Drop shipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers customer orders and shipment details to the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.
The idea of dropshipping is that a wholesale drop shipper (the supplier) offers you the option of selling products without buying them first. They also act as service providers who prevent you from having to:
- Store items
- Package and ship items
- Risk money on items when you aren’t sure about how they will sell
When you buy from a wholesaler offering dropshipping services, they add a fee to cover the costs involved with offering this service.
How dropshipping works
Select the vendor and products based on your niche
Mark up your profit margin based on product demand
Advertise and market your products
Customers visit your listings, initiate payment and place orders
Vendor ships the product to the customer
Keep your margin and initiate the payment to the vendor
Why start dropshipping?
Low startup cost
- You don’t have to purchase a product unless you have already made the sale and have been paid by the customer. Without major upfront inventory investments, it’s possible to start a successful drop shipping business with very little money.
Easy to get started
With drop shipping, you don’t have to worry about:
- managing or paying for a warehouse
- packing and shipping your orders
- tracking inventory for accounting reasons
- handling returns and inbound shipments
- continually ordering products and managing stock level
Your overhead expenses are quite low, as you don’t have to deal with purchasing inventory or managing a warehouse.
As long as you can communicate with suppliers and customers easily, you can run and manage your business from just about anywhere with an Internet connection.
Wide selection of products
You can offer an array of products to your potential customers because you don’t have to pre-purchase the items you sell.
By leveraging dropshipping suppliers, they will handle the additional order processes, allowing you to expand with fewer growing pains and less incremental work.
What’s not in your control when dropshipping?
Lack of control over product quality and deliveries
Lower margin compared to bulk purchase of products
Risk of supplier running out of stock
Product returns and refunds pose logistical problems and affect profits