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Dropshipping is a business model in which sellers do not stock the products they sell, but act as intermediaries. Thus, when a retailer closes a sale, it buys the item from a third party, which is often a wholesaler or manufacturer, and this third party is responsible for shipping it directly to the customer.

Dropshipping evolution

Dropshipping is a business model that has evolved over the decades. Its roots can be traced back to mail-order catalogs and sell-to-order, where retailers shipped products directly from their suppliers to customers without maintaining inventory.

With the expansion of the Internet and the rise of eCommerce in the 1990s, dropshipping became more accessible. Subsequently, the popularization of eCommerce platforms specialized in this field has further facilitated its implementation.

This practice is especially attractive for starting out in eCommerce because of its ability to reduce initial investment, simplify inventory management and allow geographic flexibility. This model allows entrepreneurs to start with less capital, experiment with a variety of products and operate from anywhere with internet access. In addition, dropshipping focuses on marketing and sales, making it an attractive option for those who want to focus on product promotion rather than warehousing logistics.

However, dropshipping also presents challenges, such as lower profit margins and, in some cases, less control over quality and order fulfillment. It is crucial that retailers understand these pros and cons before opting for this business model in eCommerce.

Roles in the dropshipping model

We can find some key roles in the dropshipping model:

  • Retailer or merchant: This is the owner of the online store that sells the products. The retailer is responsible for managing the store, performing marketing and customer service tasks.
  • Wholesale supplier or manufacturer (“Dropshippper”): All activities related to warehousing, packaging, shipping, delivery… are contracted with a third party, called a dropshipper.This supplier is the entity that owns the products and stores them. When a sale is made, the dropshipper is in charge of packaging and shipping the product directly to the retailer’s customer.
  • End customer: The end customer is the person who purchases the product through the retailer’s online store.

How is the sale and shipping process

  1. The customer places an order: This is the first step in the process. A customer visits the retailer’s online store and chooses the products they wish to purchase. He then adds these products to his shopping cart and completes the checkout process by providing the necessary information, such as shipping address and payment details.
  2. The retailer sends the order to the supplier: Instead of maintaining its own inventory, the retailer sends the order to the supplier. This involves transmitting the list of products ordered by the customer and shipping information to the wholesale supplier or product manufacturer. The retailer also pays the supplier for the products often at a wholesale price, but the profit margin is made from the difference between the wholesale price and the retail price.
  3. The supplier ships the product to the customer: Once the supplier receives the order request from the retailer, it is responsible for preparing the order and shipping it directly to the end customer. The customer receives the products at the shipping address provided during the purchase process in the online store.

Advantages and disadvantages of dropshipping

Dropshipping is a business model that can be beneficial for small businesses, but it also has its challenges. Choosing reliable suppliers and paying attention to differentiation and marketing are key to success.

The upside

  • Low initial investment: Dropshipping is an attractive way to try out new and small projects, as it does not require a large initial investment in inventory.
  • No need to manage inventory: You don’t have to worry about storing, packaging and shipping products. This saves time and costs associated with inventory management, warehouse rental, etc. As you can imagine, a typical dropshipping case includes a small eCommerce that cannot afford to have a warehouse. In this sense, the most obvious advantage of opting for this model is the cost savings involved: warehouse rental costs, maintenance and inventory management costs, transportation costs.
  • Product variety: You can offer a wide range of products without having to pre-purchase them, allowing you to adapt quickly to changing market demands.
  • Rapid growth: If your business performs well, you can scale up quickly without the need to invest in large-scale production.
  • Remote operation: You can manage your business from anywhere with Internet access, giving you flexibility in terms of location.
  • Less financial risk: By not having to buy products in advance, you reduce the financial risk associated with unsold excess inventory.

The downside

  • Lower profit margin: The profit you make per sale is usually lower compared to if you were the actual owner of the product, since you usually only receive a commission.
  • Lack of differentiation: You may have difficulty differentiating yourself from the competition, since you are selling products that others also offer. This forces you to rely heavily on marketing or competing on price.
  • Dependence on third parties: You are in the hands of suppliers, and if they do not fulfill their commitments, the problem falls on your business. Choosing reliable suppliers is crucial.
  • Management complexity: If you work with multiple suppliers, managing multiple sources can complicate order and shipment tracking.

How to begin with dropshipping: choice of a market niche and selection of suppliers

Choosing a niche market for your dropshipping business is a crucial decision that requires solid research and careful planning. First, research the market for trends and growth areas. Also, consider your own interests and passions, as you are more likely to succeed in a niche that excites you.

Next, analyze your competitors in the niche to understand their approach, products and strategies. Evaluate profit potential by considering profit margins and market size. Defining your target audience is essential, as it will help you understand their needs and buying behaviors. Also consider whether the niche is subject to seasonal trends and avoid extremely saturated niches.

Make sure there are reliable suppliers with quality products in your niche. Research laws and regulations that may affect your business and consider testing or validation before committing fully. Choosing a niche is essential, but long-term success also depends on effective execution and maintaining a constant focus on your customers’ needs.

Choose the right suppliers

Selecting the right suppliers is a crucial part of the process of setting up a successful dropshipping business. Start by conducting thorough research on potential suppliers by using online resources, supplier directories and customer reviews to get a complete understanding of their reputation, experience and background in the dropshipping world.

Then establish direct contact with suppliers, ask questions about their policies, shipping times, shipping options, payment methods and any other concerns you may have. This communication will give you an idea of their level of professionalism and responsiveness, which is critical to an effective partnership. Next, request samples of the products you plan to sell in your store. This is essential to assess the quality of the products and ensure they meet your standards. Understanding product quality will help you maintain customer satisfaction and build a positive reputation.

Compare the prices offered by different suppliers, make sure that the prices allow you to obtain reasonable profit margins after considering shipping costs and other expenses related to your business. This is vital to the profitability of your business. Also look for opinions and references from other merchants who have worked with the same suppliers. Experiences shared by others can provide valuable information about the quality of the products and the reliability of the company. Don’t underestimate the importance of feedback from others in decision making.

Once you have completed these steps and are convinced of the reliability of a particular supplier, you can begin to establish a solid business relationship with them. Ongoing communication and effective collaboration are essential to maintaining a successful partnership and ensuring high quality service to your customers. Taking care of this aspect will allow you to avoid or reduce problems associated with complaints, inquiries or returns from your customers and will lay the foundation for your business success.

Dropshipping tools and suppliers

Of course, with the rise of this business model, specialized companies have been emerging, which have become great allies for sellers who want to operate in it. One of the most paradigmatic examples in Spain is BigBuy, a company founded in 2012 that offers this type of solution in addition to operating as a powerful B2B wholesaler. It gives its customers the possibility to sell on all types of online platforms, whether marketplaces or eCommerce platforms (such as Shopify or PrestaShop). To do this, it offers a catalog with thousands of references, including many top brands. In addition to the catalog, BigBuy offers its customers technology and logistics services.

Another big name in this sector is Gelato, which offers on-demand production through more than 130 partners in 32 countries. From their software, you can offer products such as posters, canvases, t-shirts, sweatshirts, calendars, mugs and more. Once you add your designs to them, you can start selling through Shopify, Etsy, WooCommerce or other platforms.

Oberlo is a dropshipping application for those who develop their stores on the Shopify platform. It allows you to import products directly from AliExpress, which gives you access to a wide range of low-cost products. That’s why it’s one of the best options if you’re targeting an audience looking for low prices.

The options are multiple and very diverse. If you want to know them in depth, I invite you to read our top of the best dropshipping providers 😉

Marketing for dropshipping

To be successful in this business model, it is crucial to implement effective marketing strategies to drive traffic to your website, convert visitors into customers and retain existing customers. Here are some common marketing strategies used in dropshipping:

  1. Website design: First impressions are critical. Make sure your website is attractive, easy to use and conveys trust. This includes a pleasing design, visible contact information and a responsive design for mobile devices. If you are looking for a CMS to build your online store on, our list of the best eCommerce platforms will be of great help 😉
  2. SEO: Use SEO strategies to improve your website’s visibility in search results. Check out this article on learning what is SEO optimization, choose relevant keywords for your products and create optimized content to attract the right consumers.
  3. SEM: Complement SEO with paid search engine advertising. This can help you gain visibility quickly and attract early conversions, especially useful when starting your business.
  4. Email marketing: Use email marketing to maintain engagement with your customers and prospects. Send periodic newsletters with news, product reminders and valuable content to keep your customers interested and loyal.

Dropshipping on Amazon

Amazon is the king of Western eCommerce and, as such, a very desirable element in the strategy of many dropshippers. In this context, the great attraction of dropshipping on Amazon is undoubtedly the wide audience it offers as one of the main global marketplaces.

However, dropshipping on Amazon also has challenges. Competition is high, and to stand out, it is essential to offer quality products, competitive prices and exceptional customer service. In addition, Amazon charges fees and commissions, which can impact your profit margins.

Before embarking on this business model, you should ensure that your supplier meets Amazon’s quality standards, that the products you wish to sell are allowed on the platform, and that you set up adequate shipping and order tracking times. Also, consider selling on Amazon’s international marketplaces if your supplier can provide competitive shipping to other countries.

 

Photo: Depositphotos

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