpress supplier to the customer - wherever they are in the world.

How Dropshipping Works

Dropshipping is often seen as a hassle-free, get-rich-quick scheme. But it doesn't. Just like any other e-commerce website, it takes dedication to keep your startup running and successful. Done well, dropshipping companies can be reliable and convenient partners for growing e-commerce businesses to expedite order and fulfillment processing.

Advantages of dropshipping

Here are a few more reasons why dropshipping is a popular ecommerce business model for both large and small businesses.

1. Less upfront capital required

Perhaps the biggest advantage of dropshipping is that it is possible to launch an e-commerce store without investing thousands of dollars in inventory. Traditionally, a brick-and-mortar or e-commerce retailer has to pay large amounts of capital to purchase inventory.

With the dropshipping model, you don't have to purchase a product unless you've already made a sale and been paid by the customer. Without a significant upfront inventory investment, it is possible to start dropshipping and be successful for very little money.

Additionally, since you are not committed to selling through any inventory purchased in advance like other business models, there is less risk involved in starting a dropshipping store.

2. Getting started is easy

Running an e-commerce business is much easier when you don't have to deal with physical products. With drop shipping, you don't have to worry about:

• Operating a warehouse or paying
• Packing and shipping your order
• Tracking inventory for accounting reasons
• Handling returns and inbound shipments
• Continuously manage product orders and stock levels

Tip: With Shopify, it's easy to start a dropshipping business and start selling without the hassle of managing inventory, packaging or shipping. Orders are shipped directly from your wholesaler to your customers, so you can focus on what matters—your product, marketing, and customers.

3. Low overhead

Since you don't have to buy inventory or manage a fulfillment center, your overhead costs are quite low. In fact, many successful dropshipping stores are run as home-based businesses, requiring little more than a laptop and few recurring expenses to operate.

As you grow, these costs will likely increase, but will still be lower than a traditional brick-and-mortar business.

4. Flexible position

With dropshipping, a successful business can be run from anywhere with an internet connection. As long as you can communicate with suppliers and provide timely service and support that meets customer expectations, you can run and manage your business.

5. Wide selection of products to sell

Since you don't have to pre-purchase the items you sell, you can offer an array of trending products to your potential customers. Plus, you can rotate or change your dropshipping product list without worrying about unsold inventory. If the suppliers have an item in stock, you can list it for sale in your online store at no extra cost.

6. Easy to test

Dropshipping is an effective fulfillment model for launching a new store and for business owners who want to test customer appetite for additional product categories such as accessories or entirely new product lines. The main advantage of dropshipping is, again, the ability to list and potentially sell products before committing to buying large amounts of inventory.

7. Easy to scale

With a traditional retail business, if you get three times the number of orders, you usually have to do three times as much work. Dropshipping benefits suppliers, as suppliers will process most additional orders, allowing you to expand with less growing pains and less incremental work.

Increasing sales will always bring additional work – especially related to customer support – but businesses that use dropshipping scale especially with traditional e-commerce businesses. You can also dropship on many platforms, such as Amazon, eBay and Etsy.

Disadvantages of dropshipping

All the advantages we mentioned make dropshipping a very attractive model for those starting with an online store or those looking to expand their existing product offerings.

But like all methods, dropshipping has its downsides. Generally speaking, convenience and flexibility come at a high price.

Here are a few pitfalls to think about when considering a dropshipping business.

1. Low profit margin

Low margins are one of the biggest disadvantages of operating in a highly competitive dropshipping vertical. Because it's so easy to start, and the overhead costs are so low, many competing businesses will set up a dropshipping store and sell items at rock-bottom prices in an attempt to increase revenue. Since they have very little investment to start the business, they can operate on small margins.

Typically, these sellers will have low-quality websites and poor (if any) customer service, which can help you set your dropshipping business apart. But that won't stop customers from comparing their prices with yours. This increase in competition will quickly hit potential profit margins in a niche. If you're concerned about your margin, you can quickly calculate it with Shopify's profit margin calculator.

Fortunately, you can do a lot to mitigate this problem by choosing the right products and choosing a niche/vertical suitable for dropshipping.

2. Inventory problem

If you stock all your own products, it is relatively easy to track which items are in stock and which are out of stock. But when you're sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change on a daily basis.

Fortunately, these days, there are apps that let you sync with providers. So dropshippers can "pass" a customer's order to a dropshipping supplier with a click or two and should be able to see in real time how much inventory the supplier has.

DSers allow merchants to take automated action when a supplier's stock is low. For example, when a product is no longer available, you can automatically unpublish the product, or keep it published but automatically set the quantity to zero.

3. Shipping complications

If you work with multiple suppliers – as most dropshippers do – the products in your online store will be available through different dropshippers. This means you have no control over the supply chain.

Let's say a customer places an order for three items, all of which are available only from separate suppliers. You would incur three separate shipping costs to ship each item to the customer, but it is probably not wise to pass this charge on to the customer. And even when it makes sense to include these charges, automating these drop shipment calculations can be difficult.

4. Supplier Errors

Have you ever been blamed for something that wasn't your fault but you had to take responsibility for it anyway?

Even the best dropshipping suppliers make mistakes in order fulfillment — mistakes that you need to take responsibility for and apologize for. Also, mediocre and low-quality suppliers will damage the customer experience through lost items, botched drop shipments and packing or product quality issues, which can damage your business's reputation.

5. Limited customization and branding

Unlike custom-made products or print-on-demand, dropshipping doesn't give you much control over the product. Typically, dropshipped products are designed and branded by the supplier.

Some dropshipping providers can accommodate product changes for your business. Even then, however, the supplier has the most control over the product. Any modification or addition to the product usually requires a minimum order quantity to be viable and cost-effective for the manufacturer.

Start your dropshipping business with Shopify

Whether you're interested in finding a side hustle, starting a new full-time enterprise, or changing the business model behind your existing online store, dropshipping may be the answer you're looking for.

Getting started with an ecommerce platform like Shopify is easy:

Set up your Shopify account: Go to Shopify's website and follow the instructions to set up a new account. You will need to provide some basic information about yourself and your business.

Choose a theme: Shopify has a variety of themes available. Choose one that fits your brand and product.

Customize your store: Add your logo, create product categories, set up your navigation and add necessary pages like "About Us" and "Contact".

Setup DSers: Dsers is an AliExpress dropshipping tool that you can integrate with your Shopify store. Go to the Shopify app store, find Dsers and install it.

Link your AliExpress account: You need to link your AliExpress account with Dsers so that you can import products.

Import Products: Use Dsers to find products on AliExpress that fit your niche. You can import them directly into your Shopify store.

Yes, dropshipping comes with a lot of built-in complications that you need to address as an entrepreneur. But with careful planning and consideration, you can anticipate and solve these problems to build a thriving, profitable dropshipping business.