Inventory management is one of the biggest challenges that every retailer faces. Having the right products at the right time requires proper demand forecasting and savvy purchasing practices. If you don’t order enough merchandise, you risk disappointing your customers and sending them to your competitors. But if you order too much, you end up stuck with inventory that you’ll have to unload at a loss. It’s a tricky balance, and many merchants just aren’t up for it.
However, you can explore the guide to do it accurately. Have you ever heard about Dropshipping? It’s a brilliant e-commerce business model that eliminates the burden of stocking merchandise. Dropshipping has already entered into the e-commerce business environment and is doing well. Many have also started leveraging the benefits of Dropshipping; now it’s time for you.
So, let’s not waste any more time and dive into it. Before starting with it, you need to first understand what Dropshipping really is and how it works. So, let’s get started!
What is Dropshipping?
In a nutshell, 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 using the Dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly.
One of the biggest differences between the standard retail model and Dropshipping is that the selling merchant doesn’t stock or own inventory. Instead, the seller purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
According to survey, 23% of online sales in 2016 were fulfilled using Dropshipping amounting to $85.1 billion. 33% of online stores use dropshipping as their fulfillment model.
It’s evident that this model saves the seller from needing a warehouse and numerous staff to manage items. And it benefits the supplier by giving them an additional channel through which they can sell their goods. The dropshipper, in a nutshell, simply acts as the go-between; arranging the transaction between the customer and the manufacturer/supplier, such as a factory or importer.
Dropshipping comes in many different forms, but consider common examples such as Etsy. Even Amazon has implemented the elements of dropshipping into its business model. In the case of Etsy, dropshipping gives small product creators a platform on which they can sell their goods. Customers have a single place where they can shop from a range of different suppliers. Etsy simply acts as the marketplace or platform on which those items can be purchased, but the company itself doesn’t carry its own merchandise.
How Dropshipping Model Works for E-Commerce Businesses?
As already mentioned, dropshipping works through collaboration between the retailers and the dropshipping service providers where the retailers just manage their website and orders while the dropshipping services take care of all the rest. It is really a lifesaver for the online business owners and takes away a huge hassle of storing and shipping.
In short, all the logistics-related issues are handled by them. This may sound a little complicated but to understand it in simple terms, it involves three basic steps:
Step1: Customer Orders the Product:
In this process, the customer places an order through the E-commerce website of the primary seller. So, if you have built an e-commerce website, the customer will go on your website and place the order to you.
Step2: Retailer Informs the Dropship Supplier:
In the next step, you will receive the order and forward the request to your drop-ship supplier partner. You can either automate this process or do it manually.
Step3: The Dropship Supplier Packages & Sends the Product:
As the last and final step, your drop-ship supplier partner will accept the order, package it nicely and send it to your customer on your behalf with your name on the package.
Hence, with these simple steps, you can see how dropshipping works. It’s not that complicated once everything is streamlined and all the steps are organized well.
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Although dropshipping sounds like a piece of cake, it’s really not as simple as the internet sells it to be. You can expect a multitude of technical hurdles that come free with starting a dropshipping business and even more than that, creating a dropshipping platform.
It’s pertinent to note here that any e-commerce platform’s worth can easily be determined simply by understanding the number of prominent stores that they are using to run their dropshipping store. In addition to that, it can become quite challenging to decide which e-commerce platform to go for in order to develop your own dropshipping platform. Another crucial debate that is also likely to pop up is regarding hosted platforms and self-hosting.
Moreover, with the plethora of e-commerce platforms in the market such as Magento, Shopify, WooCommerce, BigCommerce, OpenCart and much more, you can often find yourself in a pickle over which one to go for. This is largely due to the fact that most of these services offer the same facilities and therefore, finding that unique selling point can be a bit of a hurdle.
If you find yourself in a similar problem, it’s a good idea first to take a close look at your own business and the products & services that you intend to sell to understand the kind of dropshipping platform you would want.
Now that you have ample information on dropshipping, let’s move on to its benefits…
Benefits of Introducing Your E-Commerce Business with DropShipping
Dropshipping is a practice of order fulfillment where a manufacturer/distributor ships a product to a consumer on behalf of the retailer. It can be very attractive because it helps to minimize risk and cost while offering convenience and practicality.
Dropshipping Minimizes Startup Risks
Money doesn’t need to be paid upfront to acquire the inventory, which means that if the business doesn’t pan out, the only money you have lost is what you paid to get your website started. Your business is less susceptible to loss of revenue as a result of changes in tastes or trends because there is no such thing as excess inventory. Lower volume niche products can be offered alongside popular best sellers.
Dropshipping Lowers Product Costs
New products are less expensive to launch because they don’t require an investment before they can be sold. Often, you have access to better shipping rates through a dropshipper than you would as a small business shipping your own packages. The number of goods that get damaged during shipment is generally lower when using dropshipping because it reduces the number of times that the product has to change hands.
Dropshipping Means Less Work for Merchants
All the hassle of packing of products to prepare them for shipment is taken care of for you. You can add new products to your offerings very quickly.
Dropshipping Lowers Storage and Logistics Costs
A storage facility or retail location isn’t needed – just the website where the items will be sold. Your business can offer a wider variety of products than would be possible if you had to buy and store all of the items you decided to sell. Products that are impractical to store (for example large products, perishable products, etc) are easier to sell.
Remember, many dropshippers will allow you to supply your own labels, so customers don’t even need to know that you’re using a dropshipper rather than sending them their merchandise personally. The increase in dropshipping providers and offerings has made it easier than ever to start an e-commerce business.
Like the two-side of a coin, dropshipping has also some disadvantages associated with it. Keep on reading and you’ll get to know.
Disadvantages of Dropshipping
Dropshipping has slim margins
One of the disadvantages of dropshipping is that you should expect low margins initially. That’s not to say it can’t be profitable, but you should be aware that the product margin in some niches might be small.
The issue is especially problematic when you’re dropshipping in a super-competitive niche. When you’re fighting for customer’s attention, you can’t afford to make the kind of profits you want to. If you choose the right niche, you’ll see larger margins. In niches with lower competition, you’ll have better margins, but at some point, sales will start to plateau. That’s why dropshipping relies on a fair amount of sales to be profitable.
Dropshipping can make order processing difficult
Dropshipping seems straightforward: The customer orders, you process, and your supplier fulfills. And for the most part, it is simple. However, if you’re sourcing products from multiple suppliers, you might run into some problems. Each of your suppliers might use a different shipping solution, which presents a problem for both you and your customers. Costs can get high, and shipping multiple products can be problematic. Different suppliers will also have different structures in place for processing and billing. Since you have to manage the interaction with your suppliers, this can get tricky.
Dropshipping doesn’t give you a lot of control
One of the disadvantages of dropshipping is that you don’t have much control over certain aspects of the dropshipping process such as stocking products, order fulfillment, and shipping. You have to rely on your suppliers to do everything right and work seamlessly. This lack of control can be off-putting to some entrepreneurs, but it usually isn’t a problem.
This just means that when something goes wrong, it can be tricky to manage. While supplier problems can sometimes cause customer retention issues, you can mitigate them and keep customer churn to an absolute minimum with the right damage control.
Dropshipping makes customer service more challenging
This is another problem that happens when orders go wrong or suppliers fail. Because you’re just the storefront and don’t have a lot of control, it can be difficult to sort out orders and handle customer support. One of the most unfortunate disadvantages of dropshipping is that you have to take the blame when your customers complain. You could be doing everything right and still run into problems if your suppliers have issues.
So, Is Dropshipping for You?
Because there are both advantages and disadvantages of dropshipping, it isn’t for everyone. This is especially true for people who are looking for a get-rich-quick scheme. Even if this isn’t your approach, you still might have one of these fears:
- I don’t know if I have enough time to start a business
- I don’t want to risk getting fired from my day job
- Don’t want to work so hard on dropshipping that I underperform at my 9-to-5 job
That said, nearly anyone can build a dropshipping business because you can put as much or as little into dropshipping as you want.
Why Is It Essential to Use A Dropshipping Software?
Dropshipping software is infused with automation technology that frees the merchant from performing repetitive routine tasks, saves time and improves efficiency. E-commerce dropshipping software providers face tough competition in the market while selling robust software at a reasonable price. If dropshipping solutions want to achieve success and win more customers, it is vital for them to support all the needed functions like:
Price and Stock Information
Dropshipping e-commerce software must be able to optimize the price of products and calculate the share automatically. It eliminates the manual work of retailers.
Although there’s no need to store products and handle inventory, retailers are required to maintain vendor inventory levels to withstand “sold-out” stock problems.
Support of Many Suppliers
Dropshipping allows retailers to find suppliers from various parts of the world. A dropshipping software helps retailers to spot the best suppliers for their store and manage them all at a single place.
Dropshipping software must provide the possibility for merchants to keep an eye on their competitors’ store products and prices.
Integration with Multiple E-Commerce Platforms
The integration with a significant number of shopping platforms and marketplaces like Magento, Etsy, OpenCart, Shopify, Amazon, eBay, WooCommerce, etc. allows to satisfy more customers and increase revenues dramatically.
Dropshipping has immense scope in the emerging markets for all the new entrepreneurs because it is the most cost-effective way of starting an online business. It’s a business model that doesn’t entail a lot of risks because you make the actual purchase of the product only after a customer places an order on your website. When it comes to the future of dropshipping, it has a massive scope. Since more and more markets are moving towards online shopping, the scope for dropshipping is increasing immensely.
With the easy availability of the internet and smartphones, more people are inclined towards using e-commerce platforms so that they can buy products from the ease of their homes. This is only going to increase as high-speed internet is likely to become more popular in the future. Moreover, it’s super easy to start a dropshipping business in an emerging market like India. All you need to do is find vendors who are selling the products of your interest and ask them directly about the logistics to start dropshipping.
There are so many vendors offering these services that you won’t have a problem in finding one for yourself. However, if you plan to sell your products in emerging markets like India, it’s better to find your vendor in India so that it’s easier to communicate and take care of the logistics. There’s a lot of scope for success if you choose a dropshipping business model now.
Ready to Get Started with Dropshipping
To create a stable online business, sometimes you’ve got to think outside the box. If you’ve been wondering how to grow your business but only know about time-consuming or expensive ways, dropshipping offers an alternative. Whether you’re curious to move into new markets, thinking about different products, need to find ways to respond to competitors, or just want to expand your catalog, dropshipping can help. So, start combining your online businesses with dropshipping today. All of this sounds like a complicated puzzle, but once you learn how to dropship, it’s a smooth process for everyone involved. You, the dropshipping merchant, can do everything remotely and never even touch a single product.
Remember that you don’t need any business experience to open a dropshipping storefront. It certainly helps, but it’s not necessary. Many budding entrepreneurs don’t ever chase their dreams because they believe they need an MBA or years’ worth of experience. This isn’t the case. One of the benefits of dropshipping is that you can learn how to dropship as you go.
Better yet, there are numerous resources that make dropshipping easier than ever before. Start your search and just get started with it.
All the best!