In a dropshipping business model, you promote products and provide an online storefront. When a customer places an order, you send the order to the dropshipper and inform customers the products are on the way.
The rest of the physical fulfillment process is out of your hands. In some dropshipping agreements, you may also handle customer service, while the dropshipping service manages the physical goods and fulfillment.
Dropshipping is an order fulfillment option that allows ecommerce businesses to outsource the processes of procuring, storing, and shipping products to a third party—typically a supplier.
This fulfillment model commonly appeals to entrepreneurs seeking efficiency and low overhead, but it can come at a cost—especially when it comes to customer experience. This guide will cover what Dropshipping is and explore how this fulfillment method can work. We’ll also look at a few dropshipping alternatives that can potentially save you time, lower your overhead, or simplify your business.
Dropshipping may appeal to entrepreneurs looking to sell generic products, but it can limit opportunities to build a brand and differentiate products. Businesses that use dropshipping may wind up competing on price, leading to low margins.
The dropshipping process starts with you. As the seller of record (SoR), you’re the individual identified as selling the product to the end consumer. You set the price, record the purchase as revenue, and assume responsibility for the sales tax on a particular sale. Even when a third party stocks and ships the items, you’re the seller of record because you own the products before they ship to the customer.
For Amazon sellers, using a dropshipping service is generally allowed by Amazon dropshipping policy, as long as you’re the seller of record and identify yourself as such.
Manufacturers make products to sell to wholesalers and retailers. You can purchase goods from manufacturers, but the bulk purchase amounts they may require can potentially be a barrier to starting or scaling your business. Some manufacturers may offer dropshipping services.
In a typical product supply chain, wholesalers buy from manufacturers and sell to retailers at a slight markup. They function as middlemen; generally, they do not sell to the end consumers but may provide dropshipping services to retailers.
Determine which dropshipping providers could be right for you based on your business model and fulfillment requirements, among other factors.
In ecommerce, as in life, there are advantages and disadvantages to any fulfillment approach. Whether the gains are worth the pain largely depends on your goals and business situation. Here are potential pros and cons to consider when weighing whether dropshipping is right for your business
- Overhead costs: Since you don’t store or ship the products, has the potential to lower overhead costs, such as maintaining a storage facility or sending products to customers.
- Starting costs: Entrepreneurs looking to start a business with minimal investment may turn to as they don’t need to invest in facilities or resources to process orders.
- Reduced risk: Since you don’t have to pay for inventory, there’s less risk of losing money due to lost merchandise or over-ordering products.
- Multi-channel selling: You can use for your business while selling on your own domain, through a store like Amazon, or social media channels —or all of the above.
- Operating location: allows you to fulfill orders regardless of your operating location, opening up a possibility to work from anywhere.