What is dropshipping – definition
The most important distinguishing feature of dropshipping is that the customer who orders goods from the store does not receive them from the seller. The handling, picking and shipping of the order is handled by the supplier in this case. In other words: in dropshipping, the seller assumes the role of an intermediary. The division of responsibilities is therefore radically different from the traditional online sales model.
Seller’s tasks in dropshipping
- Maintaining the store’s website or listings on sales platforms,
- Preparing product descriptions,
- developing offers,
- customer contact,
- Marketing,
- taking orders,
- transferring them to the supplier,
- processing of returns and complaints.
So it’s not that dropshipping removes all responsibilities from the seller. It makes life easier, reduces the number of tasks to be performed, and allows you to run your business without renting or buying out warehouse space, but it still leaves in the hands of the seller a lot of the peri-sales activities, and – especially important – full responsibility for customer satisfaction.
Dropshipping is a sales model that is invisible to customers at first glance. If the seller and the supplier cooperate smoothly and with great commitment, the customer may not realize for a long time that the store is using dropshipping. It will only become clear when he receives the shipment and checks who the sender is.
All this means that the consumer will rightly blame the vendor, not the supplier, for any delays, damage or other problems with order fulfillment. This is especially important in the context of how much of the order fulfillment task will be performed by the supplier.
Supplier tasks in dropshipping
The supplier handles order fulfillment, but his work starts earlier. Suppliers’ tasks include:
- storage of goods,
- order picking,
- Packaging and securing shipments,
- delivery organization.
Important!
A dropshipping supplier and a wholesaler are not the same function. Although they have a few points in common, the difference is in the most important element.
- A wholesaler sells large quantities of goods to a retailer so that the retailer can then sell directly to its customers.
- The dropshipping supplier makes its goods available to dropshippers for sale, while remaining the owner of the goods until they are ordered by the end customer.
Benefits of dropshipping
Undoubtedly, dropshipping is a model that has many advantages for sellers. In this section, we will discuss the most important of them.
Low entry threshold
The words “anyone can sell online today” are perhaps exaggerated, but only a little. With dropshipping, the threshold for entry into the e-commerce industry is lower than ever. Forget about having to invest tens of thousands in your own business at the very beginning.
Starting a dropshipping business will save you money on warehousing and stocking, as well as order processing. Of course, this doesn’t mean that you won’t pay a penny for it – dropshipping suppliers’ services cost money. In the beginning, however, the costs shouldn’t overwhelm you, allowing you to rock the business without sacrificing your life savings or taking on additional debt.
Time and space for testing
If you have a specific category of goods you want to offer, you can, of course, pursue your vision – nothing prevents that. Dropshipping, however, gives your business more options – including
An important factor here is the low risk. Since you don’t sell your own goods, expanding your store’s offerings doesn’t mean you have to buy goods for sale – this will all be taken care of by the supplier.
Process automation
If you’re using a sales platform, there’s a good chance that it offers the ability to synchronize your store with the vendor’s systems. This will significantly streamline your work – both yours and your partner’s. Ideally configured automation will make:
- The order placed by the customer will go straight to the supplier,
- The customer will immediately receive a link to track the shipment,
- subsequent stages of the journey will update on their own.
Each of these conveniences will make a very noticeable difference in your daily operations, as well as in how customers perceive your store.
External order processing
One of the biggest advantages of dropshipping is the fact that, thanks to it, you don’ t have to deal with orders – the goods selected by your customers don’t pass through your hands at all! As soon as the supplier receives information about a new order, he will complete, pack and ship it, saving your work.
However, this approach has its drawbacks, which we’ll talk about in a moment.
Threats of dropshipping
At first glance, dropshipping seems almost flawless – at least to the seller. However, when you take a closer look, you start to see cracks – some quite deep. Here’s what you should pay close attention to before investing time and money in dropshipping.
External order processing
There’s a reason this subsection is called exactly the same as the one we put on the pros side. Outsourcing order processing can be a blessing, but also a curse. It all depends on the reliability of the business partner, over which… we have little influence.
Of course, it’s easy to say “carefully choose the companies you entrust your customers’ orders to,” but it’s much more difficult to ensure this. It is worthwhile to conduct in-depth research before the first contact with a supplier, but most importantly, establish with him the principles of cooperation. Set your expectations and demand that they be met. And if you are not in a strong enough negotiating position, carefully read the supplier’s rules before you establish cooperation, and thus decide to accept them.
Be sure to monitor the work of the supplier – check how quickly he fulfills orders, verify how he packs shipments. Ask your customers for feedback on the quality of delivery, or… order a few parcels to see for yourself the quality of service.
Remember that in case of delivery problems, no one will look for the warehouse contact – it is your store and your brand that are responsible for the successful delivery of the order.
Competition
The low entry threshold, which we wrote about when we mentioned the benefits, is also a benefit… for your competitors. The rules are equally simple for everyone, which means you can expect a fierce battle for customers. That takes a lot of marketing and branding.
Low margins
You need to prepare for the fact that the prices at which you will buy dropshipping goods will be higher than regular wholesale prices. Thus, you can’t count on too high a margin for your store.
This point is also directly related to the previous one. In the dropshipping market, competition is extremely developed – since “anyone can sell online today,” many people just start doing it. This, in turn, leads to a situation where there are many stores selling exactly the same thing – and they need to stand out somehow. The easiest way seems to be to lower product prices. Your company may therefore unwittingly become part of the price war.
The solution? Either go with the flow, reckoning with extremely low margins, or try a different approach. You can:
- systematically expand your assortment so that customers interested in shopping with you order more products at once,
- focus on the niche you specialize in, with the idea that dropshipping is only to become a springboard on which your business will bounce back to stand on its own feet over time,
- offer exceptional communication, customer service and off-price value – this, however, can be particularly challenging when using dropshipping – after all, much of the fulfillment of orders for customers is out of your company’s control.
How to start a business with dropshipping?
Although dropshipping is often presented as a model that is simple and doesn’t require too much effort, it doesn’t mean that the work in this context won’t be there at all. Here are some steps that you’d better not skip if you intend to make money from dropshipping.
Step one: decide what you want to sell (initially)
Surely, since you are reading these words, you already have some vision and know more or less what you want to sell. Before you get started, however, it’s worth determining whether it will be profitable for you. The rule of thumb is generally quite simple: the more popular the product categories and brands, the lower the risk, but also the smaller the margins and the greater the competition. By focusing on selling niche products, on the other hand, you can earn more in margins… as long as someone buys something from you at all.
Also evaluate the “complexity” of the products. If you sell pens, you can expect a relatively low number of returns and complaints. Customers should also not ask questions that require you to have specialized knowledge. In contrast, when offering advanced electronics to customers, you need to provide adequate support and service – not only before the purchase, but also after the transaction is finalized. Also, count on a more complicated complaints process, the need to service some products and other risks typical of the product category.
Step two: find a supplier
Since you want to sell goods you don’t have, you need to start by establishing contact, and further cooperation, with those who have these goods. Search the Internet for suppliers offering the goods you are interested in.
Compare offers, choose the right one and sign a contract – preferably a short-term one. From now on, you will have access to the supplier’s product range and can focus on creating offers and marketing. The supplier will take care of its part of the duties – within the limits of the contract, of course.
Remember that you can test multiple suppliers – even simultaneously. This requires a lot of commitment and making keen observations, but it will allow you to minimize the risk of establishing a long-term relationship with an unreliable partner.
Step three: build an online store
It’s time to set up your own online store to sell products. Since you’re choosing to operate via dropshipping, a good option would be to use one of the leading sales platforms, such as Shopify, IdoSell or Shoper.
You can also start by selling on marketplaces like Allegro or Amazon. This is even simpler, because it gives you instant access to a wide customer base, but it doesn’t give you a lot of options – especially in terms of building your own brand. Also keep in mind the costs, which will be higher with marketplaces (commissions).
Not sure which solution will be better for your business? Read our guide and learn the advantages and disadvantages of your own online store and markteplace platforms!
Step four: integrate your store with vendor systems
In theory, this step is completely optional, but if you want to squeeze as much good as possible out of dropshipping, it’s not worth skipping. The integration will give you access to the supplier’s product database – you will find product images, descriptions, but most importantly, continuously updated inventory. To perform the integration, contact the supplier directly (he will provide you with an .xml file with data) or use the applications for integration.
Step five: start taking orders!
Preparations completed, it’s time to start selling! During the initial phase, it’s a good idea to closely monitor every step of the process. Check that orders placed by customers, go to the supplier as planned. Monitor the time it takes for the supplier to undertake order fulfillment. Verify that the customer receives notifications and when they receive the shipment. It’s also a good idea to survey customer satisfaction from the very beginning.
Summary
If building your own recognizable and respected brand is not a priority for you, dropshipping will suit you perfectly. It will also work well if you don’t have the conditions or desire to warehouse goods and deal with order fulfillment.
However, if you plan to focus on a single product category, want to be as close to your customers as possible, and the issue of creating a truly customized business where almost everything depends on you is on your mind, seriously consider whether dropshipping will help you achieve your goals.
Dropshipping offers many advantages, but requires much more commitment than it might at first appear. In a word: it’s a good sales model for people who want to focus on marketing and sales activities, and don’t necessarily take a holistic approach to building a business.
