Understanding the Dropshipping Business – Supply and Demand 101

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If you are thinking about going into an online business, you may have heard about dropshipping.  You may have an idea about what it is, but are still looking for more information.  You are not alone; many people do not have a very clear understanding of how it works.  We will, therefore, go into details about dropshipping, thereby giving you the clarity you need.

 What Is Dropshipping?

 

The dropshipping business model will allow a merchant to operate without having inventory. You will not worry about storage because you do not handle the products at all.  You get to save money that you would have spent on warehousing.   The supplier ships the items to your customers directly.

 

There are three parties in the dropshipping business; the merchant, the drop shipper, and the customer.  This is how it goes:-

 

  •  Your role as the merchant is to provide a platform through which the customer makes an order.  You will, therefore, need e-commerce platforms like Shopify, Woocommerce, among others.
  • The customer will place the order on your online platform, detailing the product, amount, and any other information like customization requests.
  • Once you receive the order, you will send it to the dropshipping supplier.  You will also need to send the customer details, including where the dropshipper is supposed to deliver the items.
  •  The dropshipper fulfills the order and sends the package to the customer directly.

 

 What Does It Mean For The Retailer?

 

 Dropshipping has become very popular because it saves the retailer a lot of time and money.  If you are dealing with physical products, there are so many logistical issues you have to deal with.  The least of which is finding physical locations for your warehouse and office.  You will also have to factor in other aspects like staffing, and the overheads that come with running a business.

It does not, however, mean that if you have a physical location, you cannot do dropshipping.   What it means is that you can opt not to stock up on some products, thus allowing you to save on space and resources.

 

 What Are The Advantages Of Dropshipping?

There are several advantages to the dropshipping business model.  Such include

·       Ease of Setup

It is easy to get your business up and running in minimal time.   All you need to do is set up an e-commerce platform, find the right suppliers, and start selling.  Platforms like Shopify have apps that will significantly is the process for you.  Many of the apps also have supplier lists that you can take advantage of.  All you need to do is a supplier search based on the product you selling.  You can also incorporate the use of other tools to help with inventory management, CRM, marketing, among others.

·       Running Costs

The cost of running a business is very low when you use dropshipping.  Other than the internet, website maintenance costs and telephone, you barely have any additional expenses to worry about.  If you think about a traditional business model, there are so many costs.  The most expensive is you have to have the capital to purchase inventory.  With dropshipping, the supplier handles everything for you. All you must do is market yourself well so that you attract the relevant business.

·       Lower Business Risks

Since you do not tie money to inventory, you suffer no loss if the product does not sell. Of course, from a business perspective, you need to sell to make money, but, the stock is not sitting in your warehouse, so there is no pressure.

You also do not have to deal with any damages that may occur during the shipping process.  The supplier has to ensure that the products reach your customers in good order. Secondly, the fact that fewer people are handling the products significantly reduces the damages that may occur, from moving the product from place to place.

·       You Are Not Tied To a Physical Location

If you optimize your e-commerce platform for mobile, you can do your business from anywhere.  You have no limitations of physical location and can make money even on the commute to work.

·       Product Variety

You have the option of dealing with so many suppliers.  The variety of products is, therefore, staggering to think about.

How to Make Money with Dropshipping

 Disadvantages of Drop-Shipping

There are certain disadvantages you need to know about dropshipping including:-

  • Your profit margins may be lower depending on your supplier and what they will charge for their services and products
  • You, and not the supplier, are liable for anything that goes wrong since the customer is buying from you. You, therefore, need to be careful about the supplier you choose to work with
  • You do not have a lot of control with the final product because everything leaves the supplier, right to your customer.  Again it goes back to working with the right supplier who will go that extra mile
  • You will find some suppliers are not very honest about their business practices. Also, be careful about the supplier to ensure the one you choose has the right quality products
  • If you are working with many suppliers, your shipping costs may be high meaning you have to transfer it to the customer.  you may end up pricing yourself right out of the market
  • Dropshipping is a very attractive business model, and you will, therefore, find very high competition
  • You have to be careful about inventory because a supplier may not always give you information on time. It would benefit you to get the right apps to help with inventory management.

Conclusion

Dropshipping is an attractive business model, but you need to be aware of the pros and cons, which we have highlighted above. You must ensure that you work with the right suppliers. You must invest in marketing yourself well so that you attract customers. Remember there’s a lot of competition, and you must find a way to differentiate yourself from the competitors.

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