What is dropshipping and how does it work?

retail fulfillment method

retail fulfillment method

Not every e-commerce business owner has the money to invest in the inventory or warehouse space to keep up with their product stock, which is probably why dropshipping has become such a popular retail fulfillment method. Although dropshipping is a common business model for many new entrepreneurs, there are still a lot of questions that are floating around about its potential benefits. So, if you’re ready to start up an online business, but you lack financial capacity, here’s why dropshipping may be able to help you launch.

What is dropshipping?

Dropshipping is a retail fulfillment method where the merchant relies on a third party, such as a wholesaler or manufacturer, to satisfy the completion of the order. So, instead of the retailer purchasing large amounts of inventory, they purchase the items from the manufacturer at a wholesale price and have them ship the item(s) directly to the customer. The retailer doesn’t need to worry about stocking their inventory or paying to have a warehouse for storage, they simply need to partner with a dropshipping supplier and then list their merchandise for sale on their e-commerce website.

What are the advantages of dropshipping?

There are many benefits to the seller when they use this retail fulfillment method, including:

  • Less money is required: Probably one of the biggest advantages of dropshipping is that it has the ability to make launching an e-commerce shop much cheaper for the seller. Traditionally, retailers have to invest in their inventory stock, but with the dropshipping model, they only need to purchase an item once a customer has fulfilled their transaction.
  • Easier for business owners to get started: If you choose to use the dropshipping method you won’t need to pay for a warehouse, packaging and shipping materials, managing inventory stock levels or handling the outbound shipments.
  • You can live almost anywhere: Dropshipping businesses can be run from pretty much anywhere in the world that possesses an internet connection.
  • Wider selection: You’re able to offer a more diverse selection of products to your customers because it won’t come at an additional cost to you.

What are the disadvantages of dropshipping?

There are some ways that make this retail fulfillment method complicated, including:

  • You can have lower margins: Many merchants operate on minuscule margins because they didn’t need to invest much to get their business off the ground. Often times e-commerce business owners will forget to invest in their websites and improve on their customer service strategies.
  • May run into inventory issues: Since you’re not stocking your own items, the warehouse you’re sourcing from may not have the item that your customer has ordered.
  • Complexities with shipping: Your shipping costs may fluctuate due to your products being sourced from multiple warehouses. This can complicate your costs because automating these charges can be difficult if one customer is ordering three items from different suppliers.

Regardless of whether dropshipping is your retail fulfillment method of choice, it’s important to still invest in your business to ensure that it thrives. That’s why you need to put aside from savings, speak with a web development representative and make sure that your e-commerce website is dazzling enough for customers to proceed through to the checkout phase.

For those of you who use dropshipping, please tell about your experiences in the comments section below.

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