Dropshipping: What it is, how it works, and why it’s a great idea

Have you considered starting your own business? If you have in the last few years, you likely came across articles about dropshipping. What is dropshipping? In short, it’s a business model that avoids the need for inventory, overhead costs, and warehouses. Let’s go into more detail about what dropshipping entails, and how it works.

As we said, dropshipping is a relatively new business model. As a dropshipping company, you are not responsible for inventory or facilities. Why? Dropshippers are middlemen in the retail world. The process of dropshipping isn’t very complicated, but it can be confusing for those unfamiliar with it. There are four basic steps to understand:

1. The dropshipper creates an online store
2. Consumers place orders for products on the site
3. The dropshipper relays these orders to the supplier
4. The supplier packages and ships/delivers the orders

Dropshipping is hugely popular at the moment because of the success that online retailers have been seeing. What’s more, dropshipping can be extremely profitable if done correctly. There are a lot of dropshippers who have been very successful because they work with the right supplier, are targeting the right location, and are offering the right products. We’ll go more into detail on what makes a dropshipping company successful a little later. Long story short, dropshippers act as the liaison between the customer and the supplier. Make sense?

People love dropshipping for many reasons. The first is the ease of set up. Once you’re done researching location, product, and supplier options, all you need to do is set up an online store. With the site builders available, just about anyone can create a functioning eCommerce store. The good news continues because the store is really all you need to manage. Of course, you need to find efficient ways of getting orders to the supplier quickly, but you have no physical location to worry about. You will save thousands of dollars if you opt for dropshipping simply because of the fact that you have no buildings. Between maintenance, utilities, inventory storage, and other overhead costs, a physical location can really suck money out of your bank account. Dropshippers, on the other hand, does not have to deal with any of that! You also aren’t locked into a location because you can run your business from anywhere with internet.

One of the other appealing aspects of dropshipping is the potential for profit. If you find the right niche, you can see enormous profit margins. For example, some electronics can earn you up to a 100% profit margin ! Who wouldn’t want that? Now, results like that are certainly not common, but they are attainable. In order to be this successful, all the stars need to align for you. Luckily, you can force their hand with some strategic decisions. You’ll need to choose the right products to sell. Generally speaking, durable goods and electronics will be highly sought-after and very profitable. By “durable goods” we are referring to products that do not wear down or die easily such as appliances. These goods cost quite a lot of money but are always in demand. Once you find the goods to sell you need to partner with a good supplier. You want to find a supplier that has experience with dropshipping, can handle large amounts of orders, have a fast turnaround, and take pride in their work. The last half of the sale - when the consumer gets their order - is on the supplier, but the repercussions of bad service will fall on you. Finally, you want to pick locations that are interested in your products, not too saturated, and are easy for shipping.

As you probably know, no form of business is without concerns or issues. For dropshippers, many of the problems arise after orders are placed on your site. As we stated, any issues on the back-end of the sale will be your responsibility. You are the site through which the order was placed, so your company’s name is attached to that order. Issues like this happen often because once you send the orders through, you have little to no control over what happens. The supplier may take too long, damage the goods, or run out of inventory. You also have no control over what the goods like when they are packaged. You cannot use pretty packages, clever branding, etc. because that is all up to the discretion of the supplier. Finally, you may not be able to get yourself into the perfect niche. Your business will likely not earn 100% profit, simply due to the nature of the beast. However, you can be almost certain to have returns of 15-40% even if you don’t check off a few of the “how to be successful” boxes.

We hope you have learned more about dropshipping and why it has been such a popular business model. Just about anyone can do it with enough time and dedication, so maybe it should be your next business venture! Looking for some help setting up an online store ? Call BusySeed at (888) 353-1484! Our team of experts has worked with many eCommerce clients over the years and we’ve helped them see great growth for their companies. We can do the same for you! We look forward to hearing from you.