Dropshipping: What It Is and How It Works

Dropshipping is trending these days, and it would likely have caught your eye once, if not multiple times. You sell products to customers, set product prices and build your brand simultaneously. Also, you don’t need to stock up on your inventory unless you get an actual customer willing to buy a product. This blog will help you understand all you need to start off.

What is dropshipping?

Dropshipping refers to a business model in which you can run your store without needing to stock up on any inventory. Such a business purchases from a third party and dispatched directly to the consumers eliminating – 

• The need for maintaining a physical inventory
• The responsibility of the fulfilment process
• Expenditure on stocking inventory or renting a warehouse space

Now that you have a brief idea of what dropshipping means, let’s explore how it works.

How does this business model work?

There are three players in this model –  

The manufacturer

Manufacturers create and restock products, manage the inventory, ship the sold products to the consumers, replace the defective ones and carry the risk of unsold inventory.

The retailer

The retailer sells these products on their dropshipping platform and under their brand. They take the responsibility of choosing and marketing the products, the shipping cost and set profitable prices.

The customer

Finally, the customer buys a product from a dropshipping platform and contacts the retailer  if they face an issue with it.

Needless to say, you’ll play the retailer in your business. But how profitable is it and is dropshipping worth it?

Why is dropshipping worth it?

Dropshipping is a low-risk business model. It is easily accessible and much cheaper than traditional retail. Let’s explore some more pros – 

Easy and inexpensive

As discussed earlier, starting a dropshipping business is much less complicated than a brick-and-mortar store. You don’t need to maintain a physical inventory, take responsibility for the fulfilment process or spend any money renting a warehouse. You can pick and choose products from retailers, market them under your brand on your dropshipping platform and strike a deal with customers at your prices. Here’s a brief list of what you might need – 

• A dropshipping platform including domain name and hosting
• A laptop, PC or a smartphone and a reliable internet connection
• Automation applications
• Wholesale suppliers directory

Above all, you need to take limited risks as you purchase a product only when you get a willing customer and are not committed to selling through any inventory purchased upfront. 

Scalability

Such a business model offers immense flexibility in terms of geographical location. Unlike traditional retail businesses, expansion of inventory or customer base will not lead to increased workload as most of the work will be associated with the supplier. Despite requiring some effort in areas such as customer service, it offers immense potential for scalability as compared to traditional retail firms.

Increased customer lifetime value

Finding new customers drains a substantial chunk of a business’s efforts and resources. Dropshipping enables you to maintain a large variety of products on your storefront, leading to more repeat purchases. This subsequently boosts the customer’s lifetime value.
Dropshipping has made e-commerce a level playing field for all due to low capital investment, no inventory requirement and scalability. So, go ahead and build an online empire of your own.