What is Dropshipping and Why Should you be aware of it?

What is Dropshipping

Are you interested in working for yourself, own your own e-business and start churning out money without having to work a 9-5 job – being confined within a cubicle?

If you answered ‘yes’ to the aforementioned question, then the answer to the question is – ‘Dropshipping’. 

Now the question arises – What is Dropshipping? What makes it simple? How do I get into it? How quickly can I start earning money?

I will try and answer all of these questions and more in this article. It will be my aim to provide you with a holistic view about what Dropshipping is, how to get into it and how if you are smart enough – you will be able to earn enough money to grow your online business. 

Without further adieu, let’s jump right in.

In this article you will be able to find information on the following topics:

  • What is Dropshipping?
  • How does Dropshipping work?
  • Advantages and disadvantages of dropshipping.
  • Is dropshipping suitable for you?
  • What type of  goods are well suited for this type of business model?
  • What are the best dropshipping sites which you should be aware of? 

What is Dropshipping?

Despite being around for a couple of years, many people are unaware of what Dropshipping really is. Dropshipping is just a simple online sales business model or in other words, it is an ultra-simplified online sales system. It is a system, which is easy to set up and easy to put into action. It is essentially a partnership between you and your supplier (which you have to choose for yourself). As there is no contract between the parties involved, it is easy to set up and anyone can partake in it. By starting a dropshipping business, you become an intermediary distributor for your chosen supplier. While your supplier is responsible for supplying the product; your responsibility is sales, customer service and digital marketing which entails – promoting the goods you wish to sell and providing customer service to all the people who order products from your e-commerce site. 

Dropshipping can be divided into 3 simple phases. 

  • Phase 1: The customer places an order on your e-commerce site. Once that is done, you will be notified of the order placed by the customer. 
  • Phase 2: Once the order is placed, it is your responsibility to inform your supplier or wholesaler of the sale. 
  • Phase 3: Your supplier / wholesaler takes care of the logistics and sends the ordered goods to the customer – in the shipping address provided by the customer. 

It’s that simple. Now that you have the rudimentary understanding of what dropshipping is, let us find out how it actually works. 

How does Dropshipping work?

If you are just starting out as an e-trader, or if you already have a running e-commerce site – your main aim would be to sell as many products as you can, so that you can earn some profit. However, having to worry about inventory, inventory management and  shipping – in other words the ‘logistics’ of the business – it only adds to the burden of having to run a successful online business. This prevents you from focusing on your core business task: ‘sales’.

Dropshipping eliminates your need to worry about the logistics, so that you can focus on things which really matter for your business to succeed: customer communication, sales and marketing. On the other hand, your chosen supplier or wholesaler is the one who takes care of the logistics side of the business. It is the supplier who handles the production of  goods, inventory management and even delivery of the goods to your customer. This frees you to achieve your goal : making sales and generating turnover. 

How does Dropshipping work

          Fig: Dropshipping Business  Model

Dropshipping is a business model not just utilized by individuals, but the mechanism is even used by some of the biggest e-commerce sites like Amazon, ebay, Priceminister – to name a few. All these sites offer to sell a variety of products on their site – in return they get commission for all the goods sold in their site. The main reason why this business model is so popular is because it delegates the responsibility to the party best suited for the job. E-traders, i.e. you  – who undertake marketing and generating sales, while the Producers or Suppliers focus more on producing more quality goods. 

Now that you have a better understanding of what dropshipping is as well as the concept of this business model – let us discuss the advantages and disadvantages of dropshipping. 

Advantages and disadvantages of Dropshipping

Like any business model currently in use, there is always some sort of opportunity cost related to it –  Dropshipping is no different.  It has several advantages – especially if you are new to e-commerce. After you have reached a certain stage however, there can be some risk factors along with complications, i.e disadvantages.  Let us review the pros and cons, for this online business.  

Advantages of Dropshipping

We have already established that dropshipping is a very economical solution to selling products online – as it gives you some advantage right off the bat. It allows you the freedom of not having to worry about investing in stock, which subsequently leads to you not having to worry about stock management and all the capital cost it entails. There are several strategies which may be applicable to you – depending on your personal objectives. Listed below are some of the key reasons behind the popularity of dropshipping.

  1. Low initial financial investment 

If you are someone who is looking to work for yourself with little startup capital, Dropshipping is for you. Technically, you can start your own dropshipping business for $0.00. Sites like Orbelo.com – which has a forever free option with a cap of 500 products – you can run your own e-trading business and sell products on the site without having to invest anything. 

However if you are serious about growing your dropshipping business, you have two choices. The first is to buy a plan on sites like Shopify.com – which provides a 14 day free trial and will charge you $29 per month once the trial expires. The second choice is to buy a new domain ($14- 20 per year), and create a fully functioning e-commerce site ($1000 – $1500), where you can display your product catalogue and sell those products.

If you are just beginning your journey as an e-trader, it is highly recommended that you simply open an account in sites like – Shopify or Orbelo and start small. Only when you have become competent and have gotten to know the online business model – should you invest in obtaining your own domain and creating an e-commerce site. 

  1. Reduces overhead costs. 

Starting an online business carries with it some risks. You have to initially invest  in the development of stock (goods you will be selling in your e-commerce website), buy or rent a space to store those goods (a warehouse), buy or rent equipment (capital goods) and last but not least – hire workforce to help you manage the stock (labour force). With so much overhead cost, only if you manage to make enough sales, will your investment be profitable. 

But what if you fail to reach the level of sale you hoped or anticipated from your e-commerce site? In this situation, the stock that you accumulated is just going to stagnate rendering you unable to generate your monthly payments quota. This is where dropshipping comes in handy and helps you save money. This is done because dropshipping means no warehouse, no stock, less equipment and fewer employees. Since stock is produced, managed and shipped by the supplier, you don’t have to invest in stock or stock management. This is why this business model is so popular amongst the e-tailers. 

  1. Easy to develop the business, saving time. 

We all know it, manual order process and delivery takes time. This is not a problem – if your online business is just starting out and receives only a few orders a day which is manageable. But once your business starts developing and orders start coming in regularly and frequently – order processing becomes a very time consuming task. You will soon start facing difficulty in meetings demands and processing and shipping the order on time.  This is where dropshipping comes into play. It allows you to grow your business as you don’t have to worry about the logistics side of the business. Since the supplier will be handling the order process and even shipping of the goods to your customer –  you can devote your time in the development and marketing of your business, helping it grow. 

  1. Opportunity to validate new products before selling. 

No matter if you are just starting your e-commerce site or you already have been running your online business for a while – you will always be looking to expand your product catalog and explore new markets. Usually, doing either of these things requires a lot of capital. This used to be a big problem but not any more.

Dropshipping allows you to test out new products without having to buy products in bulk – cutting your cost without any risk. As there is no stock involved with drop shipping, you can order 1-2 items from the supplier. If you like the product, you can include it in your catalogue. If you do not like the product, you are not obligated to sell it. This provides you with the freedom to validate new products, look for new opportunities and help your business grow. 

Disadvantages of dropshipping

As there are obvious advantages to dropshipping, the drawbacks (disadvantages) for this online business model should not be underestimated. If dropshipping was flawless – without any cons, everyone and every company would have already adopted this business model. Having said that, listed henceforth are the main disadvantages of dropshipping.   

  1. Strong competition arising because of the low barriers of entry. 

As very little initial investment is required to launch a dropshipping business through an e-commerce site, it is within easy reach of almost everyone. This low barrier to entry creates a culture of strong and fierce competition between e-traders. This cut-throat competition leads to total market saturation in some parts – especially in big cities around the world. Hence, it is highly advisable to conduct your own research and market analysis before you begin your dropshipping business. 

  1. Lack of total control over quality (product and packaging) of the goods. 

As mentioned in the definition of Dropshipping, you – the e-trader – are just the intermediary between the customer and the supplier. As a result of which the quality of the products, packaging and the delivery service – lies solely on the third party: the dropshipper aka the supplier. If your chosen supplier ships inferior goods to the customer, it will be your responsibility to take the blame for the poor quality goods, forcing you to suffer loss and in some cases losing a customer. Therefore, it is very important to research your supplier before selecting them and testing out the products before you add them to your sites product catalogue.  

Furthermore, having little to no control over the order processing poses a serious disadvantage when it comes to marketing the product. As most suppliers do not allow customization of goods or packaging –  creating a long lasting relationship with the customer will be a big challenge, making it difficult to operate your online business smoothly. 

  1. Dropshipping does not leave enough margin for you to earn high profits.

In the online business model of dropshipping, customers pay for their order with you. You in turn have to pay the supplier for each order shipped. Having to pay your supplier reduces the profit you can make from each order. As a result of this, you must take into account the amount you have to pay your supplier, while you set the price for your products. However, in some cases, the margin of profit you lose from each order might be compensated through the reduction in cost allowed by dropshipping. 

  1. Logistics can get complicated when dealing with multiple suppliers. 

Working in dropshipping – it is common to work with multiple suppliers or dropshippers to maintain your lead in a market. However, when working with a number of suppliers, things can quickly become complex and might become difficult to manage. Each supplier has their own policy and their own shipping methods – and they are not immune to human errors. They might send the wrong order or deliver damaged goods or even deliver the product to the wrong customer. These types of problems are part of the business, and you should therefore anticipate it and have a system in place to handle such situations when it arises, esp in regards to the logistics and customer relationship.  

Is dropshipping suitable for you?

Dropshipping might be simple enough to understand, but by no means is it simply black or white. Everything depends upon your needs, wants, expectations and preferences. If you find e-commerce attractive, but do not want to take the risk of investing a large amount of money into a business you are unsure about – this online business model might be for you. Because of its low startup cost, you can start your own business – and for any reason you realize that it’s not what you wanted, you can always cut your losses (insignificant in comparison to starting a physical retail store), and work on other things that might work for you. 

However, on the other hand, if you have a small or medium sized e-commerce site already established, and would like to expand your business quickly and efficiently – dropshipping might be the solution that will help you achieve your goal. Furthermore, if you want to be in total control of your business and handle the logistics of the business yourself, dropshipping is not the solution you were looking for. 

What type of  goods are well suited for this type of business model?

With any business whether it be online or offline – its  success depends upon the type of product being sold. Dropshipping stores like any other online store are based on the range of products being offered and the market niche being targeted. The market segment being targeted determines how well your online business does. Therefore, in order to make your dropshipping business a success, you should always aim for products which have relatively low competition but with high search volume. If you are uncertain as to what good you should be selling, you can initially ride the wave and test out different products until you find the niche you were looking for. However, if you do not want to start your business with hunches and guesses, several websites like : SaleHoo Market Research Lab, Google Trends, AliExpress, Amazon (Best Sellers), eBay (Trending) and Coolhunting.com  – will help you decide which product you should be including in your e-commerce site. 

Listed henceforth are the top 15 dropshipping product segments that have been able to generate a huge profit in the later half of the 21st Century. 

  1. Power Tools
  2. Tech Supplies (Desktop or Laptop parts)
  3. Lifestyle related products (Home renovating products, DIY products etc)
  4. Beauty Products
  5. Drones and its accessories
  6. Wearable Tech
  7. Video and Photography Equipments
  8. Mobile Accessories
  9. Vintage or Rare items (Collectables)
  10. Pet Supplies
  11. Robot Building Kit
  12. Remote Control Planes and Cars
  13. Home Decoration Equipments
  14. Unique Clothing
  15. Watches

What are the best dropshipping sites which you should be aware of?

There are hundreds of sites which offer dropshipping, and like any other businesses, there are some websites which are more popular than others. Listed below are the top twenty dropshipping sites that you should look into if you are serious about starting your own dropshipping business. 

  • AliExpress.com
  • Doba.com
  • Printful.com
  • AliBaba.com
  • Salehoo.com
  • Ecopresto.com
  • CdiscountPro.com
  • DropshipDirect.com
  • SunriseWholesale.com
  • Optima.com
  • MegaGoods.com
  • InverntorySource.com
  • BIgbuy.eu.com
  • Dropshipper.com
  • Smart Living Company.com
  • Shoplet.com
  • SalesSource.com
  • Esources.co.uk
  • Techdata.fr
  • Fnacpro.com

Conclusion

Dropshipping is an interesting option to get started in e-commerce, and adapts to all e-commerce activities, whatever their size and level of maturity. It allows you to launch an online store by taking very little financial risk, to experiment with new products and to develop your business fairly quickly. Dropshipping also frees up time and money for marketing. It is therefore clearly a subject to study closely!

Suraj Aryal
Suraj Aryal helps businesses expand their digital footprint, devise engagement plans, and handle escalation of customers' marketing issues. For Suraj, helping the company grow and helping its clients realize their digital dream is the most rewarding part of the role. Outside of the office, Suraj enjoys reading books, travelling, cooking, watching movies and series and rocking out to some sick tunes.

More from author

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Related posts

Latest posts

What is the Internet of Things (IoT)

What is the Internet of Things? When your eyes pass these few saturated pixels on the screen, there is...

What is Dropshipping and Why Should you be aware of it?

Are you interested in working for yourself, own your own e-business and start churning out money without having...

Smartphones – A holistic view of its Evolution

The world has been technology reliant ever since Alan Turing created UNIVAC - the first electronic computer. It was used to crack...

Want to stay up to date with the latest news?

We would love to hear from you! Please fill in your details and we will stay in touch. It's that simple!