Drop-shipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the drop-shipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly.
Unlike traditional online retail, drop-shipping releases the merchant from having to fulfill their orders. That means you skip the stress and cost of manufacturing products, storing inventory and shipping to customers. So what’s left for you as a drop-shipper? You’ll choose products, run marketing campaigns and provide great customer service.
Choose products. Source from independent suppliers or integrate with a drop-shipping marketplace.
Import items to your online store and set your prices. You have full control over your listings and profit margins.
Accept customer orders. Shoppers find the items they want, check out and pay on your site.
Forward customer orders to the supplier. Put in your customer orders and shipping details. Then, pay the drop-shipping supplier on your customers’ behalf.
Ship and fulfill orders through the supplier. Your supplier ships each order directly to your customers’ addresses. You’ll get a tracking number in the system so you can update your customers. If the supplier offers white label shipping, you can even use your own branding on the packaging.
Drop-shipping is a great business model for aspiring entrepreneurs to start with because it’s accessible. With drop-shipping, you can quickly test different business ideas with limited downside, which lets you learn a lot about how to choose and market in-demand products. Here are a few other reasons why drop-shipping is such a popular model.
Probably the biggest advantage to drop-shipping is that it’s possible to launch an eCommerce store without having to invest thousands of dollars in inventory up front. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.
With the drop-shipping model, you don’t have to purchase a product unless you’ve already made the sale and have been paid by the customer. Without significant up-front inventory investments, it’s possible to start sourcing products and launch a successful drop-shipping business with very little money. And because you’re not committed to selling-through any inventory purchased up front, like in a traditional retail business, there’s less risk involved in starting a drop-shipping store.
Running an eCommerce business is much easier when you don’t have to deal with physical products. With drop-shipping, you don’t have to worry about:
Managing or paying for a warehouse
Packing and shipping your orders
Tracking inventory for accounting reasons
Handling returns and inbound shipments
Continually ordering products and managing stock level
Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful drop-shipping stores are run as home-based businesses, requiring little more than a laptop and a few recurring expenses to operate. As you grow, these costs will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
A drop-shipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.
Since you don’t have to pre-purchase the items you sell, you can offer an array of trending products to your potential customers. If suppliers stock an item, you can list it for sale on your online store at no additional cost.
Drop-shipping is a useful fulfillment method for both launching a new store and for business owners looking to test the appetite customers have for additional product categories, e.g., accessories or wholly new product lines. The main benefit of drop-shipping is, again, the ability to list and potentially sell products before committing to buying a large amount of inventory.
With a traditional retail business, if you receive three times the number of orders, you’ll usually need to do three times as much work. By leveraging drop-shipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.
Sales growth will always bring additional work—especially related to customer support—but businesses that utilize drop-shipping scale particularly well relative to traditional eCommerce businesses.