What is dropshipping? Complete Guide in 2021
Dropshipping is a business model that allows the owners of an online store to sell products to their customers without storing them before proceeding to ship them).
The meaning of dropshipping is still not very popular at street level. That’s why a lot of people still ask the following question: what is dropshipping. Dropshipping is a form of e-commerce in which you don’t have to take the risks of conventional traders.
While a regular store has to buy the product in advance and store it until it can be put on sale, dropshipping allows you to sell products without having to buy and store them previously.
You may never have set up an online business, so you probably won’t get a clear idea of how much money you can generate with an online store. In short, the problem of e-commerce, in general, is that you have to invest a lot of money and bear the costs of storing the products.
Therefore, dropshipping is presented as a very advantageous business format, since drop shippers do not have to bear storage costs or be decapitalized by bringing more money out of the account.
A company like Zappos started using it in 1999. And other e-commerce bigs like Amazon and Sears have also used this business model for a long time.
Anyway, if the big brands don’t get your attention, look at the normal guys, like this Mexican who has made his way into this complicated sector. People like Marcelo share their success stories every day as dropshipping distributors in the various forums dedicated to the world of eCommerce.
But the most important fact is this: today, up to 33% of the entire e-commerce industry uses dropshipping as its primary inventory management model.
Small-scale e-commerce entrepreneurs love dropshipping because they don’t need to maintain an inventory, which results in less upfront investment. Also, not having to manage a stock also allows you to concentrate all the efforts on the most important thing: attracting new customers.
How dropshipping works
Now that you know what dropshipping is let’s continue with our next explanation. To start a dropshipping business, you have first to understand how dropshipping works:
- As a drop shipper, you need to set up a dropshipping shop with Oberlo, where you’re going to show the products you want to sell.
- If your products people like them, you’ll probably make sales. Sales that you will charge directly, even if you do not have the product in your stock.
- When you make a sale, you must complete the order by sending an order to your supplier as a drop shipper. At that point, you have to pay the vendor at a cost price.
- Once you make the payment, a process is initiated by which the supplier is responsible for sending the product to the buyer.
- The key to this business is that the final sale price is higher than your cost price so that that margin will be left for you.
Benefits of Dropshipping
If you are a drop shipper, you are sure already to know the main strengths of this type of e-commerce. But if you’re thinking about setting up a dropshipping shop, you should know the benefits you’ll get:
- You don’t need to invest a lot of money: initial investing in many online stores is one of the big barriers that push back many entrepreneurs. If you have little money to start with, drop shipping will enchant you.
- A business with less fixed expenses: since you do not have to buy stocks, the store will not have many fixed expenses, except those of the web, hosting, Internet connection, and variable expenses are linked to sales. This means that variable expenses only increase when sales do.
- It has great growth potential: another reason why many drop shippers get into this is that with effort and professionalism, the business can be easily scaled and become big business.
- You don’t have to prepare orders: one of the most tedious and least valuable tasks are those related to order management, packaging, shipping to the courier company, etc. You avoid all this with dropshipping because your provider takes care of it. You have to charge your customer, pay the supplier, and give the shipping order.
- You will hardly have staff costs: almost all dropshipping stores only have entrepreneurs themselves as workers. Management is less complex, and since you don’t have to have a warehouse, you don’t have to have employees in charge of management either.