Dropshipping: Introduction
Dropshipping allows ecommerce companies to outsource the procurement, storage, and shipping of products to third parties. Although this order fulfillment option is attractive to entrepreneurs who are looking for low overhead and minimal capital investment, it can be costly.
Ecommerce is highly competitive. Dropshipping can be attractive to entrepreneurs who want to sell generic products. However, it can also limit your opportunities to create a brand and differentiate products. Dropshipping can lead to businesses competing on price, which could result in low margins.
Dropshipping is an option for your ecommerce store. There are many factors to consider, including some alternatives and variations that can offer similar benefits.
Dropshipping: What does it mean?
Dropshipping allows the seller to outsource fulfillment to a third party (typically a supplier). The customer receives the products from the manufacturer or third-party supplier.
Because it reduces overhead and operating expenses, this business model is appealing to many ecommerce sellers. Dropshipping agreements allow you to handle customer service and marketing, while the dropshipping company handles fulfillment and physical goods.
Dropshipping: How does it work?
Dropshipping suppliers are paid to fulfill orders. While the logistics of dropshipping are dependent on your arrangement, it is common for dropshipping to follow this general sequence.
Dropshipping suppliers source or produce the product.
You enter into an agreement with the dropshipping provider.
Dropshipping suppliers store the inventory.
The webstore or ecommerce storefront is hosted by you.
An order is placed by a customer.
You will process the payment.
The order is sent to dropshipping.
Dropshipping prepares your order.
Dropshipping allows you to ship the product.
You usually send orders to dropshippers. Then you notify customers that the products are on their way and you have no control over the physical fulfillment process.
Dropshipping: Key players
Let’s take a look at the roles of key players, beginning with the seller of records, or your ecommerce company.
Record seller
Dropshipping begins with you. You are the seller of record (SoR) and thprie person who sells the product to the end customer. You decide the price, track the revenue and take responsibility for any sales tax. You are the seller of record even if a third party stocks or ships the products.
For Amazon sellers, using a dropshipping service is generally allowed by Amazon dropshipping policy, as long as you’re the seller of record and identify yourself as such.
Manufacturers
Manufacturers produce products for wholesalers or retailers. Although you can buy goods from manufacturers, the large purchase volumes they might require could be a barrier to your business’ growth or start-up. Dropshipping may be offered by some manufacturers.
Wholesalers
Wholesalers are the ones who buy products from manufacturers and then sell them to retailers at a small markup. They act as intermediaries, but they may offer dropshipping services to retailers.
Determine which dropshipping providers could be right for you based on your business model and fulfillment requirements, among other factors.
Things to Know About Amazon Prime Delivery
Make sure to know all your delivery options next time you order from Amazon Prime. You are probably familiar with the quick and easy options available: Prime Now 2-Hour delivery, Same-day shipping, and Two-Day shipping. There are many options available, and sometimes questions can arise. We’re here for you to learn all about Prime Delivery.
For your convenience, we have compiled a list with some of the most frequently asked questions. Continue reading to find out how Prime Delivery works for your busy schedule and you.
Let’s start with the basics.
What delivery options are available with Prime membership?Prime members receive fast, free delivery of millions of products and discounts on a wide range of shipping options. Visit thePrime DeliveryLearn more about Prime’s delivery benefits.
Prime members can have items delivered within one day, or even the same day in certain areas. Is that true?
Everybody can receive One-Day Shipping on millions items from Amazon. Prime members get a discount! Prime members may be eligible for free shipping within the next day or same-day delivery on certain orders. Enter your ZIP code to find out if your area qualifies.Here.
I have trouble finding items that qualify for free Same-Day Delivery and FREE One-Day Shipping. How can I locate them on the website?
Check first that your delivery is within the Prime Free Same-Day Delivery area or free One-Day Shipping.Here.
Prime members who live in eligible areas have access to over 1,000,000 items. Use the FREE Same Day Delivery (or FREE One Day Shipping) search filter, which is usually located at the top left sidebar. You can then search for Prime FREE Same Day Delivery or Prime FREE One Day Shipping as you shop.
You will be eligible for immediate eligibility if you add $35 to your cart of the items that are marked FREE Same-Day Delivery or FREE One Day Delivery.
What’s the difference between Prime Now delivery and Same-Day delivery?
These programs are only available in a few areas. Prime Now allows you to order online and receive your daily groceries and essentials in as little as 1 to 2 hours.primenow.amazon.comOr in the Prime Now app.
Same-Day allows you to choose from more than 1,000,000 items on the site, and receive free delivery in the evening for orders $35 or greater. Learn more about Prime Delivery options.
You may have noticed
Is it possible to get FREE Same-Day Delivery sometimes, but not other times?
The Same-Day Delivery option allows us to get your packages to you within 24 hours. It is usually available before noon in the morning. We offer free One-Day Shipping which arrives the following day. SeeWhat’s available in your area.
My cart is under $35, but I would like to receive FREE Same-Day Delivery and FREE One-Day Shipping. How can I get that?
Only orders over $35 qualify for free Same-Day Delivery and FREE One-Day Shipping. You can search the site to find eligible items up to $35.One-Day or Same-Day PageTo view a list of eligible items
Dropshipping: The pros and cons
As with all things in life, ecommerce has its advantages and disadvantages. It all depends on your business goals and how you view the benefits. These are some of the potential benefits and disadvantages to dropshipping for your ecommerce store.
Dropshipping can have the following benefits:
- Dropshipping can reduce overhead costs because you don’t store the products or ship them.
- Dropshipping is a great option for entrepreneurs looking to start their own business without investing too much. They don’t have to purchase any equipment or other resources to fulfill orders.
- Multi-channel selling: Dropshipping can be used to sell your products on your domain or through Amazon.com.
- Dropshipping: You can fulfill orders no matter where you are located, so it is possible to work remotely.
- Scalability: Leveraging suppliers makes it possible to accept more orders while reducing the inventory that you store, pack, and ship.
Dropshipping has potential limitations:
- Dropshipping is highly competitive because of the low investment and cost involved in getting started.
- Dropshipping can reduce your involvement in order fulfillment, which will impact your ability to control and guarantee product quality.
- Branding: Your products may not be distinctive or unique from other sellers’ offerings, so it could be difficult to differentiate your product.
- Profit margins: Your business could end up being more competitive on price than it is on products. Your profit margin can be reduced by selling at lower prices.
- Fulfillment timeline
- Inventory management: It may not always be possible to get up-to-the minute updates about what stock is available. This can lead to customers placing orders only to discover that the product is not in stock. This can cause customer dissatisfaction and could damage your brand.
- You may not be able to offer a wide range of promotions and special offers because you do not handle orders fulfillment.
Dropshipping can be a good option for some businesses. However, there are limitations. Fulfillment by Amazon is a great option if you are looking to reduce your inventory or order fulfillment costs. FBA is a good option for sellers because it offers many of the same benefits as dropshipping but without the disadvantages.
Fulfillment by Amazon is a dropshipping option with additional perks
Fulfillment by Amazon offers the same benefits as dropshipping but gives you more control over your brand experience. You don’t need to sell products in Amazon stores to use FBA–although with an audience of hundreds of millions of unique visitors each month, Amazon is a selling channel worth considering.
FBA allows you to store your products in an Amazon fulfillment centre.
- Prime Shipping offers quick delivery
- Customer service management
- Returns are important
- Be notified when products are out of stock
FBA: How it works
- We will send you the items and quantities that you have selected.
- We receive products and store them in Amazon fulfillment centres.
- We pick, pack and ship your products as soon as they arrive.
- Amazon handles customer service and returns for these orders.
Dropshipping is right for you?
It all depends on what your business is. Dropshipping is something you should consider.
What do you want to do to build your brand?
Your brand is how customers perceive your business. Customer loyalty can be increased by creating a lasting brand impression.
Dropshipping allows you to brand your online experience. However, you have less control over the product quality, delivery experience and aesthetics of the final package. Dropshipping can result in customers not purchasing from your brand again if the packaging and products aren’t up to their expectations.
Dropshipping suppliers may not allow for customization. This may make it hard to differentiate your brand from others.
What level of control do you desire over product quality?
The quality of products can impact other aspects of your business, such as customer acquisition, brand loyalty and returns. Although you might be able inspect the product quality at the beginning of your dropshipping relationship you won’t likely be able to control the products you sell on an annual basis.
Your business may receive negative reviews if the products do not meet customer expectations.
What speed do you need to ship your products?
Customers who shop online expect fast shipping. In a recent survey, nearly 84% of people surveyed regarded delivery as an essential part of their online shopping experience.
Shipping times that are too long can have a negative impact on your business. Review the shipping and delivery times of dropshipping suppliers before you sign up.
For sellers looking for fast order fulfillment services, a service like FBA can be valuable.
What amount of capital do you have?
Dropshipping allows you to delay product procurement until your customers place orders. Dropshipping can be attractive for entrepreneurs looking to start a business with minimal inventory investment. Third-party fulfillment and other alternatives allow you to launch your business and manage it with less capital than sourcing, storing and shipping your products yourself.
How high is your profit margin target?
Dropshipping is less expensive than other business models such as opening a store or setting up an order fulfillment center. This can lead to more competition for your company.
Dropshipping can make it very competitive for small businesses. Because they have invested so little, dropshipping sellers often can offer lower prices on their products. Dropshipping can be a good option for small businesses. However, it may result in low profit margins.
These issues might be overcome if your business is located in a niche that is not too competitive. Market research, networking, sales, and market research can help you find profitable niches that are less competitive. Or invest in differentiating your brand.
Are you able to manage supply and inventory?
Dropshipping is a way to have some control over your supply chain. Dropshippers may be unable to fulfill all orders due to delays in production. Not having to tell customers that an item is out of stock is not a good idea. You can avoid low product inventories by sourcing products from multiple dropshipping companies. You can always rely on the other supplier if one supplier runs out of a product. Dropshipping strategies may not work if you have multiple suppliers. This can lead to more complexity in logistics and fulfillment.
What will you do about refunds, returns and replacements?
Ecommerce businesses are bound to have returns. Sometimes, the return process is as easy as a customer calling you to request a return on an item. After the customer returns the product, you will refund them and contact your dropshipping supplier to credit you or reimburse you. This is not always true.
Prepare for complicated return and replacement procedures. Before you create your refund or return policy, take the time to learn how dropshipping services handle returns.
Consider the steps involved in an ecommerce transaction. These are some questions you should ask before signing up with a dropshipping provider:
- Who is responsible?
- Who covers return shipping fees for defective items?
- What are the supplier’s restocking charges?
- What is the return window?
These questions can help you to understand dropshipping agreements and give you a better understanding of the costs involved before making changes to your business model.
How do you handle customer satisfaction questions and concerns?
You may not be physically able to handle the products but you will still need to answer customer questions about shipping, product quality, and delivery.
Even a small error in communication with your dropshipping supplier could lead to negative customer reviews and poor customer service. This can be avoided by looking at the whole purchasing process from the customer’s perspective. These are the key aspects of customer experience that you should pay special attention to:
- Do customers receive a shipping notice when they order?
- Are packages delivered in the time expected?
- Are products in good condition?
- Does your packaging reflect your brand well?
To create a positive customer experience and earn positive reviews, optimize each touchpoint. This will help you build brand loyalty.
Dropshipping: Alternatives
Dropshipping may not be the right option for your ecommerce store. If you are looking to outsource fulfillment, here are some options.
Third-party fulfillment allows you to outsource the storage and shipping of products
As an alternative to dropshipping, some sellers purchase products in bulk, then enlist the help of a third-party fulfillment service to store items, pick and pack orders, and handle the shipping to customers.
This allows you to purchase products sooner, possibly at lower prices. You can also:
- Before items are shipped to fulfillment centers, make sure they meet all quality standards.
- Special offers and promotions on products
- Some providers offer product bundles or subscription services
If you would like to outsource fulfillment while maintaining control over product quality, learn about FBA.
Make your own brand products
You may need specialty products with your branding at some point during the business’s life. Branded products can increase your business’s growth by creating new opportunities for you to sell them:
- Differentiate yourself from other ecommerce brands
- Earn customer loyalty by building a unique online experience
- Building a memorable ecommerce brand identity
- To help you launch future products, build brand recognition
- Your brand identity is an asset.
Dropshipping suppliers can be used by sellers to create white-label products or branded products.
Another option is to have a manufacturer produce branded products in bulk, then use FBA for distribution. This allows you to take advantage of Amazon’s Prime Shipping which will help you stand out in a crowded ecommerce marketplace.
Affiliate marketing allows you to focus on promotion and make a commission
Affiliate marketing is a completely different business model, but it’s something worth looking into if you want to avoid managing customers and orders as well as returns.
Affiliate marketers don’t sell products. Affiliate marketers don’t sell any products. Instead, they promote products and receive a commission when a customer makes a purchase through a unique referral link.
Affiliate marketing is not a retail business model. However, it can offer benefits like minimizing startup and overhead costs. It also allows you to build an audience while earning money when products are sold to your audience.
How affiliate marketing works
Affiliate marketing allows you to market a product online, and provide a link that customers can use to purchase the item. Customers can order direct from the website by clicking on the link. When a customer uses your referral link to make a purchase, you get paid. The supplier will handle the shipment, fulfillment, order confirmation and shipping.
Affiliate marketing is a great way to get your ecommerce site up and running or to monetize an existing asset like a blog or email address. You may be able operate with relatively low overhead costs because you don’t stock or ship products. You also have the option:
- You can start an affiliate marketing company by creating a website or using social media accounts.
- Your supplier can take over customer management. This seller acts as the seller-record and handles customer communications.
- Your supplier can outsource orders management or returns
Unlike dropshipping, if you use affiliate marketing, your supplier handles returns for products. The supplier may have a time limit during which they will hold your commission payment. After that, you are paid.
Conclusion
Dropshipping is a decision that you make, and only you can decide if it’s right for your company.
It may seem appealing to not have to ship physical products, pay warehouse rent, manage stock levels or handle physical products. However, there are also drawbacks. You need to weigh your options and set goals to determine the best online selling and fulfillment strategy that will help you grow your ecommerce company.
