If you’ve done any research at all into e-commerce you’ve probably heard of the dropship business model and are wondering what it is. At its core, dropshipping is a more modern alternative to traditional, inventory-based, e-commerce.
Of course, like many entrepreneurial opportunities, dropshipping also has a small learning curve.
This article will go over what dropshipping is, along with some pros and cons of the dropship path compared with traditional e-commerce and even traditional retail businesses.
The core concept behind what is dropshipping is not that difficult. Basically, you, the business owner, create an online platform that sells your products. You’ll likely have higher profit margins if you use a dropshipping platform like Shop1 that allows you to create your own online marketplace.
But, you do also have the option of setting up an Amazon store or utilizing other big online marketplaces for your sales . However , instead of keeping a warehouse (or room, small businesses start small after all) full of inventory, dropshippers don’t need to manage their products, inventory, or even shipping on your own.
That’s because your products are managed by a dropshipping supplier. You just send your orders on to the supplier and, in exchange for a small fee, they handle manufacturing, storing, and shipping your products.
Better yet, your supplier will also label the package with whatever information you provide, so that it looks like a package coming from your business, not theirs.
From start to finish, you, the dropshipper, don’t need to interact with the products at all. Instead, your responsibilities as a dropshipper are focused on managing orders and making sure your supplier receives all their orders, and ships out completed orders, promptly.
You’ll also have to complete market research to help guide your product decisions. That means that you’ll have to have some idea what your market niche will be and the trends in your chosen market.
You’ll also be in charge of marketing. Your supplier might be happier if you send them a lot of orders, but they’ll just add more dropshipping clients if you aren’t able to send them the order volume they need. Your supplier isn’t going to have any interest in helping with advertising.
It can take a little experience to get dropshipping advertising right, but it’s worth experimenting with low-cost solutions until you find something that works.
Unfortunately, since dropshipping often has slightly smaller profit margins than traditional e-commerce, you’re not going to have a lot of wiggle room in your marketing budget.
I suggest you read this article: 5 E-commerce Marketing Tools You Will Want to Know About
Good dropshipping suppliers will generally take care of themselves. You may occasionally need to revisit your contract as your business grows and you drive more sales traffic or need to introduce new products, but it shouldn’t be a constant bother.
The problem is that not all dropshipping suppliers are good suppliers.
It’s important to do your research before you commit to a supplier. Make sure they have good reviews from other dropshipping companies and see if they have any policies for how to handle missed orders and late shipments.
Good suppliers should also offer to tend you test products before you decide to work with them. It’s important to see the products for yourself so that you can make sure their images and product information is accurate.
You should also check your products for durability and usefulness. You don’t want your name and your company name associated with a bad product.
The last thing you’ll need to check is their shipping times and offers. You don’t want to offer 1-day shipping if your supplier is located in China and needs a week to get shipments to the United States, for instance.
Even after you’ve got your dropshipping business running like a well-tuned machine, you’ll still need to spend time on website maintenance and putting in the work to help your website grow.
Sometimes it’s as simple as making sure your content is still up, the links are all still working, and firing off a few emails to colleagues and bloggers to build new incoming links for SEO.
Other times you’ll find yourself pouring over SEO reports and in constant contact with your web host’s customer service team trying to resolve errors on your website and optimize load times.
The bigger your dropshipping business gets, the more time you should expect to spend on routine maintenance.
Like any form of e-commerce there is a range of pros and cons that come along with dropshipping as a business style, here are some of the most important ones for you to consider:
One of the biggest struggles many entrepreneurs have with starting their business is learning to manage inventory and order management.
Not only can inventory management itself be a problem, but you also have the possible additional costs of storing your inventory until you already have space for it in your home or office.
Dropshipping eliminates up-front inventory management, that part is handled by your supplier.
It’s possible to start a successful dropshipping budget on a very low budget.
You only need to cover the subscription costs for your website and paying for products when, and only when, you have an order.
Because of that, you won’t need business loans or a lot of capital to invest in your company upfront. Instead, you can use the profits from your first few sales to build your company until you have a stable platform and can start reaping real benefits.
Unfortunately, one of the realities of dropshipping is that you’re one step removed from the whole process.
That means you won’t necessarily know right away if your supplier runs into a problem, runs out of stock just before an order comes in, or mislabels a shipment. Basically, no matter how detail-oriented you are, there’s still a chance that someone else will make a mistake and you and your company will have to deal with the fallout.
We want to emphasize that lower profit margins don’t necessarily mean low profit. You can make a ton of money through dropshipping, and it can easily replace your full-time job if you’re willing to put in the work to grow and manage a larger business.
But your profit margins per sale are still likely to be lower than if you were manufacturing and shipping the products yourself.
That’s because your suppliers need a slice of the pie as well, and you’ll have some overhead in the form of website costs and other maintenance. Consider this a trade-off for needing less capital to get your business started. Its low cost of entry means that you’re also going to have a slightly lower profit margin per sale.
By now you know what is dropshipping and how it work. As long as you generate enough sales and choose your products well, you will create a highly profitable business with dropshipping. That’s why we recommend Getting Started with Shop1 today. They offer an all-inclusive platform where you can start a profitable dropshipping company faster than ever.
Get your American dropshipping business started in less than 3 minutes!