How Dropshipping Works – Step By Step Guide

Understanding How Dropshipping Works [Shopify]

How Dropshipping Works: Two of the most conventional approaches for dropshipping on Shopify are to find out a supplier located in North America, or anywhere else in the world.

You can use supplier databases or the Shopify app, which connects you and your store to thousands of suppliers.

For the latter, we recommend Oberlo, a marketplace developed by Shopify that helps independent business owners find products to sell. With Oberlo, you’ll browse AliExpress and import the products that pique your interest on to Oberlo—which connects to your Shopify store—with the press of a button.

Once a customer buys a product, you’ll be ready to fulfill their order within the Oberlo app. Fortunately, Oberlo automates this process. Because the store owner, all you’ve got to try to do is make sure the small print is correct and click on the “‘order”‘ button. The merchandise is then sent directly from the AliExpress supplier to the customer—wherever within the world they’ll be.

Dropshipping – Definition

Dropshipping is a direct fulfillment method where a store doesn’t keep the products it sells available. Instead, when a store sells a product using the dropshipping model, it purchases the item from a 3rd party. It has it shipped on to the customer. As a result, the vendor doesn’t need to handle the merchandise directly.

The most significant difference between dropshipping and, therefore, the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the vendor purchases inventory as required from a 3rd party—usually a wholesaler or manufacturer—to fulfill orders.

Benefits of dropshipping

Dropshipping may be a great business model for aspiring entrepreneurs to start with because it’s accessible. With drop shipping, you’ll quickly test different business ideas with a limited downside, which allows you to learn tons about the way to choose and market in-demand products. Here are a couple of other reasons why dropshipping is such a well-liked model.

Less capital is required

Probably the most crucial advantage to dropshipping is that it’s possible to launch an e-commerce store without having to take a position thousands of dollars in inventory upfront. Traditionally, retailers have had to traffic jam vast amounts of capital purchasing inventory.

With the dropshipping model, you don’t need to purchase a product unless you have an order, and the customer pays it. Without significant up-front inventory investments, it’s possible to start outsourcing products and launch a successful dropshipping business with little or no money. And since you’re not committed to selling-through any inventory purchased upfront, like during a traditional retail business, there’s less risk involved in starting a dropshipping store.

Easy to get started

Running an e-commerce business is far more comfortable once you don’t need to affect physical products. With drop shipping, you don’t need to worry about:

  • Managing or paying for a warehouse
  • Packing and shipping your orders
  • Tracking inventory for accounting reasons
  • Handling returns and inbound shipments
  • Continually ordering products and maintaining the stock level

Low Overhead

Because you don’t need to affect purchasing inventory or managing a warehouse, your overhead expenses are quite low. Many successful dropshipping stores are run as home-based businesses, requiring little quite a laptop and a couple of recurring costs to work. As you grow, these costs will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.

Flexible location

A dropshipping business works from almost anywhere with an online connection. As long as you’ll communicate with suppliers and customers easily, you’ll run and manage your business.

A big choice of products to sell

Since you don’t need to pre-purchase the things you sell, you’ll offer an array of trending products to your potential customers. If suppliers stock an item, you’ll list it purchasable on your online store at no additional cost.

Easier to check

Dropshipping may be a useful fulfillment method for both launching a replacement store and for business owners looking to check the appetite customers have for new product categories, e.g., accessories or wholly new product lines. The most advantage of dropshipping is, again, the power to list and potentially sell products before committing to purchasing an outsized amount of inventory.

Easier to scale

With a standard retail business, if you receive three times the amount of orders, you’ll usually get to do three times the maximum amount of work. 

By leveraging dropshipping suppliers, most of the task is carried out by the supplier giving you enough the focus on scaling the business.

Disadvantages of dropshipping

All the advantages we mentioned make dropshipping a lovely model for anyone getting started with a web store, or for those looking to expand their existing product offerings. But like all approaches, dropshipping has its downsides, too. Generally speaking, convenience and adaptability come at a price. Here are a couple of shortcomings to think.

Low margins

Low margins are the primary disadvantage of operating during a highly competitive dropshipping vertical. Since they’ve invested so little in getting the business started, they will afford to work on minuscule margins.

Typically, these sellers will have low-quality websites and poor (if any) customer service, which you’ll use to differentiate your business. But that won’t stop customers from comparing their prices to yours. This increase in fierce competition will quickly hurt the potential profit margins during a niche. Fortunately, you’ll do tons to mitigate this problem by selecting a niche/vertical that’s compatible with dropshipping. We’ll discuss the way to do precisely that in Chapter 4.

Inventory issues

If you stock all of your products, it’s relatively simple to stay track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which also are fulfilling orders for other merchants, inventory can change on a day today. Fortunately, lately, there are a couple of apps that permit you to sync with suppliers. So drop shippers can “pass along” orders to a supplier with a click or two and will be ready to see in real-time what proportion inventory the supplier has.

Oberlo also lets merchants take automated actions when a supplier’s stock hits zero. For instance, when a product is not any longer available, you’ll automatically unpublish the merchandise, or keep it published but automatically set the number to zero.

Shipping complexities

If you have multiple suppliers—as most drop shippers do—the products on your online store are going to be sourced through a variety of various drop shippers. It complicates your shipping costs.

Let’s say a customer places an order for three items, all of which are available only from separate suppliers. You’ll incur three different shipping charges for sending each item to the customer. Still, it’s probably not knowing pass this charge along to the customer. And even when it does add up to incorporate these charges, automating these calculations are often tricky.

Supplier errors

Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the error only?

Even the most straightforward dropshipping suppliers make mistakes fulfilling orders—mistakes that you’ve got to require responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which may damage your business’s reputation. That will affect how How Dropshipping Works

Limited customization and branding

Unlike custom-made products or print on demand, dropshipping doesn’t offer you tons of control over the merchandise itself. Usually, the merchandise drop-shipped is meant and branded by the supplier.

Some suppliers can accommodate your business’s product changes. Still, even then, the supplier has the foremost control over the merchandise itself. Any changes or additions to the merchandise itself usually require a minimum order quantity to form it viable and affordable for the manufacturer.

Common questions on dropshipping

Throughout the remaining part of this article, we’ll cover all of the required steps to start a profitable dropshipping business. But before we continue, it’s worth answering a couple of common questions we receive about what dropshipping is and the way it works.

How much do I want to take a position to start out dropshipping?

Though it’s hard to predict the precise costs for a person’s business, there are a couple of items every dropshipping business will get to spend money on to urge started. Here’s a fast summary of the essential costs. All these put together will show you How Dropshipping Works.

Online store

Estimated cost: ~$29/month

You’ll get to find an e-commerce platform or website builder to make and host your online store. We recommend starting a Shopify store. 

Domain name

Estimated cost: $5-20/year

It’s hard to create trust with customers without your name. While there are a variety of top-level domains available (e.g., example.shop, example.co), we recommend trying to find a .com that matches your brand, if one is out there. 

Use our name generator to urge started, or learn more about the way to come up with a catchy business name.

If you don’t, you risk listing a product with too many shortcomings or defects, which can end in unhappy customers and tons of your time spent handling returns. Its all part of How Dropshipping Works

Online advertising

Estimated cost: Scales together with your business; we recommend budgeting a minimum of $500 to get started.

Every e-commerce business should search for ways to scale to achieve ROI, to accumulate a customer through organic channels like content marketing, SEO, and word of mouth. But to urge started, advertising is typically an essential channel for many product-based businesses. 

The first common channels include program marketing (SEM), display ads, social media ads, and mobile ads. Plays a significant role regarding How Dropshipping Works

How do drop shippers make money?

Dropshipping businesses act as product curators, selecting the proper mixture of products to plug to customers. Remember, marketing may be a cost you incur, in both time and money, helping potential customers find, evaluate, and buy the proper product. 

You’ll even have to incorporate the value of providing customer support whenever there’s a product or shipping issue. Last but never least is that the original price that your supplier sells the merchandise.

With all of those costs to account for, dropshipping businesses price individual products in exchange for distribution. 

Is dropshipping a legitimate business?

Dropshipping is simply a fulfillment model, one employed by many global retailers, and is perfectly legal. Like with any business, satisfying customer expectations and building a brand that resonates with the proper audience remains key to long-term success.

This question usually comes up thanks to a misunderstanding of how dropshipping works. Most retail stores you shop in are likely not selling products they manufacture. 

Dropshipping takes this curated approach and turns it into a fulfillment model to fit a web business.

There are, of course, the more fundamental belongings you got to neutralize order to run your business legally. Consult a lawyer who focuses on these matters to make sure you’re conducting business professionally in your region.

So, is dropshipping worthwhile in 2020?

As we’ve mentioned, dropshipping isn’t an ideal, stress-free thanks to building a successful online business. The model has some definite advantages but comes with a variety of built-in complexities you’ll get to address.

We’ll be examining these challenges and the way to treat them in future chapters best. 

The great news is that with a good plan, you’ll be profitable in the dropshipping business. So you now understand How Dropshipping Works?

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