Dropshipping Business Model In A Nutshell

Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

Understanding the Concept of Dropshipping

Dropshipping in simple terms is getting supplies from a third party, listing the products on your website without keeping products in stock. When you get the order from a customer, the sale is passed to the third-party supplier, who then ships the order to the customer.

Dropshipping appears for many as an easy way to make money because you aren’t faced with the problem of manufacturing and warehousing. However, in reality, dropshipping is not a way to make easy money; when you factor in all the problems, obstacles, difficulty in quality control, and the potential negative ratings it could give your website, it’s far from easy.

Benefits of Dropshipping

Dropshipping has a few benefits, which makes it ideal for consideration in certain situations

  • Reduces startup risks: Your market survey as a startup may not be accurate, so actively spending on manufacturing these products, which customers do not really fancy, will make it difficult to recoup capital and profit early enough, which can be frustrating. Dropshipping will absolve you from the costs of production, so if customers do not like it, you may decide against selling it in the future.
  • Lowers production costs: Since you aren’t involved in manufacturing, your costs are very minimal
  • Eliminates warehousing and logistics costs: The third party supplier usually handles warehousing and may deliver to you for shipping or handle shipping as well. But generally, the storage cost is reduced.
  • Flexibility: The low risk involved in product selection offers fresh E-commerce businesses flexibility in product selection.
  • Protection from overselling: The market and demand may fluctuate in ways that you don’t even envisage. Rather than overstocking to meet demands that aren’t likely to come, having a dropshipping supplier as a backup saves you money without losing those uncertain sales.
  • Reducing Costs Even When Expanding Business Scope: One unavoidable effect of an expanded business is expensive shipping. The farther out you get from your region, the more shipping fees you’ll incur. Exorbitant shipping fee is a turn off for consumers. Dropshipping can be the perfect solution for some problematic locations that fall outside your profitable regions. Especially when you think that the storage costs in setting up a new warehouse isn’t financially viable. You can also use dropshipping to determine the market demand in a particular region, and if it’s high enough, you could set up a warehouse there.
  • Better Handling Of High-maintenance products: Some products cost more money and facilities to stock and ship than others. It is usually better to Dropship these products than to store them yourself, to save cost.

Examples of High maintenance products are large products that take a lot of space, heavy products that are difficult to move from place to place, Fragile products that must not be broken or destroyed, valuable products that their loss could lead to a huge debt, and products with special conditions (i.e., some food items that must be kept frozen)

Important Factors for Dropshipping

  1. Research what products would fit well with your strategy, market, and customer base.
  2. Research how your competitors are selling the product, namely pricing.
  3. Find the best supplier
  4. Finalize a fulfillment process that works for both of you and incorporate it into your system. Depending on your sales management software, this could be easy or require ironing out some wrinkles.
  5. List and promote your new product. Be sure to specify any special conditions, such as changes in shipping times or locations.

Read Also: Amazon Business ModelEtsy Business ModeleBay Business ModelE-commerce Business ModelsPlatform Business Model, How to Start an E-commerce Business, E-commerce Marketing, Amazon SEO.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"