Drop-shipping is a business model where items brought from a store are shipped directly to the customer by the supplier or manufacturer.
What is drop-shipping?
Drop-shipping is a retail method where a store doesn’t keep its products in stock. Instead, when a customer makes an order, the store forwards it with payment to a drop-shipping supplier. The supplier then ships the product to the customer.
Many business owners prefer drop-shipping because it passes the task of order fulfillment to suppliers. This means stores don’t need to invest in warehouse space or risk getting stuck with unsold inventory. As a result, businesses can allocate more resources to other retail activities such as marketing.
It’s estimated that drop-shipping generates more than $300 billion in e-commerce sales every year.
How does drop-shipping work?
1) Partner with a drop-shipping supplier
2) Set up an online store
3) Receive a customer order
4) Forward the order to the supplier
5) Supplier prepares and ships the product
6) Customer receives the product
Should you start drop-shipping?
Is drop-shipping worth it for you? Here are some signs that a drop-shipping business model could fit your business:
You’re all about marketing
Drop-shipping could be a great fit if you’re skilled in search engine optimization or social media marketing.
You’re sales-driven, not brand-focused
If your business strategy is more focused on generating a high volume of sales than on building a distinctive brand, drop-shipping could be suitable for you.
You prioritize product variety.
Drop-shipping gives merchants the ability to sell a wide array of products from a global network of suppliers without worrying about inventory.
You’re comfortable with longer shipping times.
In an era of super-fast delivery, most customers expect their purchases to arrive quickly. This presents a challenge for drop-shippers who partner with overseas suppliers.
You’re prepared for customer support.
While drop-shippers don’t deal with product fulfillment, they are the primary point of contact for customers. This means they often find themselves addressing customer service issues that are beyond their direct control, such as shipment delays, delivery problems, product defects, and return requests.
You’re ready to grow.
Drop-shipping isn’t just for new stores. It’s also a tool for established retailers looking to expand.
7 benefits of drop-shipping
Here are seven reasons why drop-shipping has become a popular e-commerce model for businesses:
1) Low cost
2) Wide selection of products to sell
3) No product development cost
4) Flexible location
5) Easier to start
6) Easier to test
7) Easier to scale
Drop-shipping drawbacks
Like all retail models, drop-shipping also has its downsides. Here are three drawbacks to consider:
1) Lower profit margins
2) Inventory volatility
3) Shipping complexities
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Drop-shipping FAQ
How much do I need to invest to start drop-shipping?
Starting a drop-shipping business requires investing in an online store with a domain name and an e-commerce website. You may also need to budget for online advertising to reach potential customers.
How do drop shippers make money?
Drop-shipping businesses earn money from the profit margin that exists on the products they buy from suppliers and sell to consumers.
Is drop-shipping legal?
Drop-shipping is a legal and widely used e-commerce fulfillment model that’s become a popular option for businesses around the world.
How profitable is drop-shipping?
Typical profit margins for drop shippers selling products from open marketplaces range between 10% and 15%. Established retailers using products like Shopify Collective to drop ship between stores can expect far higher margins. You can build a profitable drop-shipping business by finding the right products to sell and fostering strong supplier relationships.
What’s the difference between drop-shipping and retail arbitrage?
Unlike drop-shipping, retail arbitrage involves buying products from other retailers and reselling them at a higher price.
How do I start a drop-shipping business? Choose a drop-shipping niche.
b) Partner with a drop-shipping supplier.
c) Build an e-commerce store.
d) Market your drop-shipping store on Facebook, Instagram, and TikTok
e) Accept customer orders and forward them to the supplier.
f) Analyze and improve your sales strategy.
