What Is Dropshipping and How Does It Work? Dropshipping Business (Ultimate Guide)

Definition

Who is a dropshipper?

Benefits of dropshipping

• 
  Requires less capital
  This is probably one of the best advantages of dropshipping because it allows you to launch an e-commerce store without having to invest thousands of dollars in inventory first. Traditionally, retailers had to arrange large amounts of capital to purchase inventory before owning a store.
  
  But with the dropshipping model, you don't need to buy any product unless you've already made a sale and have been paid by the customer.
  
  You can start sourcing products and launch a successful dropshipping business with very little money.
  And because you don’t commit to selling off pre-purchased inventory, there’s less risk when it comes to starting a dropshipping store or testing a new product line on your store.
  



• 
  Easy to get started
  Running an e-commerce business requires huge amount of capital, but dropshipping has simplified this. With dropshipping, you don’t have to worry about maximum start-up capital.
  
  
  
  
  • You don't need to own any warehouse,
  
  
  • You don't need to worry about packing and shipping of customers' orders,
  
  
  • You don't have to worry about tracking inventory for accounting reasons,
  
  
  • You don't have to stick to only one product, you are always exposed to many product owners,
  
  
  • Returns and inbound shipments are not handled by you.
  
  
  
  



• 
  Low cost
  Because you don't have to purchase or manage inventory, your overall costs are pretty low. Many successful dropshipping stores are run as home-based businesses, requiring only a laptop and a few recurring expenses to operate. As you grow, these costs will likely increase but will still be lower than in traditional businesses.
  
  




• Flexible location
  A dropshipping business can work from anywhere with an internet connection. As long as you can communicate with your suppliers and customers, you can run and manage your business anywhere, anytime.
  
  



• 
  Wide selection of products for sale
  Since you do not need to pre-purchase the items you sell, you can offer a wide range of products to your potential customers. If a supplier has an item you find profitable in stock, you can list it for sale on your online store at no additional cost. You are free to pick from as many suppliers as possible.
  
  




• 
  Easier to test or check products
  Dropshipping is a very lucrative business, both for opening a new store and for people looking to test customer interest in additional product categories. Again, the main benefit of dropshipping is the ability to list and potentially sell products before committing to buying large amounts of inventory.
  
  




• 
  Very easy to scale
  With a traditional retail business, when ever you receive more orders, you will usually need to do more work. But by leveraging dropshipping, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.
  
  

Challenges of dropshipping

• 
  Low margins
  Low-profit margins are one of the biggest disadvantages of operating in a highly competitive environment like dropshipping. Because it’s relatively easy for anyone to get started, and the start-up capital is so minimal, many competing stores will set up shop and sell items at very low prices. Since they’ve invested so little in getting the business started, they can afford to operate it with very low margins.
  
  Typically, these sellers will start with a low-quality website and poor customer service, so they will still make a profit by dropping the price of the same product you have at a bit higher price. And the customer will not always compare the services and quality of websites rather there are looking for a lower price. This is one of the challenges you may have, but once you build a trusted brand, customers will always look for you. If you need a professional and custom website, contact Withubb Ltd and get a website for yourself or your business
  
  




• Inventory issues
  If you stock all your products, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change daily. Fortunately, these days, there are a handful of apps that let you sync with suppliers. So drop shippers can "pass along" orders to a supplier with a click or two and should be able to see in real-time how much inventory the supplier has.
  
  



• 
  Supplier error
  You can be blamed for an unknown error or something you know nothing about, and you must accept and bear the responsibility without any justification.
  
  
  Even the best dropshipping providers make mistakes when fulfilling some orders, mistakes for which the blame will be shifted to you and you will have no option but to take responsibility. And mediocre and shoddy suppliers will cause endless frustration. Missing items, damaged goods, and low-quality packaging can also damage your business’s reputation, and it's all your responsibility and headache.
  
  




• 
  Customization and branding issue
  Unlike make-to-order or print-on-demand products, dropshipping doesn’t give you control over the product itself. As you already know that you are not the one who owns the product, all the products design and branding are done by the supplier.
  
  Even though some of Alibaba’s dropshipping suppliers can accommodate your business product changes, even then, the supplier has the most control over the product itself.
  
  



• 
  Complicated shipping cost
  When you work with multiple suppliers as most drop shippers do then the products on your online store will be handled or offered through different logistics companies. This can complicate your shipping costs, and confuse your customers.
  
  An example is when a customer orders multiple items, which are only available from separate suppliers. You will incur three separate shipping charges when you ship each item to a customer but is not advisable to show the shipping charges to the customer. This can also be a complication when calculating your store expenses.
  
  

How to succeed in dropshipping

1. 
   Research deeply to choose the right niches and suppliers.
   


2. 
   Use multiple suppliers to improve success rates and provide a backup plan.
   


3. 
   Choose products carefully to make sure they are available or interchangeable.
   


4. 
   Track data and analytics to see what’s working and what needs tweaking.
   


5. 
   Prioritize customer service and support to keep shoppers coming back.