Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.
The dropshipping business model is becoming increasingly popular, particularly with small businesses and entrepreneurs, as it allows people to start an online store without the need for large financial investments into product inventory.
How Does Dropshipping Work?
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Setting Up a Dropshipping Store: A merchant sets up an online store and lists products they want to sell.
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Partnering with a Supplier: After finding a supplier, the merchant forms a partnership with them. The supplier will then make their product catalogue available to the merchant.
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Listing Products: The merchant selects products they want to sell and lists them on their online store with the supplier’s respective descriptions and images.
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Customers Place Orders: After a customer purchases a product from the merchant’s online store, the order is then automatically forwarded to the supplier.
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Order is Processed and Shipped: The supplier receives the order, processes it, and ships the product directly to the customer.
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Tracking the Shipment: The supplier provides the merchant with tracking information, which can then be forwarded to the customer.
Advantages of Dropshipping:
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Low Start-Up Costs: As mentioned, the dropshipping model doesn’t require a merchant to hold inventory. Therefore, it eliminates the need for large financial investments.
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Low Overhead Costs: Additional costs, such as storage space, don’t need to be considered. All you need is a laptop and Internet connection to be in business.
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Scalable: Dropshipping is an ideal business model for those looking to take their business to the next level. It’s easy to incorporate new products and increase sales without having to worry about expansion costs.
Disadvantages of Dropshipping:
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Lower Margins: Since dropshipping requires merchants to purchase products at a higher cost from suppliers, it can lead to lower margins than traditional retail models.
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Lack of Control: Merchants relying on third-party suppliers for inventory or order bottlenecks can create problems, leading to loss of control. This issue can create problems in the customer experience.
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Supplier Reliability: Merchants relying on suppliers for order fulfillment must make certain that suppliers are reliable and have the product demands in stock.
Conclusion
Dropshipping can be an effective business model, especially for small businesses looking to become a part of the e-commerce landscape. However, it's important to research and understand the model thoroughly before diving into dropshipping-driven sales. Ultimately, you will want to weigh the advantages and disadvantages of this retail fulfillment method before making the leap.