Dropshipping

What is dropshipping?

Dropshipping is a retail model in which an online retailer sells products to a consumer without maintaining inventory. If a shopper makes a purchase, the retailer forwards the order to the supplier, who then ships the product to the consumer.

In the dropshipping model, the retailer is an intermediary. They handle the marketing and customer experience, while the manufacturer or wholesaler handles production, storage, and shipping. 

Retailers use dropshipping software to connect with their suppliers and provide order tracking for suppliers and customers. This software can integrate with e-commerce platforms to provide a seamless experience.

Dropshipping process

Dropshipping has become a buzzword, but its procedures aren't widely understood. The dropshipping process breaks down into four simple steps.

• The customer purchases a product. The dropshipper sells products on social media or runs an online storefront, often hosted on an e-commerce platform. The customer’s transaction is the same as they’d expect from a standard online store.
• The retailer places an order from the supplier. When a customer makes a purchase, the retailer orders the item from the manufacturer or wholesaler. Dropshippers have an agreement with the supplier for a discount on each product to profit from the sale.
• The supplier picks, packs, and ships the order. On the supplier’s end, this is like any other transaction. Once they receive the order, they find it in their warehouse, pack it up, and ship it out directly to the consumer. 
• The customer receives their order. The package arrives at the customer’s location. The dropshipper has never seen or handled the product at any point in the transaction.

Benefits of dropshipping

Dropshipping benefits the wholesalers and manufacturers who participate because they have retailers marketing their products and increasing sales. But it also offers certain benefits to retailers.

• Low start-up and overhead costs: In this model, retailers don’t have to rent a warehouse or hire staffers to pack and ship products. Many dropshippers run the business from their home.
• Less risk: Dropshippers don’t have to invest large amounts of capital in real estate and inventory. If they decide not to run the business, they don’t have any stock to liquidate.
• Scalable: Dropshipping is more scalable because the amount of work the retailer does isn’t tied to the number of orders placed. If customers start to order more products, it’s up to the supplier to keep up with the demand.
• Vast inventory: Retailers who choose this model have an almost endless selection of goods to choose from since they don’t have physical storage constraints. Some retailers offer a broad selection of products, while others focus on niche items. 

With all of these benefits in mind, it’s important to note that dropshipping also has disadvantages. For example, dropshippers have little to no control over product quality because they never handle the product.

Dropshipping best practices

Many consider dropshipping an excellent opportunity for would-be entrepreneurs due to its low risk and start-up costs. To achieve maximum success, retailers need to follow these five tips.

• Start with a small number of products. Some dropshippers want to start with an extensive product line-up, but it’s better to start with a small number of items. This allows them to focus on creating clear product descriptions and develop systems to manage the customer experience.
• Use multiple suppliers. To provide more reliable order fulfillment, retailers should try to have more than one supplier per product. If a customer orders a wristwatch that’s out of stock at Supplier A, the retailer can still get the product from Supplier B.
• Improve your marketing skills. Dropshippers should invest time and effort into learning and implementing marketing strategies. Improving their knowledge of search engine optimization (SEO) and paid ad strategies helps them find new ways to draw traffic to the store.
• Offer excellent customer service. Dropshippers differentiate themselves in a crowded marketplace by offering a high-touch customer experience. Using a reliable help desk platform helps retailers manage customer questions. Companies should respond to inquiries promptly and offer to make problems right even when they result from a supplier’s mistake. 
• Have a clear return policy. With the dropshipping model, a retailer must consider all suppliers’ return policies. If three suppliers have a 45-day return window, and one has a 30-day return window, the retailer’s return policy needs to fall within the shortest time frame. The retailer has to clearly outline how customers send items back to the supplier and how much of a restocking fee might apply. 

Never miss another customer order again! Learn more about order fulfillment and how to predict customer expectations.