A Complete Summary of What Dropshipping is
Before we proceed, guys, this post is a briefing with the complete summary of what Dropshipping is.
To start with, let’s begin by asking: what is dropshipping?
Dropshipping is a lucrative online eCommerce business which involves an individual (usually called a dropshipper) to own a store and then he works with wholesale suppliers of products, but what he majorly does is that he always forwards all the orders from his store, directly to the wholesale supplier who processes the order and then delivers it to the given destination.
So, Bottomline is that the dropshipper does not have an inventory of products, what he just does is that he forwards or transfers every order in his store to a specified wholesale supplier who finishes the processing of the order.
Briefing About Dropshipping
Dropshipping evolved during the ’60s and ’70s and it has really been lucrative up till this moment! Surprisingly these times were the times before the internet, so this literally means that dropshipping started before the internet!
In short, dropshipping is generally known and believed to be a retail fulfillment business and it has really been lucrative. Back then in the ’60s and ’70s, dropshipping started basically through the two brothers who utilized the mail system to run dropshipping, JCPenney & Sears.
At that time Dropshipping system was crude and even became a bit complex as the customers’ demand become high. As a solution, JCPenney & Sears built a fulfillment warehouse that was speicifically designed to speed up this process. These were similar to what Amazon now calls FBA (Fulfilment By Amazon) warehouses.
HOW THEN DOES THE DROPSHIPPER GAINS HIS INCOME?
The dropshipper gains his profit from every sale of products on his store, HOW? The Dropshipper sources his products from wholesale suppliers who sell at wholesale prices, so what the dropshipper does is he imports these products to his own store, and then on his store, he adds his own price.
So each time an order is placed on his store, it is placed on his own original price which contains his profit, so he then later transfer the order to the wholesale supplier who sells that product at wholesale price, then delivers it to the given destination as forwarded by the dropshipper.
I Believe this portion of how the dropshipper gains his income is crystal clear to us now? Alright!
It is a great strategy, and retailers just need to upload products to their website without handling them physically. It is good for those retailers who avoid losses and have no room to store physical stocks. The only problem with drop shipping is that you do not control the quality of the products.
THE DIFFERENCE BETWEEN A DROPSHIPPER AND A RETAILER
The clearcut difference between a dropshipper and a retailer is that a dropshipper doesn’t have an inventory filled with lots of products in it, so he doesn’t have a physical product stored, instead he partners with a merchant or a wholesale supplier who always fulfill all the orders as transferred from his own end. So a retailer on the other hand has physical products stored in his inventory.
HOW DROPSHIPPING OPERATES
Giving out a clearer picture, we would briefly talk about how dropshipping operates:
According to the dropshipping model (A system that in which dropshipping is based on), dropshipping is driven by 3 personnel and it keeps revolving:
- Client/Customer: He places an order on the store
- Seller/Dropshipper: Once the order is placed by the customer, the seller or dropshipper transfers the order to the wholesale supplier or merchant.
- The Wholesale Supplier: The wholesaler receives the order as transferred by the dropshipper, processes it, and delivers the products to the given destination as given by the dropshipper.
THE GOOD AND BAD OF DROPSHIPPING
It is often said in life that for ever good thing, there’s always a bad side, so nothing is actually perfect, nothing can actually satisfy all given metrics, there would certainly be some dissapproving factors, some disadvantages.
So let’s get to see what these things are, firstly let’s start with the good side
THE GOOD OF DROPSHIPPING
1) Dropshipping is honestly one of the cheapest and easiest start – up companies, as it does not require much or no cash to start. In contrast to the traditional method of buying stocks in bulk, shops, photographs, ships and all the other tasks that dropshipping removes.
2) You can also try different product lines with dropshipping, which you are unsure of before you can buy anything that does not sell in bulk. It also eliminates one of the longest running aspects, namely shipping. With dropshipping, the price you pay the supplier is all included.
3) One of the greatest advantages of dropshipping is that products can be tested and tested without stocks. Nothing is worse than buying a product portfolio that hardly sells, and you still have to store it, which eventually costs you money. Theoretically, dropshipping is as risk-free as real-life market research.
4) A big plus from the last point is that you don’t need space to store items. All you need is an internet connection and a PC. If you drop items that the supplier sends to the buyer directly, you don’t even see the product as a big bonus, but it can also cause some problems that I will face later.
5) You can offer new products immediately. They are ready to be sold as soon as you upload your items to your website. No wait to be delivered and photographed for the products. When a retailer wants to start selling a product, they usually have to wait until they have sent all their stocks to start advertising them on their website. After all, what does it mean to sell an item if you can’t sell it? Using dropshipping means that you can start advertising almost immediately when you decide to have a product on your website.
6) You save time with dropshipping. You can then wisely use your products to promote and market them. The whole work from a beach with dropshipping is actually possible. Naturally, a lot of work still needs to be done, but you get the point.
7) One of the biggest reasons why companies fail is because of overhead costs. You can work with dropshipping from anywhere in the world without having to store any inventory. You don’t even need staff to help you select and pack orders. The only thing you need to do is market your website and maintain customer service.
THE BAD OF DROPSHIPPING
1) The biggest thing is the lack of control over the post-sales process. Since the supplier sends the product directly to the customer, you have no chance to check the quality of your product or to ensure that the product is even the right product. You also have no control over the shipping process. If you have a 3-day delivery window and your dropshipper doesn’t hit the delivery window, then who is responsible? Sadly, it’s you.
2) It isn’t as beneficial as you might think. When you buy the product from a wholesale supplier at a much more discounted price. Naturally, when you sell a product that everyone else sells, competitors are cheaper than you are. After all, processing and shipping orders take all the risk and time. Dropshippers usually add up to £ 5 per product to a dropship service.
3) If your dropshipper can’t keep to their orders, one big setback is. I know that sounds like a good thing from your side, because that could mean that you sell loads. However, you must remember that you probably have over a hundred other customers, such as your dropshipper. If one of these customers has a significant increase in sales, with which the drummer must keep up, it can have an impact on your lead times.
4) Getting to dropshipping is easy. You can get a live website, which sells all the latest gadgets and has a super nice shop with a huge variety of products. It’s so easy, actually, that at least a thousand more people are doing the same thing. See where I’m going? See where I’m going with this? Without a large brand behind you, anyone can and probably already have replications of what you are trying to do. This makes it so much harder for the competition to reach customers, which means that more money is spent on marketing.
5) It is so difficult to distinguish when you sell a product that anyone else sells at a similar price. You can try to be the cheapest, but it’s a game that you lose. Someone else is always willing to go cheaper, and the margins for drops can be small, first. Honestly, you don’t have much flexibility and some suppliers have minimum advertised retail prices, which means you can’t go down to a certain price.
6) Everything is good about how you get everything you need from the dropshipper, like photographs that are usually too small, poor quality and look just like your entire competition. Then you get the descriptions that are all the same. It makes it really difficult to distinguish your business if you have exactly the same photos and content for everyone. Especially if you also have the same price as the competition.
7) You can get into some very difficult customer service problems. What if a customer would like more information about a product that you don’t really have? You could, of course, contact your dropshipper for information, but how long does that take? Although dropshipping eliminates shipping responsibility, it also removes a large proportion of your customer experience from your control. There is no way for a product to arrive on time or as described. When a customer requests complaints or inquiries, the resolution process is slowed down, as you often do not have the necessary details at hand and before a third-party supplier can resolve the query or complaint.
Now, I’m not trying to put a dropshipping business off you, don’t get me wrong. As I said, I think it’s a great business model and it involves less work and stress than a traditional business if you can do it right. I just wanted to inform you that you must consider it to be a real business and that it is not a success story for the overnight, as it can sometimes be publicized.