How does Dropshipping work

Dropshipping is an effortless way of managing the inventory part of an eCommerce business by opting for a supply chain that is different from the conventional methods.

It is an agreement between the business owner and the supplier where the supplier agrees to ship a product directly to the customer without the business owner having to directly handle the products.

The businesses that opt for a dropshipping method, acts as storefronts where the customers can order their products from.

Parties Involved In Dropshipping

Any kind of retail business or an online store needs a supply chain for their products to be manufactured and delivered. A supply chain essentially involves all the materials, manufacturers, suppliers and retailers required for the business to run successfully. The parties involved in drop shipping are the manufacturers, wholesalers and retailers. 

  • Manufacturers create the products and sell their products in bulk to the wholesalers and retailers instead of the consumers.
  • Wholesalers usually buy products from the manufacturers and stock them up before selling them to the retailers. The products are marked up at a certain price at this level.
  • Retailers are the ones from whom the consumers buy products directly.

How does dropshipping work?

Whenever a customer places an order with a business, the retailers who own the business alert their drop shipping partner who handles the products directly and ships them to the customer.

 Subsequently, the retailer charges the customer and retailers are charged by their dropshipping partners. 

Drop shopping is an efficient way to cut down the cost of running a business because it shortens the supply chain. The shorter the supply chain the fewer the people the business owners have to deal with. As a result, the parties that take a cut from the business become lesser.

Advantages Of Dropshipping Business Over A Traditional Supply Chain

One of the most talked about benefits of dropshipping is its retail inventory management with lesser efforts involved from the business owners. The method works well for not only the e-commerce businesses but also those companies that are looking for ways to eliminate the inventory risk and increase their flexibility in terms of business.

Low-Cost Maintenance

With dropshipping, one can start a business with little to no investment as it eliminates the costs of inventory upfront and hence makes the process of starting an online business easy. It also significantly decreases the overhead as the biz owners don’t have to deal with purchasing inventory. Not having to handle inventory leaves you and your employees with a lot of time that you can invest in the other aspects of the business.

Fewer Losses

Since the products a business sells aren’t handled directly by the retailers/ business owners they don’t have to get stuck with the products that don’t sell and confront a loss.

Location Flexibility

Another advantage of dropshipping is location flexibility. Businesses that opt for dropshipping don’t need any kind of physical inventory and it makes the entire process of running a business uncomplicated as all your business ever needs is a laptop with a good internet connection.

Broad Range Of Product Options 

The dropshipping method has entirely changed the traditional way of businesses as now the business doesn’t have to wait to switch to new products until all the existing stock is sold out. You can always stay on top of trends by adding a new range of products to your storefront.

Challenges Involved

With a lot of benefits it has to offer, dropshipping also comes with its fair share of challenges.

Issues With The Profit Margin

If the business you hold requires you to handle a long supply chain in which a lot of middlemen are involved, consider it to be not worth it to pursue dropshipping. The existing competition is also huge as dropshipping hardly requires any investment to get started with. The competition pushes the biz owners to decrease the prices hence the low-profit margin.

You Never Know If The Products Are Readily Available

When a company owns a physical inventory it’s easy to check on what’s available and what is not. Since dropshipping involves a lot of people working on various levels you never know the products you need are available.  

Challenges With The Shipping

The products that you sell don’t come from a single supplier hence the delivery charges vary. This in turn makes it difficult to determine how to charge for the customer whenever they order products that come from different suppliers with a different shipping cost. 

Best Practices

Offer A User-Friendly Experience

Invest in modelling your website to offer a seamless experience to your customers from ordering to delivering. Make it simple to understand and easy to navigate regardless of what device they use. 

What Products To Sell?

Dropshipping does allow you to broaden your range of products but always consider selling those products that are marketable and research well on what is hard for people to find locally. Narrow down your products and be particular.

Be Selective Of The Supplier

Focus on the quality of your products. You might trust a certain supplier with their quality but stay vigilant about them. If a supplier keeps selling you the products that are damaged and delay the deliveries often, it’s easy for your customers to lose confidence in your service. Stay vigilant and cut ties with suppliers who offer a bad quality service.

Credibility

To build a reputable business, building online credibility is essential apart from choosing reliable shipping partners and a great website. Invest in strategies that help you build a strong online presence through email marketing campaigns and focus on building strong relationships with the customers. Rebrand the products you’re selling and pass them as yours with custom packaging. 

Work on your customer acquisition plan

Having a great website doesn’t alone attract customers. Start ad campaigns that would generate sales and revenue. Know where your customers are hanging out online and place your offers in front of them. Taking the edge from the ad campaign can greatly enhance your brand presence.

Wrapping up

Hope you clearly understood about how dropshipping works. To read more interesting articles, head to Zeen blog.

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