What Is DropShipping? How Does It Work?

Dropshipping is a retail fulfillment process in which a store does not hold stock of the items it sells. When a store uses the dropshipping model to sell a product, it buys the item from a third party and sends it straightly to the client. As a result, the seller is thankful of direct product handling. Furthermore, the difference between dropshipping and the standard retail model is the selling merchant doesn’t stock or own description. Moreover, the seller purchases inventory as needed from a third party, usually a manufacturer and wholesaler, to complete orders.

How does Dropshipping work on Shopify?

what is dropshipping

For dropshipping, two common approaches are looking for a supplier located in North America or anywhere worldwide. However, use supplier databases or look for a Shopify app that connects you and your store to thousands of suppliers. Later, we suggest Oberlo, a marketplace grown by Shopify that helps independent business owners find products to sell. You can browse AliExpress with Oberlo and import the products that irritate your interest straight to Oberlo. Which connects to your Shopify store with the tap of the button. You will be able to complete their order in the Oberlo app once the customer purchases a product. However, Oberlo automates this procedure. Being the store owner, all you have to do is check that the details are correct and click the “‘order”‘ button. The product is send straightly from the AliExpress supplier to the customer wherever worldwide.

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Pros of Dropshipping

pros of dropshipping

For aspiring entrepreneurs, Dropshipping is an incredible business model to start with because it’s approachable. However, with dropshipping with limited downside, you can test various business plans immediately. Therefore, which lets you learn a lot about how to select and market in-demand products.

  • Less capital required 

To launch an eCommerce store without any need to invest thousands of dollars in inventory upfront. Thus, retailers have to tie up immense amounts of capital purchasing inventory. 

Furthermore, you don’t have to purchase a product unless you’ve already made the sale. And have been paid by the customer with the dropshipping model. It’s possible to begin sourcing products and launch a successful dropshipping business. With very little money without significant up-front inventory investments. Moreover, because you have not committed to selling through any inventory purchase upfront, like in a old retail business. There’s less risk involved in starting a dropshipping store.

  • Easy to start 

Running an eCommerce business is way too easy when you don’t have to cop up with physical products. You don’t have to worry about with drop shipping: 

  • Repeatedly ordering products and managing stock level
  • Handling inbound shipments and returns 
  • For accounting reasons tracking inventory 
  • Shipping and packing your orders
  • Paying and managing for a warehouse.

 

  • Low Overhead 

Your overhead expenditure is a bit low because you don’t have to deal with purchasing inventory or managing a warehouse. However, many successful dropshipping stores work as home-based businesses. Requiring little more than a laptop and a few recurring expenses for operating. As you grow, these costs will likely increase but will still be low compare to those of traditional brick-and-mortar businesses.

  • Flexible location 

With an internet connection, the dropshipping business can run from just about anywhere. You can run and manage your business as long as you can communicate with suppliers and customers easily. 

  • Wide selection of products to sell 

You can offer an arrangement of trending products to your potential customers. Since you don’t have to pre-purchase the items you sell. Though, you can list it for sale on your store online at no additional cost if suppliers stock an item.

Cons of Dropshipping

cons of dropshipping

The advantages mentioned above make dropshipping a fantastic model. For those looking to expand their existing product offerings or start an online business. Thus, with the pros, dropshipping has its cons too. In general, flexibility and convenience come with a price.

  • Low margins 

For operating a highly competitive dropshipping vertical, low margins are the biggest drawback. However, it’s so easy to get started, and the overhead costs are so low in an attempt to increase revenue lots of competing stores will set up shop and sell items at rock-bottom prices. Therefore, they can afford to operate on small margins as they have invested so little in starting the business. 

Furthermore, the sellers will have poor customer services and low-quality websites, which you can use to differentiate your business. This will not stop customers from comparing their prices to yours. Moreover, this increase in aggressive competition will quickly hurt the potential profit margins in a slot. Therefore, you can do a lot to mitigate this problem by selecting a niche/vertical that’s well suited for dropshipping.

  • Inventory issues 

It’s comparatively easy to keep track of which items are in and out of stock if you stock all your own products. However, inventory can change on a regular basis when you’re sourcing from multiple warehouses. Which are also completing orders for other merchants. Therefore, these days there is a problem with apps that let you sync with suppliers. Thus, drop shippers can “pass along” orders to a supplier with a click and should be able to watch in real-time. How much inventory the supplier has. Furthermore, when a supplier’s stock hits zero, Oberlo also lets merchants take self-operating actions. For instance, you can automatically unpublish the product. When a product is no longer available or keep it published but automatically set the quantity to zero.

  • Shipping complexities 

As many drop shippers do, if you work with various suppliers, the products on your online store will be sourced through a number of various drop shippers. Hence, this complicates your shipping costs. 

Moreover, if a customer places an order for three items, all of which are available only from separate suppliers. Then you will acquire three different shipping charges for sending each item to the customer, but it’s probably not fair to pass this charge along to the customer. Even when including these charges does not make sense, imbruing these calculations can be tough.

  • Supplier errors 

Though, the best dropshipping suppliers make mistakes completing orders. Mistakes for which you have to apologize and take responsibility.

  • Limited customization and branding

Dropshipping doesn’t give you much control over the product itself, unlike custom-made products or print on demand. Mostly, the product drop shipped is branded and designed by the supplier. 

However, some suppliers can accommodate your business’s product changes, but even then, the supplier has the most control over the product itself. Therefore, any changes or additions to the product itself usually require a minimum order quantity to make it workable and affordable for the manufacturer.  

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