Business

Understanding Dropshipping and How It Works

Understanding Dropshipping and How It Works

Introduction

One of the amazing features of the internet is the technology to run a business successfully without having to own a brick-and-mortar store. Dropshipping has turned out to be one of the smoothest ways an entrepreneur in this century can amass wealth while providing quality services or goods to retailers or final consumers.

What is Dropshipping?

In layman’s terms, this is when an online vendor sells products to final consumers, retailers, or even other wholesalers by ordering such products from the direct manufacturers or suppliers. It can be further simplified by saying that a dropshipper acts like an intermediary between the final consumer and the manufacturer.

This is however different from affiliate marketing. In dropshipping prices are set by the dropshipper while it is the opposite in affiliate marketing. Over the years, it has been proven that dropshipping is more profitable than affiliate marketing.

How Dropshipping Works

Photo by RODNAE Productions from Pexels

How Dropshipping Works?

This is exactly how dropshipping works. Once the customer places an order for a particular product, the dropshipper would then order the same products from the supplier. These products are then shipped directly from the manufacturer to the final consumer or retailer.

The dropshipper markets the products on behalf of the supplier and at the same time he orders on behalf of the final consumer. In this process, the dropshipper would have no direct contact with the products.

Another interesting feature about the dropshipping business is that prices are set by the dropshipper, not the manufacturer or supplier. Thus, providing the liberty to maximize profits as much as possible.

Merits of Dropshipping

The advantages of running an online dropshipping store are exceedingly great compared to a traditional physical store. Advantages of dropshipping include:

Easier to Manage

Compared to having a physical store when one would have to hire staff, pay for service charges, rent, and other overhead expenses, dropshipping is very simple and can be from the screen of a mobile device, tablet, or personal computer.

Setting up the online store can be the only demanding exercise while running dropshipping. Once everything has been set, managing the store is very easy to do and doesn’t require extra technicality.

There is no compulsion to renting a storehouse or hire staff.

Highly Flexible

A full-time or part-time student, a lawyer, a banker, a lecturer, an influencer, etc. (name any profession that comes to mind) can engage in dropshipping activities despite their commitment to other ventures.

It is a very flexible endeavor as one can decide to work from home. Also, it provides automation features that process orders, confirmation of orders, etc. while one is away on vacation, at work, or in an emergency.

Low-risk Business

While there are a lot of risks attached to brick-and-mortar stores e.g., security, accessibility, and mobility. One must also bear in mind that having a physical store would demand purchasing products in fairly-large quantities. Now imagine failing to sell all these products in-store.

Related:  How to Raise Capital for Your Startup Company: Funding Options

That would result in a great disappointment as rents would have to be paid, staff hired as well and other costs of purchasing those products.

In comparison, dropshipping is very secure as one would only spend on setting up the online store (although there are ways that can be done for free). Orders are always placed with funds already received.

Profitability

The same logic applies as above. The profit margin would also be higher because of the difference in the overhead cost.

Also, prices are set by the store owner and not the manufacturer or supplier. This is saying a dropshipper determines how much profit he wants to make without any restrictions.

Easier to Grow

When a physical business is doing well, it usually means that as the revenue increases, there will also be a need to increase the expenses in areas such as hiring more staff or renting a larger space to accommodate the growth.

This is different in dropshipping, an increase in revenue would only require more work while sorting orders and maybe channeling more dollars into marketing.

Demerits of Dropshipping

Although there are many advantages of having an online store, the reality is however that it does have its shortcomings as well. Some of these disadvantages include:

Store Owner Always take the Blame

This can happen anytime because the store owner has just limited power. He/she only sort orders and doesn’t ship the orders directly to the buyer. If the supplier fails to deliver the products or delivers products that are not up to expectation, the store owner will always bear the consequences.

If anything goes wrong with your dropshipping business, you will always get the blame and face the consequences. E.g., leaving negative feedback.

Delivery Complications

Processing orders seems like a simple exercise but it can get very complicated when one is dealing with different suppliers. Each supplier has his unique mode of operations and this can mess up orders when having to deal with buyers.

High Level of Concentration and Customer Relation

Since dropshipping has to deal with the relationships between the customers and the suppliers, one has to be well articulated, attentive, and understanding.

It is important to pay attention to details so as not to get orders mixed up. Also, to be able to resolve any conflict that might arise.

Popular Dropshipping Platforms

Several platforms provide dropshipping services. Each with its unique functionalities and features.

The most popular dropshipping platforms we have to include:

  • (Shopify) Oberlo
  • Alibaba
  • Aliexpress
  • Sunrise wholesale
  • National dropshippers
  • TeleDynamics
  • Alpha imports
  • CROV
  • SupplyMeDirect

Conclusion

Dropshipping has its pros and cons. Statistics have however shown that its pros have outweighed its demerits. Thus, it is a very profitable business to venture into.

One must however keep in mind that it does require a high level of concentration and dedication to thrive. Proper efforts must also be channeled into setting up the online store, marketing, and finding the best suppliers.

The Author

Awoyele Olanrewaju

Lanre is a professional writer with over eight (8) years of experience. He has created various content across multiple niches such as business, academic, grant research, and cryptocurrency.

His research and writing skills have helped start-ups and non-profit organizations secure grants. He has also worked with different De-Fi organizations such as Algorand, Bluezelle, and EasyFi, and Status to create amazing cryptocurrency content.