What is Dropshipping?

What exactly is dropshipping, and how does it differ from traditional retail models? This is the question we’d like to explore in this post.

Defining Dropshipping

In summary, dropshipping is a fulfillment method where a brand doesn't own the products it sells. Instead, when the product is sold, the seller purchases the item from a third party who ships it directly to the customer. The seller acts as a middleman, facilitating the transaction without dealing with inventory or order fulfillment.

Dropshipping Vs. Traditional Fulfillment

Unlike dropshipping, traditional fulfillment requires investment in inventory. As the seller you are responsible for purchasing inventory before you make the first sale. This inventory is typically stored by a third-party who also fulfills each order. In the traditional fulfillment model, as a seller you are involved in more of the selling process.

The first step in dropshipping is to select your products and (potentially) design them. You can dropship common household goods, as well as custom designed products such as apparel.

Unlike traditional retail, you don't need to invest in inventory upfront. But you still have to research and curate your product offerings. You still have to source the products from a manufacturer. The only difference is when you pay for the goods—before or after they sell. 

In dropshipping, the manufacturer is also responsible for fulfillment. This simplifies the process as you only need to find one partner. However, in traditional fulfillment you will need to source your products from a manufacturer, and find a reliable fulfillment partner.

Once products have been sourced, you will need to establish an online store. This step is crucial whether you drop ship or utilize a traditional fulfillment model. Your store should reflect your unique brand as well as funnel the customer toward a purchase.

After you’ve chosen your products and your store is up and running it is time to market your products. Marketing strategies will attract potential customers to your online store and convert them to buyers. Whether you choose dropshipping or a more traditional fulfillment strategy, marketing is important for your business. Without it no one will your business or your products. 

With marketing in place, you should begin seeing sales! Once an order is placed, your dropshipper (manufacturer + fulfillment center) will fulfill the orders for you. This process is very similar to working with a fulfillment center. In that model, after an order is placed it is fulfilled by the fulfillment center—the inventory having already been delivered. 

Benefits of Dropshipping

Low Initial Investment: Dropshipping requires minimal upfront investment since you don't need to purchase inventory. This makes it an attractive option.

Flexibility and Scalability: The flexibility to choose from a vast range of products allows you to adapt quickly to market trends. It also makes scaling up as your business grows relatively seamless.

Reduced Operational Burden: Since you don't manage inventory or handle fulfillment, your workload is significantly reduced, giving you more time to focus on marketing and growing your business.

Disadvantages of Dropshipping

Lower Profit Margins: While dropshipping reduces upfront costs, it may result in lower profit margins compared to traditional retail models. Rather than purchasing inventory in bulk, at a lower price, you will be buying each unit individually.

Dependency on Suppliers: The success of your business relies on the reliability of your suppliers. It can be difficult to find a trustworthy supplier.

Competitive Nature: Dropshipping has become increasingly popular, leading to a more competitive market. Distinguishing your brand requires strategic marketing and excellent customer service.

Should You Try Dropshipping?

If you are considering starting an e-commerce business, dropshipping can be a great place to start! It eliminates some of the risk of investing in inventory and simplifies the process of choosing partners. 

While it may decrease profits, dropshipping is a business model many are adopting. Effective marketing and strong supplier relationships are the key to success. 

Note: Viable Shipping is a fulfillment center following the traditional fulfillment model. If you are ready to expand into traditional fulfillment we’d love to connect!