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What You Need to Know about Dropshipping

Published: June 1st, 2020

Dropshipping is a retail method in which you do not keep products in stock. It is a term used in supply chain management in which retailers do not maintain inventory.

There are three different important roles in a transaction:
♦ Supplier
♦ Retailer
♦ Customers
The process is simple. Retailers buy goods from suppliers and sell them to customers through certain channels. This is the most common and traditional sales model that eBay, Amazon, or AliExpress follow.

Dropshipping actually follows this model and it is a great business model for aspiring entrepreneurs to start with because it is accessible. Here are a few other reasons why dropshipping is such a popular model.
• Less capital is required
• Easy to get started
• Flexible location
• Wide selection of products to sell
• Easier to scale
• No need to pack and ship by yourself

Dropshipping Business Model So as simple as possible, the above image shows the 4 steps in dropshipping.

  1. You list products (supplier’s products) in your eCommerce store for customers to buy.
  2. The customer purchases products from your eCommerce store.
  3. You order the products that the customer paid for from your supplier.
  4. Your dropshipping supplier ships this item directly to your customer. So your customer receives the item that they have ordered from you.

Let's do a comparison.

Traditional model:

You first need a certain amount of venture capital. Assuming your starting capital is $10000. Then, you may have to go to Alibaba to purchase goods after you open a shop. Suppose the cost of the products is $4000. There are various expenses for the remaining $6000, so there is not much money spent on advertising. Most importantly, you may not be able to sell all the stock in one or two days. If you add the wrong product selection, then this process may have slow sales. You may then need to face the problem of deadstock and increasing warehouse cost.

Dropshipping model:

Reseller can transfer the risk of keeping inventory to the supplier, and also outsourced the packaging and delivery of the order to the supplier. What reseller need to do is to focus on operation and marketing of their online store. In this way, reseller do not need to deal with inventory, shipping and packaging. It means that more budget can be invested in marketing. The same entrepreneurial cost can be promoted with at least 80% of the cost in the Dropshipping mode.

Therefore from this perspective, the advantages of dropshipping are obvious! dropshipping 2

Common Questions About Dropshipping

§ How much money can you make dropshipping?
On average, dropshipping margins range anywhere from 10%-30%. But this number can vary greatly depending on what type of products you sell.

§ Is dropshipping a legitimate business?
Dropshipping is merely a fulfillment model which is used by many global retailers, and is completely legal. But since this is genuine, the most legal concerning areas of dropshipping is taxes and copyright infringement.

§ Will I have to deal with customer problems?
Yes, you will have to deal with your customers. Your supplier does a lot for you (like storing and shipping your products), but you will be the one that will be in contact with your customers.