What is Dropshipping? Find out how it works.
If you landed on this page, you probably heard of how successful a dropshipping business can be. You might even already know its concept in broad terms, and you are looking for a more specific definition of what this model of business involves, what is dropshipping exactly.
Dropshipping is a form of supply chain management for eCommerce stores.
It is a streamlined form of retail sale that involves a merchant who accepts customer orders for products that he does not own in stock.
Instead, the merchant finds a third party, a supplier -, who accepts to fulfill his orders and ships the products directly to the end-consumer ( the merchant’s customer).
Dropshipping involves an arrangement between the merchant and the supplier, who agrees to provide and ship his products on the merchant’s behalf and it works like this:
- The merchant promotes the products on his eCommerce and an end-user buys them;
- Once the sale is made the merchant pays for the suppliers’ products and the shipping costs, and emails the information on the order to be fulfilled;
- The supplier ships the order to the end-user, and emails the merchant with the tracking number of the parcel;
- The merchants shares the tracking number with the end-user;
In the dropshipping model, the merchant will deal with all marketing and promotion-related tasks, while the supplier will deal with the logistics.
In the segments below, we will talk more in detail on the origins and of dropshipping and what are the benefits to the dropshipping merchant, the dropshipper and the end-consumer.
What is dropshipping: Origins and Evolution
Dropshipping has grown enormously in the past few years, thanks to key factors, such as:
- Internet and eCommerce: nowadays everyone buys items online;
- Social Media Sales Channels: Facebook, Instagram and TikTok have started to develop tools that help their users to sell their products;
- Faster Shipping: shipping methods have developed a lot, nowadays people can get products from all over the world in just a few days.
Initially dropshipping merchants, back at the end of the 90s and early 2000s, used to sell on platforms like eBay or Amazon, then they moved to CSM (content management systems), such as Shopify and WooCommerce to name a couple.
Why is Dropshipping so popular?
In 2019, according to statistics, the turnover generated by retail eCommerce sales was $3.53 trillion, 33% of these were made with dropshipping. The revenues are expected to grow to $6.54 trillion in 2022.
In 2020, eCommerce and Online sales have become a priority for the world, especially after COVID19 has forced many countries to introduce mandatory quarantine measures for their citizens.
In the eCommerce sector, Dropshipping remains current and gains popularity because it is a low-risk and high-reward model that can be easily started at home.
It is the perfect business model that can initiate your entrepreneurial career, provided that you dedicate yourself to it, you do your homework in learning the best marketing techniques and you stay up to day with the latest trends.
Let’s move on to the benefits for the 3 parties involved.
Benefits of Dropshipping for Merchants
As a merchant, there are quite a few benefits to starting a dropshipping store, some of which are:
- Easy to start: you can launch your dropshipping store in just a few hours on a CMS platform like Shopify, or you can decide to sell your products on marketplaces like Amazon, or even simple via Facebook or Instagram, you have no limits on where you choose to market your products;
- Low Startup Investment: you can start your business with just a few bucks, it’s got no Inventory Costs, since you do not own the products you sell, you do not need to worry of any logistics or fulfillment costs, you will not need to pay employees to prepare your parcels to be shipped out to your customers;
- Flexible business, you get to decide your work hours and the products you sell;
- Flexible hours: you can decide when to work and sell from anywhere, since an eCommerce is not like a brick and mortar store, any country can be your target, while you reside, for example in Italy;
- Easy to promote, you can really promote any product you wish, and you only buy the product when you actually made the sale, if a product does not sell, you can move to the next one;
- Easy to maintain: you would not have any leftover stock of products that you would need to deal with or manage, you only have to worry of your eCommerce, nothing else!
Benefits for Suppliers
After learning all the plus points of being a dropshipping store owner, you might be wondering why should a producer, or a supplier offer their products and dropshipping services to someone else instead of selling his products himself? Actually, there are quite a few reasons and here are some of them:
- it can expand its sales network by offering unlimited sales channels including offline, online and affiliates.
- They get to sell products without spending a penny in marketing or product placement;
- With this method, the supplier has a wider penetration to explore new markets and new countries by using the dropshipping method.
Benefits for the Customer
Suppliers are explicitly asked not to include any ad material in the products they ship on behalf of merchants so most of the time, the end-user doesn’t even realize that their product was sent via dropshipping.
While the shipping time could take a tad longer, in comparison to products that are already present in the consumer’s home country, the benefit to them are:
- Wider variety of products available;
- Lower prices in comparison to retail brick and mortar shops and home country based eCommerces;
What is Dropshipping: Trends
Dropshipping has changed enormously over the past years. Strategies and techniques that worked in 2016 and 2017 do not work today.
If you are asking yourself if dropshipping is still a profitable business the answer is yes. We’ll tell you more, it has never been more current, as the pandemic has accelerated the consumers’ shift from physical stores to eCommerce.
With regards to suppliers however the story has changed. Some years ago dropshippers used to get their products almost exclusively from Chinese Marketplaces, nowadays this type of supply method is no longer profitable because:
- Chinese marketplaces sell products at B2C prices, in such way lowering down profit margins;
- Since the dropshipping supply method is quite easy to built, the competition has grown exponentially.
What is dropshipping: Suppliers
We understand that it can be tempting to start your business by relying your order fulfillment on AliExpress B2C resellers, however be prepared that you can easily experience problems, such as:
- Slow Shipping, despite paying for the fastests shipping method, often AliExpress resellers ship parcels with the slowest method available to save up on shipping costs;
- Problems with Product Sourcing, it can be tricky sourcing your products on Chinese Marketplaces like Alibaba or AliExpress due to a language barrier, not many suppliers have a workable knowledge of English;
- Low Quality of the Items purchased, sometimes, more than some times perhaps, the product on the picture is very different from the one that your customers will get;
If you want to avoid these problems and have a head start on other dropshippers, you need a supplier who will be able to provide you a higher level of service.
Someone like Yakkyofy, choose us as your supplier and you will have:
- Store integration, if you built your store on Shopify or WooCommerce, you will be easily connect to our web-app to manage your store’s orders;and automate your business;
- Real-Time B2B quotes, usually you would need to wait days of back-and-forth communication with Chinese suppliers, but with us you will have the final price in just a few minutes;
- Automatic Order Fulfillment, thanks to our eWallet function you will not have to pay your orders every single day, your orders will be automatically processed as soon as your customers check out;
- Customisable Products and Packaging, if you want to invest in customer loyalty, you must invest in your own brand, and we can help you with the logistics of producing your personalised products and packaging;
- Fast shipping service, with our Premium Special Line, you will be able to ship your products to TIER-1 countries in a handful of days;
- Free Unlimited Order fulfillment, so that you can sell as many products as you want and we will arrange all the shipping logistics;
- Free Storage, if you ever decide to buy stocks, we will keep them for free in our warehouse in Shenzhen, ready to be shipped out!
The above are just some of the services that we can offer, along with dedicated assistance from our Customer Care team.
Anytime you will have problems with your orders, shippings or questions on the services we provide, you will be able to easily contact us, and we will do our very best to help.
Don’t keep your future life waiting any longer, become a dropshipping entrepreneur!