Heard about dropshipping and want to know more? Here is a complete guide on what dropshipping is and how you can use it as a business model.
What Is Dropshipping?
Dropshipping is different to buying products from a wholesaler and storing them for resale and is different to the standard retail model. If you are buying products from wholesale suppliers you will place an order, pay for it, receive the goods, store them yourself and then resell them on to your customer. So you obviously need money to purchase the goods, a bit of storage space and once you re-sale them it’s up to you to arrange delivery of the item, including any charges (for example, if you are reselling online on sites like eBay and Amazon).
Dropshipping works quite differently. You still source your stock from wholesale suppliers however you don’t pay for it immediately or store it initially. Instead you list the product on your website or an auction site and then once a customer has made an order and you have received payment for it you can pay the wholesaler to deliver stock directly to the customer’s door. Using the dropshipping model will mean that you buy and resell an item that you have never physically seen. You’ve probably encountered dropshipping at some point in your own retail life. If you’ve ever been into any store and tried to order an item that was out of stock, the retailer may have offered to have the item delivered directly to your door. To do this they would probably have used dropshipping to have the item sent to you.
Basically, you list an item for sale that you know you can source, once the customer pays you for the item you give the supplier a percentage of the sale/a fee and the item is shipped direct.
Why Should I Use Dropshipping?
There are a number of benefits to dropshipping. If you’re looking to buy and resell products to make a profit there are a number of reasons why dropshipping could be a good idea.
Firstly if you don’t have a lot of capital outlay to spend on stock then dropshipping allows you to start a reselling business with fairly minimal funds. You only pay for stock once a customer has paid and ordered it from you so dropshipping can certainly be good for cash flow. If you were to stock your own inventory you would need to pay for the stock outright and wait for a return on your investment which is one of the reasons dropshipping can be popular. Also, if you’re unsure whether a product will sell well or you’re worried about being left with unsold stock, then dropshipping can help you to avoid these worries. Imagine you want to resell a laptop and have found one at a good wholesale price from a supplier offering dropshipping. You can list this product on your own e-Commerce website or online via auction sites, even though you don’t physically have stock of it. It will be sat in the supplier’s warehouse until you receive an order and take payment for the product. If a customer does order the item from you, as soon as the funds are received and you pay the supplier the item is sent directly to the customer. This means no storage costs or issues for you and it’s sent straight to the customer’s door. Not only does this mean you don’t have to deal with any storage costs but you don’t have to get involved in shipping arrangement and costs too – as this will all be factored into the sale when you list the item price.
The fact you don’t need large storage space or a big warehouse also means you can run a dropshipping business from anywhere – all you need is an internet connection.
Are There Any Negatives?
As with anything there are pros and cons to dropshipping. The biggest factor to consider is that you never physically see stock. Which means you cannot check that the product being shipped is correct and you cannot check for any product flaws or the condition of the product before it leaves the warehouse. If you use a trusted supplier then you shouldn’t receive any issues from this – however if stock is sent to the customer in poor condition or it’s wrong then you could be facing return queries and customer issues and ultimately this could reflect poorly on your business. If items are shipped directly to a customer you also don’t have much control on the packaging and labelling of the item – if this is unprofessional, again, it can reflect badly on your business. There are also relatively low margins to be made when dropshipping which means your chance of making profit is a lot less than if you were to source and resell stock from your own inventory.
Ultimately dropshipping is a great way to list a variety of products with very little capital outlay – so if you’re a small business you don’t have to look like one if you are using the dropshipping model. But before you consider starting a dropshipping business do your research on suppliers and ensure you are using trusted resources.