Millions in profits. Thousands of products. Zero inventory.
Believe it or not, this is the reality of many successful e-commerce brands. Instead of burdening the high expenses of manufacturing, stocking, and shipping their own products, more and more retailers turn to dropshippers to do the heavy lifting.
Dropshipping is an order fulfillment process that involves shipping products directly from a wholesaler or supplier to a customer. With dropshipping, retailers process customer orders but are not required to keep products in stock.
Dropshipping is ideal for brands that don’t want to manage a warehouse or invest in a large inventory. It allows retailers to grow their businesses quickly using dropshipping software to list products and process orders without purchasing inventory in advance.
Dropshipping is a fulfillment practice where retailers don’t have to keep products in stock. The merchant instead buys their products from a third-party supplier, usually a wholesaler or manufacturer, to be shipped directly to the customer.
The difference between dropshipping and a traditional retail business model is that the selling merchant doesn’t stock or own inventory. With dropshipping, a manufacturer creates a product and sells it in bulk to wholesalers and suppliers, who then sell the products to retailers. Therefore, the retailer doesn’t directly handle any product when fulfilling customer orders.
A dropshipper, on the other hand, is the supplier who manages inventory for retail merchants and acts as the middleman between the manufacturer and the consumer. The retailer acquires customers and receives orders, acting as a middleman between the dropshipper and the consumer.
Retailers can also purchase products directly from the manufacturer. However, manufacturers often have minimum purchase requirements, forcing the retailer to stock, store, and ship the products. This is why merchants generally prefer to buy from dropshipping suppliers or wholesalers.
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Although there are multiple parties involved, the dropshipping process is actually quite simple. First, retailers market and sell the products to consumers through an e-commerce storefront. Next, the orders are sent to the dropshipper for order fulfillment. This means that wholesalers and suppliers never sell directly to the consumer.
Below are the three main parties involved in the dropshipping supply chain:
Let’s say you run an e-commerce business called Rings & Things. A company called Metal Makers manufactures the jewelry, but you purchase your product from a supplier named Jewelry International, not Metal Makers.
In this case, here is how the supply chain would operate:
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Although dropshipping has many advantages, it also has its drawbacks. Before deciding if it’s right for you, you must weigh the pros and cons of running a dropshipping business.
Dropshipping appeals to merchants looking for a low-risk way to expand their product catalog. It’s also a great option for retailers who want to cut costs by eliminating the need to store inventory and fulfilling orders themselves.
Other benefits of running a dropshipping business include:
Dropshipping is a simpler and more cost-effective way for retailers to expand and scale their business – but it comes at a price. The more you outsource processes like manufacturing and order fulfillment, the less control you have over product quality and customer experience.
So is dropshipping worth the effort? Below are the most common challenges of dropshipping:
of online retailers use dropshipping as their primary order fulfillment method.
Source: E-commerce Platforms
Since consumers don’t interact directly with suppliers, the average customer is often unaware they’re purchasing from a dropshipper. In fact, some of the world’s largest e-commerce companies are in the dropshipping business.
AliExpress, a China-based online retail service, is a global leader in dropshipping. The company’s business model allows people all over the world to purchase products from overseas manufacturers and suppliers at a discounted price.
Retailers can import product descriptions from AliExpress to their e-commerce site and set their own prices. After a product is purchased from the retailer, the supplier on AliExpress ships it directly from their warehouse to the customer. Suppliers on the site are also retailers, however, most AliExpress users resell the products via their online dropshipping stores.
Sellers on AliExpress can be individuals, small businesses, trading companies, or even factories. And because AliExpress is based in China, where labor costs are significantly lower, products can be sold cheaper than other sites.
Bluetooth speakers for sale on dropshipping sites AliExpress and Amazon
Imagine your online store sells waterproof Bluetooth speakers, and you’re looking for a dropshipper. Bluetooth speakers on AliExpress cost $1.69 with free shipping to the United States, while a similar product on Amazon costs $14.99.
Using AliExpress as a dropshipper allows you to purchase the product at a low price and mark it up to normal U.S. market prices on your storefront. This allows for a much larger net profit than you would get if you purchased the product from a marketplace like Amazon.
AliExpress boasts more than 100 million products that can be dropshipped to any location worldwide. The company effectively changed the dropshipping industry by breaking down language barriers and making the process easy and cost-effective.
The e-commerce site, Meowingtons, is a prime example of a retailer who found success with dropshipping. Meowingtons built its massive pet brand by specializing in products for cat lovers.
In 2014, Meowingtons launched its Shopify store exclusively using a dropshipping business model. Although the brand now manufactures some of its items, you can still find many Meowingtons products on AliExpress.
Cat beds for sale via dropshipper AliExpress and merchant Meowingtons
As a merchant, Meowingtons can focus on crafting a product catalog that attracts and appeals to customers. Meowingtons’ strong branding has helped it build and maintain a loyal social media community, with 675K Instagram followers and nearly one million Facebook page likes.
Although dropshipping simplifies inventory management and order fulfillment, other aspects of the process can be difficult to navigate. Below are eight frequently asked questions about dropshipping to help you better understand how the process works.
Many retailers find success with dropshipping, but this is not always the case. Although the lower overhead costs are lower, the retailer often doesn’t make as much profit on each sale.
A merchant’s profit is impacted by three main factors: product margins, website traffic, and conversion rates. You can predict your dropshipping income based on the following industry averages, but keep in mind that they’re subject to change:
Using the averages above, you can use the following formula to calculate a working estimate.
Profit = (Site traffic x 0.02) x (Average order value x 0.2)
Since dropshipping businesses require less capital and resources, it’s relatively easy to get one going. Retailers generally only need to do the following:
Bulk dropshipping is a process where retailers order products in large quantities then store them for shipping to customers.
Some believe that this process defeats the purpose of dropshipping because it requires the retailer to store and manage inventory. However, bulk dropshipping gives retailers more control over shipping, packaging, branding, and enhancing the customer experience.
Essentially anything can be dropshipped, but some products are more popular than others. Below are some of the most popular dropship items:
Whether or not a dropshipping business can ship internationally depends entirely on the supplier or wholesaler. This can be a complex process because retailers have to consider international shipping costs, customs and duties, and paperwork.
International shipping is more expensive and often results in higher prices for customers and lower net profit margins for retailers.
Not every dropshipper will fulfill your brand’s needs. Consider the following before committing to a supplier:
of e-commerce retailers say securing a good supplier is the most challenging part of starting a dropshipping business.
Source: Torchbankz
Dropshipping is great for beginner e-commerce retailers and entrepreneurs who don’t have many resources or capital to produce, manage, and ship their inventory. It’s also beneficial for business owners looking to experiment with other products or a new industry, as well as established retailers looking to expand their product offerings.
Yes, dropshipping is a legal practice. But as we discussed, there are risks involved with dropshipping, such as:
Dropshipping software enables online merchants to sell products to consumers without purchasing and stocking inventory. Most dropshipping systems easily integrate with e-commerce platforms to create a cohesive shopping experience for consumers and an easy-to-manage back-end experience for companies.
To be included in the dropshipping software category, a product must:
*Below are the five leading dropshipping systems from G2's Fall 2021 Grid® Report. Some reviews may have been edited for clarity.
Oberlo’s platform allows users to find products from dropshipping suppliers, add them to their Shopify store, and ship directly to customers.
“Oberlo provides us the capability to easily import products from AliExpress. It has a clean interface to manage a large number of products and allows us to automate the whole dropshipping process – from importing products to delivering orders. It has Chrome extensions that are easy to install and use. We can also edit multiple products at the same time, which reduces our effort.”
- Oberlo Review, Farhan A.
“Right now, you can only import products from AliExpress. There are a lot of products to choose from there, so I would want more variety. I wish Oberlo integrated with more websites and platforms that are similar to AliExpress, preferably in the United States where we don't have to deal with those awkward shipping times.”
- Oberlo Review, Shayne H.
Retailers count on Spocket to vet suppliers, ensuring fast shipping, product quality, and branded invoicing for their dropshipping businesses.
“I like that Spocket simplifies everything and uses properly vetted suppliers that are located in the U.S. or EU for faster shipping times and higher quality products. They also offer free samples so you can see for yourself just how good the products are and how fast shipping is. This is a crucial app to do well in dropshipping, and I will be using it from now on.”
- Spocket Review, Eric F.
“Spocket offers only 25 products for its basic plan, which might not be enough for most starters to showcase on their website. If Spocket has a free plan to start and then slowly upscale, it will be more beneficial for newcomers.”
- Spocket Review, Krishnamoorthy K.
Printful is an on-demand print and embroidery fulfillment and warehousing service. The platform allows merchants to integrate with top e-commerce platforms and online marketplaces to automatically print and ship orders to customers.
“Printful has been fantastic. We sell posters of my grandmother's photographic artwork, and the paper quality is as good as photographers use for high-quality prints but at a fraction of the cost. In terms of customer service, Printful always replies quickly and helps resolve issues. The customer back-end portal is also very easy to use, and you can get started selling products quickly and easily.”
- Printful Review, Michael A.
“I had a few sync issues with my online store when I first got set up. There are also times where I felt the products did not get communicated or linked properly. Out-of-stocks have occurred, and I wish the communication of these events was more clear. I also wish some of the product costs were not as high, as they are more expensive than someone who could print locally.”
- Printful Review, Brian S.
Easyship enables retailers to manage all ordering and shipping activity in a single dashboard. Merchants turn to Easyship as an all-in-one dropshipping platform powered by API shipping automation.
“Easyship is super easy and syncs orders with many e-commerce websites. It allows us to offer customers different options for their deliveries and show the taxes and duties for international shipments. The pickups are easily booked, which makes managing hundreds of orders easy.”
- Easyship Review, Lachlan M.
“I had an issue with one of my packages and have not gotten a response back from Easyship. I have insurance on the package, yet it seems as if this is not an issue for them. My customer is not pleased, and neither am I. It’s making my small business look bad to my new customer when it comes to shipping.”
- Easyship Review, Alexis G.
ShipRocket is an e-commerce logistics and shipping software system. The platform offers negotiated freight rates with top-rated shipping partners and integrations with top e-commerce sites.
“The fact that I can choose the delivery service courier and mode of delivery makes it super convenient. The pickup happens immediately, sometimes even on the same day, which is amazing. The tracking details are automatically shared with the customer. They also have coverage of a wide range of PIN codes, which makes it easy to ship anywhere.”
- ShipRocket Review, Mohammad A.
“I have used ShipRocket for a long time, and they haven't improved their customer support service. It takes a long time to resolve your issues. Apart from that, a big issue is weight discrepancy. There's no timeline for weight discrepancies, so it’s not possible to keep shipment details for a long time, and they take advantage of this.”
- ShipRocket Review, Rakesh A.
You don’t need to spend a fortune on inventory just to expand your product catalog or get your business off the ground. With dropshipping, you can process customer orders, then sit back, relax, and let your supplier take care of the rest.
Whether you work with dropshippers or manufacture items yourself, it’s important to maintain accurate product data across sales channels. Learn how to manage your product data with product information management (PIM) systems.
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