What Is Dropshipping? Everything Business Owners Should Know

Dropshipping is nothing new, and it's been around since the 60s or 70s. However, dropshipping has evolved over the past 50+ years and it now offers numerous benefits to businesses. It's a win-win situation for businesses as well as dropshippers, enabling them both to earn more in profits than ever before. However, dropping must be managed strategically in order to be successful.

Getting started with dropshipping products is easy, and all that's necessary is to locate a dropshipper that you would like to do business with and then take it from there. In fact, you can partner with multiple dropshippers if you feel it would be more lucrative for you.

Dealing with more than one dropshipper simultaneously gives you more options to offer your customers. Here is a complete overview of dropshipping so you can get started with selling significantly more products today.

What exactly is dropshipping?

Dropshipping is an easy way to sell various amounts of unique and popular products without the need to contend with the storage or management of inventory.

Dropshipping companies sell products on their websites without keeping them in stock. There's no need for a warehouse or inventory. Rather, a dropshipping business works with a supplier, which can import products and fulfills customer orders. The dropshipping supplier is typically the manufacturer or wholesaler.

In fact, you don't even purchase the items that you're selling in advance when you become involved in dropshipping. Dropshipping is a business model in which the dropshipping business lists products for sale on their website, and when a customer purchases products through that business's site, the dropshipping supplier will fill the order using products from their inventory and ship it directly to the customer.

The dropshipping site obviously makes money by making the sale itself, but since dropshipping suppliers actually fill and ship the order to the customer, they earn a percentage of every sale. Other dropshippers merely charge a monthly fee instead of earning a percentage of every sale.

When the order is shipped, dropshipping suppliers label the package with the business's name on the label, so customers never become aware of any third-party involvement.

A dropshipping business has access to these amazing, low-priced, high-quality products, and businesses can set them at whatever reasonable price that they desire. Once a business gains a regular customer base, they can raise the prices slightly for increased profit.

How dropshipping websites works

Dropshipping websites are online eCommerce stores like any other. However, the behind-the-scenes process differs from other retail business models. The dropshipping process involves three parties: the dropshipping business owner, dropshipping suppliers, and the customer.

The role of the business owner

The dropshipping website owner is the retailer; they're responsible for selling items on their online store. To become a dropshipping company, a retailer entered into a business agreement with dropship suppliers.

The role of the supplier

The supplier is a company that offers dropshipping services to the retailer. Once a customer places their order, the dropship supplier picks, packs, and ships the order directly to the customer. Dropship suppliers might be wholesale suppliers or the manufacturers themselves that also offer dropshipping services.

The best dropshipping suppliers may also offer additional services like reverse logistics for returns management, online payment solutions, and B2B fulfillment.

The role of the customer

Unless dropshipping companies publicly tell customers they use dropshipping, customers won't know. In most cases, your customers won't realize whether you stock and warehouse the items yourself or if you use a dropshipping platform.

You can also sell dropship branded products in which the online store sells a manufacturer's products using branded packaging, depending on the terms of your contract with the dropshipper.

After a customer places an order on the business eCommerce platform or store, they'll receive order confirmation and later shipping information. Then, they'll receive their item. In most cases, they won't know the order wasn't shipped directly from the eCommerce store owner.

Payment and fulfillment processes in dropshipping

Dropshipping websites use dropshipping fulfillment, which means they don't keep their products in stock. Instead, they outsource packaging and shipping to a third-party fulfillment service or supplier. A dropshipping store collects payment from the customer, and the order is automatically sent to the dropshipper.

Once dropshipping companies receive payment from the customer, those orders are purchased from the supplier or a dropshipping platform.

Then, the dropship supplier is responsible for shipping the product directly to the customer, and in many cases, the dropshipping site owner doesn't have any direct contact with the product.

What are the benefits of dropshipping websites?

Dropshipping companies have a different business model than other retail stores and a lot less responsibility. Of course, the most significant benefit for dropshipping websites is that they don't have to keep the products they sell in stock, which means no warehouse space or time spent counting and tracking inventory.

Advantages of dropshipping

When you eliminate inventory and shipping, your eCommerce platforms and stores have lower upfront costs and more flexibility.

Lower upfront costs

Although you must invest some money when starting, startup costs aren't very much. Dropshipping companies are eCommerce businesses, so your primary startup cost will be your very own store and website. As you check out the different dropshippers, you will find that their costs are very affordable, and since it's not necessary for you to purchase the products before they sell, dropshipping is a quick and easy way to earn mega profits as long as you're going about things in the correct manner.

Reduced inventory management

Since you're likely to offer multiple products for sale to your customers, there is no need to contend with storing any products whatsoever, because the dropshipper will store the products in their warehouse.

Therefore, you could have a 400-square foot office, with no overhead, if that's all the space you wanted. Many small businesses start out in garages and other small spaces before becoming successful and better able to afford a larger and more adequate workspace.

Packaging and shipping multiple products can sometimes be a real pain. However, another benefit of dropping is the fact that the dropship manages this aspect of the sale, so you never have to manage shipping or packaging items that your customers purchase.

Greater flexibility and scalability

Furthermore, dropshipping stores can try out various suppliers to find the best one that is the most reliable and has the best products. You can use local suppliers, dropshipping platforms, and worldwide brands as your supplier, and you don't have to choose just one. The best dropshipping companies and websites partner with several suppliers to ensure their products will always be in stock while offering more variety to customers.

What are some of the disadvantages of dropshipping websites?

Dropshipping businesses have lower startup costs and don't have to worry about managing inventory. However, dropshipping sites have disadvantages business owners should consider before creating their website and business model.

Disadvantages of dropshipping

Consider the fulfillment process. Your customers order products from your website, and a third party handles the rest of the process for you. The best dropshipping companies to partner with handle everything from shipping to returns and sometimes even customer service.

As you will quickly discover upon searching for dropshippers, there is an abundance of different suppliers to choose from. However, you should take your time choosing a dropshipper, because choosing the wrong one could lead to a variety of potential problems that could ultimately cause you to lose customers or experience other issues.

Beyond the challenge of finding the right partner in your dropshipping endeavor, there are some disadvantages to dropshipping in general that business owners should be aware of.

Reduced control over shipping and fulfillment Your eCommerce business isn't involved in the fulfillment process, which means an initial low cost to start your business. However, whether you use international or domestic suppliers, you don't have control over shipping and fulfillment.

You can't modify shipping times or put anything extra in your customers' packages. Additionally, with most dropship suppliers, you can't control how the packaging looks because they handle the entire fulfillment process.

Therefore, you don't have as many chances to build your company's brand. Since the dropshipper is responsible for shipping the orders directly to the customers, you will have very little customer interaction, which prevents you from incorporating your own personal touch with your shipments.

Dropshipping website owners have no control over the order fulfillment process, which means there can be potential quality control issues. You won't find out about these issues until customers start contacting you for a refund.

Lower profit margins While there are plenty of dropshipping success stories, most dropshipping companies have low profit margins. Since a dropshipping company doesn't ship products, they have to pay a third-party supplier to do it for them. You can find dropship suppliers that offer their services for fixed monthly fees or a percentage of the sale.

Low profit margins aren't necessarily a bad thing; it just means you'll have to work hard to sell more or find lower-cost wholesale merchants to increase your profits.

Increased competition When you sell products online, you have a lot of competition. After you find suppliers and create an online business, there's still so much work to do to attract customers to your website.

Many dropshipping stores fail because there's so much competition, and since you're not manufacturing your own products, customers are likely to find the same or similar products elsewhere.

Dropshipping companies can't control the fact that other eCommerce stores and websites are doing well, but you can differentiate yourself from the competition using comprehensive and effective marketing strategies. Understanding your target audience by performing market research and finding the most effective ways to promote your online store can help your business grow.

When should I start dropshipping?

When you create your dropshipping eCommerce store depends on your unique goals. There is no specific time that you should start your dropshipping store, and whenever you feel you want to start, then go for it. While some companies believe that starting at certain times of the year increases your chances of being profitable, there really is no time that is better than any other.

What is going to make the difference between success and failure is which dropshipper you opt to partner with, which products you choose to sell, your marketing plan, and much more.

It will be necessary to put some effort into gaining customers, because, with the amount of competition that you must contend with, you must make your company stand out.

Can you drop ship from any website?

It's so quick and easy to start dropshipping and start making money as long as you choose the right dropshipper, and you can turn any website into a dropshipping store. If you have a free website and you haven't yet purchased a domain name, it doesn't matter, as you can get started regardless of the type of website you have.

You might even opt to seek an online store, which has everything set up for your convenience. So, if you're just starting out in business and you'd like to start dropshipping products immediately, then you can do so with little to no initial investment.

All that said, not every eCommerce platform integrates with dropshipping platforms that help you find suppliers. Additionally, some online retail stores won't integrate with your supplier's dropshipping tools that help you track orders and shipments.

Can you drop ship for free?

While it is possible to start out with dropshipping for free, this service won't remain free and you will eventually have to spend some money out of pocket. It takes money to make money, so you should plan on spending some money in the future if you expect dropshipping to be successful.

In order to drop ship for free, you need to find a company willing to give you a free trial. While researching the different dropshippers that are available, you will find that many require monthly membership fees, many of which are quite affordable.

Some of the dropshippers even offer a free trial or temporary memberships to allow new subscribers to try them out before committing.

In most cases, you'll be expected to pay a dropshipping fee immediately when partnering with a new dropshipper. The dropshipping business model varies in regards to how fees are handled. For instance, you can choose to take shipping costs out of your profits, increase your prices to cover the costs, or require customers to pay shipping fees.

Best practices for successful dropshipping

Your dropshipping store will have a lot of competition they have to worry about. Even the best dropshipping websites have to find strategies to deal with competition.

Unfortunately, the cheapest dropshipping website won't always succeed because you have to do more to differentiate your business. Here are a few ways to improve your online store performance:

Provide excellent customer service

Whether you're the cheapest dropshipping site or have the lowest shipping costs doesn't matter if you have poor customer service. Customer service is one way to set your small business apart from the rest because it shows you care about your customers. Dropshipping can be complicated, and you should expect unhappy customers every now and then.

However, finding ways to improve your customers' satisfaction when something does go wrong will set you apart as one of the best dropshipping companies.

Build a strong relationship with suppliers

The best dropshipping companies have strong relationships with their suppliers. Once you find a supplier with a dropshipping service, you should try to build your relationship with them to get the most competitive wholesale prices, shipping costs, and delivery times.

You can find a dropshipping supplier in supplier directories or by reaching out to manufacturers and wholesalers directly. When building your relationship, make sure to tell them why you want to sell their products and how your business can benefit theirs.

Offer competitive pricing and fast shipping

Your pricing and shipping times depend on your dropshipping supplier. If they have slow shipping times and working with them is expensive, it could impact your profit margins and the overall customer experience. You should have a supplier network to help you find the best wholesale products and suppliers that offer competitive pricing.

When looking for a dropshipping partner, make sure you understand their regular shipping times so you can be transparent with your customers. Nowadays, customers expect two-day shipping, so even if you're getting the best wholesale prices, it's not really worth it unless you can delight your customers with fast delivery times.

As we've mentioned, the cheapest dropshipping website isn't necessarily the best dropshipping website. When pricing your dropshipping products, don't try to price too far below the competition because you'll reduce your profit margins.

However, you also don't want to be the most expensive option on the market, especially if the manufacturers acting as your dropshipping suppliers sell the same products for much less. Customers do their research before ordering from an eCommerce store, so your pricing can have a significant impact on your bottom line.

Leverage data and analytics to optimize your business

If managed properly, becoming a dropshipping company can be a very lucrative deal for both parties involved. In order to increase the odds of being successful with dropshipping, a business needs to be sure to choose the best dropshipper, because choosing the wrong dropshipper could result in the late arrival of shipments, low quality products, and other potential problems.

After partnering with the perfect dropshipper, you need to come up with a great marketing plan, because the more customers that you're able to attract, the more lucrative dropshipping will be for you in the long-run.