Dropshipping: How Does it Work and What are its Pros & Cons?

The whole idea behind dropshipping is that the store never has to keep stock of products. The retailer will list a product with a supplier who will ship directly to the customer’s door whenever they purchase it. Retailers can start selling online products without having to invest in inventory.

 

According to the survey, almost half of the online retailers do not have products in stock but still offer on-the-spot order fulfilment. These retailers are called dropshippers.

If you haven’t heard about dropshipping or are confused about it, then this blog post is for you. We will discuss dropshipping, how it works, and the pros and cons of starting a dropshipping business. So, let’s get started.

 

What is Dropshipping?

 

Dropshipping means a business model where retailers do not keep products in stock. When a customer places an order, the retailer passes that order to the supplier, who then ships the product directly to the customer’s door.  

 

Essential Facts About Dropshipping

 

1. Dropshippers never handle, stock, or ship the products they sell.
2. Dropshipping works best for those making a full-time income from home and who are looking to keep their overhead low.
3. With drop shipping, you can sell a wide range of products without being an expert in any industry.
4. Dropshipping allows retailers to become their suppliers and manufacturers by connecting with distributors or other wholesalers online. In short, the retailer becomes the middleman but doesn’t need to carry any inventory.

If you don’t have a product of your own to sell, you can always use one from another retailer.

 

How Does Dropshipping Work?

 

There are two main types of dropshipping businesses:

1. The store owner finds a supplier who will dropship products. They build a relationship with the supplier and order products as needed.
2. The store owner finds a product they want to sell and then finds a supplier who will dropship that product for them.

In both cases, the process is very simple which is mentioned below.

1. The store owner lists a product on their site.
2. The customer orders the product from the store owner’s site.
3. The store owner contacts the supplier and then ships the product directly to the customer.

 

Dropshipping Pros

 

1. Low Overhead Costs

Because you don’t need to invest in inventory, your overhead costs are pretty low. You can run a dropshipping business from your home without renting office space.

2. No Shipping or Packaging Costs

Since the supplier ships the products directly to the customer, you don’t have to worry about packaging or shipping costs. 

3. Wide Product Selection

Since you’re not limited to selling products that you carry in stock, you can sell a much more comprehensive range of products. It gives you greater flexibility in choosing what to sell in your store.

4. No Inventory Risks

When you’re dropshipping, you don’t have to worry about overstocking products or running out of stock. The supplier will always ship the products directly to the customer’s door.

5. You Can Offer Full-time Service

You can provide full-time service in your dropshipping store. It means that you can receive orders 24/7 without worrying about shipping out the products.

6. Low Start-up Costs

It’s effortless to start a dropshipping business. You can create one with just a few hundred dollars.

Dropshipping Cons

 

1. Limited Control Over the Quality of Products

Since you’re relying on a third-party supplier to ship products to your customers, you don’t have as much control over the quality of products.

2. Limited Customer Support

When you’re dropshipping, it’s challenging to offer highly personalized customer service.

3. No Control Over Shipping Times

Since you don’t handle the order fulfilment process, you have no control over when orders are shipped out or delivered. So, customers can receive their packages only when the supplier feels like shipping them out.

4. Potentially Low Margins

Since you’re not handling the order fulfilment process, you’re not going to make as much money on each sale as you would if you were doing it yourself. This means that your profits may be lower than if you were running a traditional e-commerce dropshipping store.

5. Difficulty Building A Brand 

It can be challenging to build a brand when you’re dropshipping. Since you’re not controlling the product quality or shipping times, it’s hard for customers to trust your store. This makes it challenging to establish customer loyalty and encourages them to shop elsewhere.

6. Limited Scalability

It can be challenging to scale a drop shipping business up to a larger size. Since you’re relying on a third-party supplier to fulfil orders, you may find that you hit a bottleneck at some point.

7. Competition

The eCommerce industry is highly competitive, and it can be challenging to differentiate your store from the competition. This makes it tough to attract customers and generate sales.

8. Difficult to Stand Out

Because of the competition, making your store stand out from the rest can be challenging. This makes it tough to attract customers and generate sales.

9. Requires Technical Knowledge

It can be challenging to set up and run a dropshipping business without any technical knowledge. If you don’t know how to set up a store and integrate with suppliers, you may find it challenging to sell products.

 

How To Build A Dropshipping Business In 2024

 

Dropshipping in 2024 is a booming and popular business and the ones who are willing to enter this experimental and dynamic market need to follow these few steps to start like a pro and get the best out of dropshipping. 

 

1. Find your dropshipping business niche

 

Before you start any business, finding your area of interest is the most important step to start with. It is crucial for you to first find your niche and constantly keep an eye on the ongoing trends, define your target audience and market, and research the market segment thoroughly. 

 

Once you know your niche well, it will become easy for you to scale the market, for which you would need a supplier who you can count on!  

 

1. Find a reliable supplier 

 

The second crucial step is to find yourself a reliable supplier who can understand your business needs and cater to you responsively. Searching suppliers using dropshipping marketplaces such as Doba, SaleHoo, AliDropship, and Wholesale2B is the easiest method. Certain businesses, such as Printify and Printful, can also make personalised print-on-demand products for clients.

 

The priority is to check the legality of your chosen supplier. Carefully go through their legal papers to avoid running into scammers. Also, go through their previous clients and the kind of feedback they have received. Equally important is the keen evaluation of their platform fee, subscription, packaging and refund cost associated. 

 

1. Build your brand identity

 

Standing out in the market demands not only finding your niche but also making a brand identity of your own by standing out among the competition. For that, you need to focus on offering the key value proposition to your potential customer base. 

 

Making an impressive brand logo, user vibrant colour palettes while designing your website, and optimising the website for seamless user navigation is equally significant.  

 

1. Create an impressive website for dropshipping

 

Although you can run a dropshipping company using other e-commerce platforms, there are several benefits to owning your website.

 

One benefit is that it gives you complete control over your branding and company, from theme customisation to payment method options. Additionally, you won’t have to pay platform fees as you would with an eCommerce marketplace, allowing you to increase your profit margins.

 

Start with finding an available domain name for your website and then navigate to an easy website builder if you have no basic knowledge of coding. 

 

1. Prepare the finances 

 

Keeping your personal and professional finances separate from the beginning is a smart practice. It will be much simpler to keep track of your web business’s costs and earnings in this manner. It is also preferable for legal procedures to do this.

 

Each country and region will have different requirements for what you need to set up, so to make sure everything is covered, we advise speaking with a local financial consultant. Start with having these basic things ready initially like:

 

• Business bank account opened under your business brand name
• Resale certificate 
• Sales tax 
• Maintenance fees

 

1. Get your dropshipping business legally registered 

 

Now the most vital step, sorting out legalities for your business. Set up a legal business entity to overrun the chances of facing any legal liabilities. Whichever corner of the world you are planning to start your business from, you need to check the compulsion to get a license to conduct business in that specific area. 

 

Carefully look for the regulations to get the chance to work with a reliable chain of suppliers and business partners. 

 

Tips For Finding Dropshipping Suppliers

 

• Visit the trade shows 

Regularly visiting trade shows in your particular city opens up a grand opportunity to connect with the dynamic community of entrepreneurs and drop shippers for your business. So keep engaging yourself in such physical events and keep digging for the golden opportunity to connect with the fraternity of drop shippers. 

 

• Integrate with dropshipping directories

 

Directories are companies that look for manufacturers and make a comprehensive list of them. Some examples of dropshipping supplier directories are Spocket, Oberlo, SaleHoo, and Dropship.IO, which have special tools and features to make it easy for businesses to find suppliers. 

 

Dropshipping directories charge some amount of money for using their tools. In addition, all the suppliers listed in these directories are legitimate, as they all go through a vetting process. 

• Join social media groups and forums 

 

Another way to find dropshipping suppliers is to join social media groups and forums where you have a high likelihood of finding a community of manufacturers, suppliers, and business groups. Simply participate in the conversations and try to enquire about the various suppliers you meet online. Just handpick some of the options and you may get the one you’re looking for! 

• Surf through diverse marketplaces 

Giant Chinese marketplaces like Alibaba and AliExpress offer you a wide product range to dive through. They are almost equivalent to giants like Amazon and bring you an opportunity to connect with sellers and suppliers from across the world. Now the one thing you need to ensure is whether they drop ship to other locations different from yours. Also, understand their cancellation and return policy for your convenience later. 

 

How To Spot Unreliable Dropshipping Suppliers

 

To avoid getting scammed by fake drop shippers in the business, here are the following tips which you need to look out for:   

 

• Direct selling to customers 

 

Some dropshippers often tend to sell products directly to customers in the name of running a dropshipping business of their own. Not only is this a serious violation of this business model, but also there is a higher chance of you getting below-standard and fake products from such suppliers. So keep an eye out for it! 

 

• Minimum order quantity

 

When collaborating with drop shipping wholesalers, one aspect to take into account is the minimum order quantity. Many will set a minimum purchase quantity for the initial order to weed out customers who are merely doing window browsing and have no intention of really making a purchase.

 

Drop shippers may encounter difficulties as a result, as their budgets may not be enough to immediately cover those minimums. Before placing your order, you must research wholesale dropshipping suppliers and review their minimum order requirements.      

 

• Monthly fee charges

 

Legitimate and trustworthy small company wholesale suppliers won’t charge a monthly fee to their clients to conduct business. Some India dropshipping vendors may attempt to defraud their customers by requiring a small monthly fee to access their goods and services; yet, this ought to be seen as a warning sign that the vendor is not reliable.

 

Conclusion

 

Dropshipping is an inexpensive way to build your own eCommerce business. However, there are quite a few challenges that you’ll need to overcome when starting this kind of business. The biggest challenge is the low margins due to having other people fulfilling orders for you. You’ll also need to find a supplier that you can trust and make sure that you can offer good customer service. If you can overcome these challenges, then dropshipping can be a very profitable business. 

When starting a business, it’s essential to weigh the pros and cons of each option to make an informed decision. In this article, we’ve explored all the major pros and cons of dropshipping that can help you decide if it’s a suitable business model for you. 

Outline FAQs

 

• Is a dropshipping business good for beginners?

 

Dropshipping is a business model that can be started with the minimum investment and less cost. Dropshipping can be a good option if someone is starting in the industry.

 

• Will dropshipping help make my business profitable?

 

The dropshipping business model has fierce competition and while you decide you invest your time and money(not a major amount) in it to sell a product in a specific niche, there is always a high possibility that thousands of other sellers are offering the same products with better features. 

 

So the likelihood is that you might be sailing between low profit margins and low overhead costs in dropshipping. 

 

• What’s the difference between dropshipping and retail arbitrage?

 

This phrase refers to purchasing goods in bulk from a site to resell them on websites like Amazon and eBay. When a product is purchased in bulk at a highly discounted price, like during a clearance sale, this is known as retail arbitrage.

E-commerce dropshipping involves having a third party send products straight from the manufacturer to buyers rather than the seller keeping stock. The “third party” is usually a distributor or manufacturer.