This post is by Cody Stallard, Community Manager for The Wholesale Forums.
If you’re looking into selling online, then you will more than likely have come across the term “dropshipping”. Sadly, this isn’t the practice of dropping a ship into the middle of the ocean, however fun that may sound.
No, dropshipping is a business model for online sellers, where merchants don’t purchase their stock until they receive an order. How is this possible? Well, they list an item and then, when an order is placed, they order it from their supplier, who ships it straight to the customer.
Dropshipping is one of the most attractive strategies for selling online, primarily because you never see or touch your stock. This means that you don’t have to find room for hundreds of units, or spend time handling and shipping orders.
In this post, I’ll be looking at the whole dropshipping process, covering everything from from the pros and cons of starting your own dropshipping business, to how the order process works and how to find legitimate suppliers.
View Top Product Sourcing ToolsAdvantages
So now we know what dropshipping is, what exactly are the advantages?
The great thing about dropshipping is that merchants don’t need thousands of dollars to start up. It’s a relatively easy way to start an ecommerce store without needing large sums of money to purchase and store stock, prior to selling and shipping it.
This is because you only purchase your stock after you have made a sale, and then ship it directly to the buyer. By doing this, it means you save space, time and money, as you don’t have to rent a warehouse. You can also worry a lot less about packaging, handling returns and managing your stock level.
Because you don’t deal with purchasing inventory, need to rent a warehouse or need a bricks-and-mortar store, dropshipping businesses have low operating costs – all you need to start is a cheap laptop or desktop computer. Over time your expenses may grow, but compared to physical retailers, your costs will still be much lower.
Two more big advantages of starting a dropshipping business are that it can be managed from just about anywhere with an internet connection and, you can sell almost any product you want, as long as you can find a supplier.
Disadvantages
Dropshipping is not without its drawbacks, the most common being the impact of supplier errors.
If you dropship, you’ve most likely had experiences where the supplier dispatches the wrong item, the item doesn’t arrive on time, or the item doesn’t arrive at all. This is bound to happen, as while your suppliers are trying to fulfill your orders, they are also fulfilling orders for other merchants, which does mean human error can occur at times.
But, because your customer does not know that you are dropshipping, you are responsible for any errors that are made by your supplier, such as dispatching the wrong item.
When this happens, it is best to do one of the following things:
- Admit fault by apologizing and let the customer know you’re going to fix the issue. Never mention the dropshipper/supplier as you’ll only confuse the customer.
- Make it up to them by offering a refund for the shipping fee, or a full refund.
- If your supplier is at fault, you need to seek a refund, as while you need to accept fault to the customer, under no circumstances should you have to pay your supplier for the product.
Another factor to consider is that many dropshippers source their stock from multiple suppliers. If your customer purchases multiple items, all of which you source from different suppliers, then you will need to factor in the separate shipping costs for all of these products. The other downside to this is that if the combined shipping costs are quite high, then your customers may go elsewhere because they think you’re overcharging them for shipping.
Inventory issues can also occur because you’re not stocking your own items. This means that there are times when keeping track of your inventory becomes very difficult. Finding a solution to monitor what is in stock and what is out of stock, will require extra resources, time and technology.
The Dropshipping Supply Chain
Now we have established that dropshipping isn’t all smooth sailing, we will begin to take a closer look at the issues that pop up, and how we can resolve them. Let’s start by taking a look at the terminology used in the dropshipping supply chain.
There are three roles that make up the dropshipping supply chain, these are: manufacturers, wholesalers and retailers.
- Manufacturers – manufacturers make the product and sell to both wholesalers and retailers. Buying in bulk from a manufacturer is the cheapest way to resell products.
- Wholesalers – Wholesalers buy in bulk from the manufacturers, and then sell in bulk to retailers. Wholesalers have a MOQ (minimum order quantity) – the lowest number of units you have to buy from them at one time.
- Retailers – Retailers purchase products from wholesalers and sell direct to the public.
You’re probably wondering why dropshipping isn’t in this list. Well, dropshipping isn’t an actual role, it’s more of a service.
Anyone can be a dropshipper, for example, if the manufacturer ships to the customer, then they are dropshipping. If a wholesaler offers shipping to the customer, this too means they are a dropshipper.
Dropshipping Order Process
There are four main steps to the dropshipping process.
Step 1 – The customer places an order and pays at the checkout – both you and the buyer receive a confirmation and order email.
