Dropshipping. What is it and how to use it?
Among Internet sellers, drop shipping is gaining more and more popularity. What is hidden under this term? What is dropshipping? What are its advantages and disadvantages? How to conduct drop shipping? You can read all about this in today’s article.
What is drop shipping?
Simply put, dropshipping is the kind of online sale in which the store accepts orders and sells products, but the supplier realizes these orders (he stores the products and sends them to the customer). In dropshipping, the salesperson is thus an intermediary between the wholesaler (or producer or distributor) and the customer. As a result, the seller does not have to worry about logistic order service, and wholesalers, producers, and distributors do not have to deal with reaching the seller’s customers. The sale process in dropshipping is as follows:
- The customer places an order in the store;
- The seller asks about the availability of the product in the warehouse (or at the producer, distributor, etc.);
- The wholesaler informs the seller about whether a given good is available;
- If the product is available, the seller accepts the order from the customer and the warehouse reserves a certain number of products;
- The seller accepts the payment from the customer;
- After receiving the payment, the seller sends the wholesaler the payment for the product minus the margin amount;
- The wholesaler sends the goods to the customer.
Advantages of drop shipping
From the point of view of the seller, running a store in the dropshipping model has many advantages. The most important of them is probably the lack of logistic obligation to service the order. In dropshipping, logistics is on the part of the warehouse/ producer/distributor, so the seller does not have to store products, pack parcels, send orders etc. His role in the transaction is limited to accepting the order from the customer, accepting payment and sending the appropriate amount to the warehouse.
Another advantage of dropshipping is that you save time. The seller does not have to deal with the settlement of transactions, issuing invoices and receipts, ordering products, etc. Thanks to this, the seller can focus on what is most important from his point of view, namely promotion, marketing and reaching the customer.
In addition, dropshipping brings economic savings to sellers, because it does not have to invest in warehouses, office rooms, can do their work at home, etc. This is especially important for novice entrepreneurs because thanks to this they can not bear that many expenses at the start. In dropshipping, you do not have to freeze your capital, because in this model there is no risk that the products you offer will be months on the shelves in the warehouse.
Drop shipping also allows you to increase the competitiveness of the store. Using this sales model, you can afford to sell products that might not be on offer in other circumstances due to high storage costs, low popularity among customers, etc.
Disadvantages of drop shipping
Like any other type of business, also has its drawbacks. One of the biggest is the dependence on the product supplier. As an intermediary, you have little influence on the work of the supplier of the products you sell, and thus have a small impact on such elements of the transaction as product quality, delivery time, etc. At the same time, you must be aware that you are responsible to the customer for the transaction and its final effect. In a sense, an entrepreneur using dropshipping is responsible for supplier errors.
In addition, drop shipping can cause logistical problems. Earlier, we mentioned that one of the advantages of dropshipping is the lack of logistic obligation to service the order by the seller, but this situation also has its weaknesses. The confusion arises, for example, when complaining or returning, because customers do not always know where to send back the goods. Dropshipping also practically prevents the possibility of receiving a personal product at the company’s headquarters.
The disadvantages of dropshipping also include a large cost of access to the supplier’s offer. Not every wholesaler, producer or distributor willingly makes its offer available to stores operating in the dropshipping model. Some wholesalers have to pay dearly for it.
One famous person in the e-business Bible also points out the difficulties in positioning the dropshipping shop. The whole problem is that manufacturers often send ready-made product descriptions that the seller places on their website. The problem is that pages that copy content is classified below by Google.
How to conduct dropshipping?
If you want to apply dropshipping to your business, you need to know how to do it. How to build a dropshipping shop from scratch? Here is the model that presents the aforementioned Mirosław Smużniak:
- Investigate the market. First of all, examine whether there are dropshipping stores in your industry on the market. If so, try to make your offer better than the competition.
- Carefully analyze and sign a trade agreement with the supplier. Make sure that the contract specifies the most problematic aspects of dropshipping, such as refund or complaint rules, settlements on the vendor-supplier line, etc.
- Choose a sales platform. Smuzniak points out that the sales platforms offered by the suppliers with whom you work often have little functionality, so before choosing a sales platform, carefully analyze its functions.
- Create a sales offer. As we mentioned, copying the seller’s offer does not affect the positioning of the store well, so try to skilfully modify it.
- Develop a store, or fight for customers, expand your offer, promote your business, etc.
Test each implementation stage.
Dropshipping can, therefore, bring significant benefits to the seller, but it also involves some difficulties. Can this form of sales work in your business? You must answer this question yourself. However, we hope that the information in this article will help you find the answer.