What is Dropshipping? – A Detail Guide for Dropshipping Beginners

Dropshipping has been making the rounds on the internet being touted as the best way to run a business. Though many still don’t exactly understand what is dropshipping at all regardless of its popularity. A few people also ask, “is dropshipping legal?” This is understandable as the term is very vague and does not give a lot of insight.

While many people assume that dropshipping is a small-time niche industry, the truth is quite the opposite. According to the stats, the dropshipping industry will be worth $557.9 billion by 2025 globally which is quite amazing for those looking to get into the business. 

Dropshipping businesses do indeed bring a unique way to run businesses to the table. This is why in this article we will learn what dropshipping is and look at other factors that help you understand the potential opportunity hidden in this business line.

What is Dropshipping?

Dropshipping is an alternative retail fulfillment method that allows an individual to sell goods without having to purchase or maintain inventory. Instead of handling production or distribution in dropshipping all you handle is mostly sales and marketing. 

In the dropshipping business model, a third-party supplier handles all the heavy lifting such as inventory management, stock keeping, and shipping complexities. So, you can get started with dropshipping without having to worry about meeting minimum order quantity requirements or stocking inventory.

Meanwhile, all you have to do is run an online store where you can sell these goods for a profit and let the supplier handle the rest. You can tie-up with an ecommerce retailer to do this, and gradually grow your business as you move forward.

For example, let’s say that an individual named James wants to sell dog food without having to handle the logistical process or inventory. He would contact a third-party seller to handle the supply of products, meanwhile, James would simply sell those products at a slight margin.

How does dropshipping work?

Dropshipping works in quite a simple manner. Initially a merchant decides to place a product for sale from any chosen dropshipper. The dropshipper is chosen by the merchant after discussing various business details such as profit margins and shipping processes.

When a customer purchases the product from the merchant’s site, it gets processed by the supplier, who then fulfills the order on behalf of the merchant. The merchant also gets notified of the purchase and can follow it up with the supplier if needed. 

Then the product is prepared and shipped to the customer without the merchant having to be involved in the logistical processes. After the successful purchase the merchant and the dropshipper take their shares of the profit that they previously agreed upon. 

What is dropshipper?

A dropshipper is the supplier that facilitates the dropshipping process for any merchant. These dropshippers are the ones that take care of all the duties related to production and shipping. Their job in the dropshipping process is the most straightforward as their work is predicted.

All they have to do is to be in compliance with the product demands of the merchant and successfully deliver said products to the customers. Any dropshipping issues are instantly attributed to the dropshipper as they are the ones responsible for the order fulfillment process.

Pros and Cons of a Dropshipping Business

At first sight, the dropshipping business looks flawless and full of advantages. Though much like any other business, the benefits of dropshipping come with its own set of drawbacks. Let us look at the pros and cons of this business model one after the other to learn more about it.

Pros 

1. Less monetary investment 

Dropshipping allows you to sell products at nearly zero cost without having to pre-purchase inventory. If you are capable enough, you should basically be able to run a dropshipping business with $0 as almost all of the cost is incurred by the supplier.

2.  Minimal overhead costs

Since you are not handling any of the inventory, you also get to dodge the bigger overhead costs such as the rent for warehouse space or insurance. So even if your products are not doing too well, at least you don’t have to worry about the overhead costs.

3. Opportunity to expand your offerings

What is dropshipping without the freedom to offer more products? Since you have the freedom to introduce new products by simply contacting new suppliers, it is very easy to expand your offerings with the dropshipping model.

4. Hassle-free shipping process

People with dropshipping stores do not have to worry about paying any costs for shipping products or arranging a mail carrier to deliver products as that too is handled by the supplier. Depending on the supplier, many dropshippers also let them handle returns management if required.

5. Collaboration with new suppliers

Each and every supplier brings a unique proposition to the table. This allows you to constantly scout new opportunities and potential ventures to indulge in. Such are the benefits of dropshipping that give you the most flexibility in life. 

Cons

1. Difficult to manage logistics

Because the supplier is the one managing the logistical aspect of your business it can quickly be evident that you cannot have a lot of control over the process. Though this is not unexpected as the whole purpose of dropshipping is to have the supplier handle the fulfillment process.

2. Tight profit margin

Look at any dropshipping agreement contract and you will quickly see how thin the profit margins are in this industry. Because you have a third-party supplier taking care of the majority of expenses they also take the majority of the profits. 

3. Lack of product customization

Since the products that you sell are usually premade, you have little to no room for additional customization as it is not feasible for the supplier. This is unfortunate for those that want to offer a truly unique product to their customer base. 

4. Complex fulfillment process

Unlike other business models, the dropshipping model has a very complex fulfillment process. This is because to successfully order a product a customer has to order through your site for the supplier to acknowledge the order. Though any issues arising from this system are rare. 

5. Chances of losing inventory control 

Due to the dropshipping model making you so distant from the entire supply chain, there could be instances where you totally lose inventory control. This leaves the supplier in control of the inventory and could lead to stock shortages during high demand phases. 

How to Start Dropshipping Business?

You have probably heard enough about the workings of a dropshipping business model. Now it is time to learn how you can start your own and turn it into a successful venture. Here we will only glide over the steps of starting your own dropshipping venture though you could always read a detailed blog on the subject whenever you please.

1. Pick a niche

Picking a niche basically means choosing a target audience to cater to. This will help you understand what products to sell and methods to enhance the customer experience. It gives you quite a headstart when starting your online business.

2. Decide what you will offer

Dropshipping companies often have a habit of listing a whole bunch of products for sale and eventually wasting time due to a lack of sales. In this business model, it is best to stick to a particular niche and offer the finest products in that field.

3. Choose your dropshipping supplier

Choosing the right dropshipping supplier is of crucial importance as they basically control the entire supply chain for your customer orders. Everything from the product quality and the order fulfillment method lies in the hands of the multiple suppliers that you choose.

4. Build your online store

After you’ve got the products and suppliers in line, it is time for you to build your very own eCommerce store. In this day and age, there are plenty of avenues to start your eCommerce business thanks to multiple social media platforms.

5. Market your brand

Ideally, eCommerce businesses should keep their advertising costs very low unless they have enough sales to justify the cost. If you start a dropshipping business, it is advised that you stick to low-cost advertising options such as social media ads to attract potential customers. 

Accelerate Your Dropshipping Process with Upper’s Advanced Routing Features

Making multiple deliveries is easier said than done as there are a lot more aspects that go into it than people realize. Industry professionals know this to be true and constantly look for ways to lower the burden of making timely deliveries to meet customer expectations. 

This is exactly why Upper exists. Upper’s class-leading route planning features save you both time and money, Features such as route optimization can save you up to 40% of money spent on gas with highly optimized routes that have your business’s best interest in mind.

This is especially useful for dropshipping companies as it helps to dramatically save shipping costs. Switching to an automated route planning process will also save you hours spent on manually planning multi-stop routes.

Conclusion

There are many dropshipping options that have been alive for years and they do not seem to have stagnated even a little bit. This is all for good reason however, as it has made thousands of people go from rags to riches without having to go into debt after taking massive loans. Moreover, if you are a Shopify store owner, you can easily use dropshipping by connecting with third party suppliers and integrating dropshipping apps.

Though this amazing plan does come with a caveat and that is having thin profit margins. These margins can really suck the life out of the business though they do make sense as no fees such as shipping fees are levied on the merchant. Anyways, there are still better ways to make more profit. 

One such way is by using a route planner that helps you save money spent on gas and save time spent on manually planning routes for hours. This automated solution is truly a boon for any business that uses it. Try using it by yourself with our 7-day free trial.