What is Drop Shipping and How Does it Work?

What is drop shipping is a question you could probably ask if you want to make extra cash by starting an online store. Actually, the advent of the internet has not only made communication easier but has brought easier ways of making money.

We all know the stress and financial pressure that comes with opening a physical store. You would have to pay the rent, buy the stuff you’re selling, and pay interior decorators to make your shop more attractive.

Let’s not talk about the cost of taking down your products to the shop itself.

So, what if you were told that you could do all this without spending a lot of cash? Amazing right?

We’ll find out more about drop shipping, why you could try it out, and who the main suppliers are in this piece of the “business puzzle”.

What is Drop Shipping?

Drop shipping is an approach to fulfilling orders that do not require a business to keep inventory. Instead, a third-party supplier gets the store’s sales order and delivers the item to the customer.

Contrary to popular belief, starting a dropshipping business is not a quick way to get rich.

Selling other people’s things and getting a cut of the proceeds may sound like easy money, but when you include in all the drawbacks, difficulties, and daily management, it may end up being a challenging career.

However, dropshipping can still help you build a successful business if you approach it correctly. Just not as quickly as you had hoped.

How Does Dropshipping Work?

The drop shipping model begins with the manufacturer, the distributor, the buyer (that’s you), and then the client (your customers).

So, the producer makes the goods and sells them to the wholesaler or dropshipping supplier. Then the wholesaler or drop shipper sells the goods to you, the retailer.

Afterward, the consumer contacts you to place an order. You (the retailer) send money to the dropshipping supplier, who then gets the order.

It is now up to them to package and deliver the goods to the client. The store is responsible for making sure the consumer receives the order and for responding to any customer support questions.

Many of the difficulties faced by owners of online retail stores can be eliminated by the dropshipping business model.

You are relieved of the burden of up-front inventory purchases, inventory storage, and shipping difficulties. Therefore, there is no need to rent storage space, spend a lot of time packing orders, or travel to UPS on a weekly basis.

What are the Benefits of Drop Shipping?

There are several benefits of dropshipping. Some of them are:

1. Simple to Start

When you don’t have to buy your products to sell or even maintain a store, operating an online store is simpler.

In as little as 15 minutes, you can set up an online store. It can take a few extra days to set up the background procedures, such as receiving and processing orders, forwarding to the supplier, and accepting and processing payments.

However, starting a dropshipping company is far easier than starting a physical retail store.

2. It is Fast

Drop shipping not only makes selling new products affordable but also quick.

You don’t have to wait for pre-orders because order fulfillment is done on demand.

In just one day, you can go from having an idea to having a market. Also, this speed boosts your chances of profiting from new trends.

3. Low Startup Cost

If you operate a dropshipping business, you won’t have to spend much money on recruiting staff, stocking products, or leasing a store.

All you need is a website where you can direct customers and conduct commerce.

This online store can be your own website or on well-known e-commerce platforms like Squarespace, Amazon, or Shopify.

4. Scalability

Scaling up the business is simpler because all you are doing is advertising and taking orders.

All you actually require is a reliable platform that can handle traffic and process orders.

So, you will have to choose a good distributor, because as your business expands because they will be responsible for handling shipping and returns.

5. Flexibility

If you choose to steer your company on an entirely different path, dropshipping will easily adjust.

Whenever you have a change of mind or a new idea, you can change your entire product line or market niche.

This is possible with a few clicks, with no additional outlay of cash. If you had a warehouse full of hundreds of items, doing all this would be really difficult.

Does Drop Shipping Have Any Drawbacks?

Despite the benefits that dropshipping brings, there are still some things that can be a huge turnoff.

They are:

1. Low Margins of Profit

The expense is cheap because you don’t have to handle or keep your own product, but the returns are also low.

Less money is invested and less profit can also be made. You need to have lots of customers to make more profits because most of the money goes to your supplier.

These meager margins hardly cover your fees and overhead for marketing and promotion, website upkeep, including search engine optimization (SEO), order management, and staffing office hours.

2. High Level of Competition

Stores that are more popular and liked by people will make more money than others.

Usually, a business that lowers its costs to offer the lowest pricing gets more customers. The likelihood that you don’t have an exclusive agreement with your suppliers makes the situation worse.

If your small firm is just getting off the ground, your competitors with years of experience have the resources you lack to undercut your prices.

3. No Management of the Supply Chain

Store owners who use dropshipping are largely at the whim of the supplier, but you are still responsible for communicating with your clients.

Dropshippers are virtually stuck; all they can do is wait for the supplier to fix the issues while reassuring the consumer about a situation that is beyond their control.

Also, there could be a communication breach as the drop shipper switches between the customer and the supplier. If someone responds slowly, the issues take longer to resolve.

4. Hard to Build a Brand

Dropshippers need to be aware that the credit for their work belongs to someone else, just as ghostwriters or hidden songwriters.

Your buyers will entirely dismiss the purchasing experience and focus just on the product’s brand if the things you’re selling are actually great.

After all, the box’s branding is not yours. That’s just another reason drop shipping benefits existing brands more than it does new ones.

Who are the Main Players in Drop Shipping?

There are some people that are so important in dropshipping. Without them, the entire dropshipping process is flawed.

They are:

1. Your Company

You are where the dropshipping process begins. Usually, you will be listed as selling the product to the final customer, often known as the seller of record (SoR).

This means that you fix the selling price, report the transaction as revenue, and take on the burden of paying the applicable sales tax.

So, you are referred to as the seller of record because you own the goods before they are sent to the consumer, even if a third party inventories and transports the goods.

2. Manufacturers

Products are created by manufacturers and sold to distributors and retailers.

Although you can buy products directly from manufacturers, the minimum orders they may have may make it difficult to launch or grow your firm.

However, some producers might provide dropshipping services.

3. Wholesalers

Wholesalers purchase goods from producers and resell them to retailers at a small markup.

They perform the role of middlemen, and they don’t sell to customers directly but they might offer drop shipping services to retailers.

Based on your business model and other things, you can always decide which dropshipping providers will be perfect for you.

How Can I Choose the Best Suppliers in Drop Shipping?

Anytime you include dropshipping into your sales plan, you are forming a partnership with the provider.

You, as the vendor, are always at the drop shipper’s mercy in terms of product quality, prompt shipping, and even legal compliance. So, you have to pick them very carefully.

Apart from checking that the products are what they claim to be, you should also evaluate if their shipment matches your standards.

To pick the best supplier, you need to ask yourself the following questions:

• How do they manage product returns or damage?
• From sale to delivery, how long does it take them to complete an order?
• How is the company’s customer service?
• Are orders insured by them?
• Do they provide protection from fraud?
• Can you find internet testimonials or references?

Now that we’ve answered your drop shipping questions, it’s time to start your online store.

Let’s remind you that dropshipping allows you to sell goods to customers without having to worry about order fulfillment.