DropShipping Business Model and How it Works?

Online business is the new norm in the 21st century. As an entrepreneur with success as your ultimate goal, you do not have an alternative other than launching an online store. You need to venture into e-commerce to grow your revenue and sales. However, your success will rely on the business model you will consider.

The Dropshipping business model is one of many approaches that webpreneurs adopt in their online stores. As a newbie, you may not have an idea of what drop shipping is all about. Probably, you have heard your peers talking about it. This article explains what is drop shipping, how it works, its pros and cons, and examples of businesses practicing it.  

What is Drop Shipping Business Model?

Dropshipping is a business model where you as an entrepreneur do not stock the product they sell. Instead, when you make a sale, you purchase it from a distributor or manufacturer and have it shipped to the buyer directly. This means that there is no interaction between you and the products you are selling.  

Your role in this model is to receive and accept orders from customers. Then, you send the orders to the manufacturer or wholesaler for fulfillment. So, you act as the connection or middleman between the customers and sellers. The model can work in any form of business and it is easy to start.

Notably, though it sounds similar to the Amazon FBA (Fulfillment by Amazon), it is different. Here you do not need any financial commitment or shipping your products to Amazon’s warehouse. Your work is to search for customers and let the wholesaler or product creator do the fulfillment part.

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How it Works

The dropshipping business model is simple to start. In order to do this, you need a website that has an e-commerce platform. The most common e-commerce platforms are WooCommerce or Shopify, etc… With these e-commerce platforms, you can list the products and services to sell on your website. The payment can be done through a credit card, Paypal, or other payment platform attached to the e-commerce platform depending on the preference of the customer.

Dropshipping has a simple process that involves three parties. These parties are:

Store owner

The store owner launches an online store housing a list of particular products. You need a website with a shopping cart featuring items you are selling. This website is where customers visit and place their orders. So, the role of the store owner is receiving customer orders, shipping details, and forwarding them to the supplier.

Drop shipper/supplier

Dropshippers can be a distributor or manufacturer of the items that the store owner is displaying on their online shops. When they receive customer details and orders, they start the fulfillment process. The supplier packs the ordered items featuring the store’s brand name and ships them to the customer.

Customers

Customers are the last party in the dropshipping process. They visit the online store, view the items, and place their order. In most cases, the customers do not have an idea about the business model the seller is using. 

Example of Drop Shipping Business

As noted, the dropshipping business model involves selling products that you do not stock or handle. Many modern online stores use this model in learning their businesses. a good example of a company applying this concept is My White Walls. This online store features different printed arts for walls.

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White Wall

When a customer orders any piece and pays for it, My White Walls forwards the order to the vendor for fulfillment. The vendor ships the purchased art piece to the customer directly. This process completes the transaction without the owner of My White Walls handling the item sold.

Pros and cons of Dropshipping business model

The drop shipping model comes with a share of positive and negative vibes. As an upcoming webpreneur, you may consider it as your footstep in the e-commerce world. But before jumping on the bandwagon, here are the pros and cons you need to know:

Pros

Easy to start

Dropshipping is one of the easiest business you can start online. The model requires only to understand its basics to kick off. In essence, you do not require prior experience. All you need is a way to display the items you want to sell and attract customers.

No need for a team to manage your business. The business does not require warehousing or inventories. So, it is easy to start and run.

Requires minimal investment

Certainly, the lack of capital is the main setback for many entrepreneurs. A business comes with huge costs and initial capital. However, dropshipping is different.

All you need is a minimum capital for setting up your online store and accessing resources and tools for driving sales. Notably, some platforms offer free packages for starting online stores. As such, you can even launch a dropshipping business with zero capital.

Easy scalability

Growth is the desire of every business. As you launch your venture, your dream growth is to see it scaling and expanding. Many business models do not offer room for expansion. But with the dropshipping business model, your case is different.

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As you continue learning about this model, you can add more products to your store. You do not have to change your model as you scale your business. Hence, it is easy to grow your dropshipping business without an impact on your operations.

High flexibility

No doubt, the items you are offering in your store may perform poorly. When this happens, you need to opt for another product. Testing different items can be an expensive affair for an entrepreneur. Sometimes, you can suffer a loss when your current stock fails to sell.

Dropshipping helps you to resolve this issue. Unlike other business models, you have an opportunity to test various items at a go. Since you do not stock any inventories, you can change from one product to another. So, it enhances flexibility in your business. 

Cons

Limited control

As a seller, you have zero control over your brand reputation. The shipper handles the packaging and shipping of the items. So, you cannot tell how they are representing your brand to the customers.

Order processing and customer service challenges

With drop shipping, you do not handle the order fulfillment component. This aspect makes it hard to manage its completion time. Also, suppliers may have varying shipping and logistic solutions. These elements can increase fulfillment costs and create numerous inconveniences.

All these aspects affect your customer services the orders may go wrong or suppliers fail to complete them. The result would be increased complaints and loss of sales. 

Conclusion

In summary, the dropshipping business model act as a stepping stone to the e-commerce world. This model requires low capital to join. Since you do not need a warehouse and inventory, it is easy to start.

However, you have minimal control over your brand and likely to lose customers due to suppliers’ failure. Despite all these shortcomings, it is a good way to kick off your online selling journey.

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