Dropshipping Business Model: What Is It? How to Get Started?
2022 is going to be known as the year of eCommerce growth. As we study trends across multiple industries, we see major opportunities for those looking to dropship as retailers diversify their marketing channels. In addition, these retailers and manufacturers are investing in technology and automation, allowing for their products to be sold on any online platform.
However, dropshipping is often glamorized as a quick income, and it is usually made much easier than it is, which can lead to frustration and disappointment. Not taking the time to research eCommerce is the first mistake people make when they are in a hurry to get the process started. Learning about suppliers and fulfillment is an essential part of the process as that is what everything revolves around.
For entrepreneurs, dropshipping models have low barriers to entry and high upside as they carry very little overhead risk. However, if you are looking to start a drop-ship company, our advice would be to take your time in researching your product sources and negotiate.
What is Dropshipping? Dropshipping Definition
Dropshipping is a modern eCommerce business model that allows you to launch an online store and sell products without keeping them in stock. This business model has been quite popular lately thanks to its simplicity: you take orders from clients and send them to manufacturers (or wholesalers) who, in turn, deliver the items to buyers.
The proof starting a dropshipping business is there’s very little upfront investment, so you’re not taking the risk of buying a bunch of inventory that won’t sell. Also, you can carry a wider selection of inventory since you’re not on the hook for paying for it all. However, the risk of dropshipping is that sometimes the margins aren’t great since you’re putting a lot of your work off someone else; you’re also at the whim of another company, i.e., what happens if your drop ship partner decides to stop carrying your most popular product?
Why is it worth starting an online dropshipping store?
If you have the itch to start a dropshipping store, it’s worth it if you have the right product.
Benefits of dropshipping business:
- easy start with no experience;
- low startup costs (up to $300);
- test and sell products with less risk;
- no need to have a stock for products;
- low order fulfillment cost;
What are the risks of dropshipping, and how to avoid them?
More and more people try dropshipping to start their entrepreneurial path because of the easy start. However, in 2022, technologies will allow you to provide better customer service and track packages.
However, there are some risks in the dropshipping business.
The biggest risk of dropshipping is you have to spend money upfront to market the product, and sometimes you’re not sure if the ads will work. Another risk is the long wait times for customers to receive their products if you go the traditional route of shipping products from China to US customers.
Cons of dropshipping business:
- the lack of bulk pricing (and lower profits);
- less control over order fulfillment;
- inventory issues;
- a long delivery from China (if you work with Aliexpress and Alibaba)
- sometimes, you may drain the budget due to inexperience in Facebook ads;
- shipping is quite complicated.
Sometimes, payment providers hold money which creates a cash gap. This is another significant risk of dropshipping. PayPal might even keep the money for 180 days, which is huge for small businesses. In addition, Facebook may block the Business Manager account, making it impossible to run ads for some time.
To Sum Up
Do the research take the time to read about dropshipping and the current trends, the services available, the product demand, and options available.
Doing all of this will help you plan for possible problems even if you go into it not knowing anything about the customer service side. Learning about the potential issues will better assist you in ways so you can prevent them from occurring in the first place. Is dropshipping worth it?
It’s totally worth it if done right.
About the author
Dasha Korsik is a Content Team Lead at NEKLO LLC | http://neklo.com/, a software product engineering company providing custom web, mobile, and Magento development services.