How Does Dropshipping Work?

Dropshipping work as a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, the store purchases and resells products from a third party after receiving an order from a customer. The third-party, or drop shipper, is responsible for shipping and handling the goods directly to the customer on behalf of the retailer.

The benefit of dropshipping is that there’s no need to tie up capital on expensive inventory. You can start an online store with little or no overhead costs, and you don’t have to worry about excess inventory taking up space on your premises. It is why many entrepreneurs choose to run their businesses this way.

Below are approaches used in dropshipping.

  • The retailer builds a website where customers can order products. When an order is made, the retailer purchases the items from the third-party supplier and ships them directly. The retailer also handles any customer service issues that may arise after purchase.
  • The retailer places inventory with a third-party supplier, usually for an upfront fee. The supplier ships items directly to consumers when orders are placed. Customers place orders directly through the retailer’s website or over the phone (most commonly).

A combination of the above two methods where manufacturers ship products directly to customers but under their branding. The retailer purchases items from the manufacturer and acts as a drop shipper for its branded products.

The manufacturer ships products directly to consumers when orders are placed. Customers place orders through an aggregator site, site search engine, or other data feeds where they can view the retailers who are selling the product along with their pricing and shipping information.

The retailer purchases items from a manufacturer and sells them under the manufacturer’s branding (private label). The retailer also acts as a drop shipper for customer orders.

How Does Dropshipping Save Money?

  • When you dropship, most of your costs are either cut or nonexistent:
  • No need to purchase inventory upfront
  • No need to keep a storage facility
  • No need to hire staff for shipping orders or handle customer service

All of the above lead to one considerable saving: zero upfront costs. However, dropshipping can be used by e-commerce stores selling any product (digital downloads, physical products). Many online entrepreneurs have found success in offering niche products that are not readily available at other stores.

Dropshipping may not be the best choice for:

  • It is applicable for someone looking for a long-term business who doesn’t want to look for new drop shippers constantly.
  • It is best for someone who wants more control over their product listings and marketing.
  • It is applicable for someone who wants to build a business with product inventory.

In conclusion, dropshipping is a business model that works well for entrepreneurs looking to get into e-commerce without investing in inventory. By utilizing the many third-party suppliers, you can source products at wholesale prices and then sell them for a higher retail price while dropping shippers take care of processing, quality control, shipping, and customer service. If you plan to start a business and do not have enough capital, consider doing dropshipping, it is a profitable business.