HomeDigital MarketingWhat is Dropshipping and How Does it Work?

What is Dropshipping and How Does it Work?

Dropshipping is one of the ever-increasing ecommerce strategies around, and for a great reason—it works! But what exactly is dropshipping? And how does it work? This guide breaks down the details behind this innovative business model to give you all the info you need to decide if it’s right for your next business venture.

Dropshipping has been around for decades, but it’s taken off in the past few years as more and more sellers take advantage of this convenient and low-cost way to start an online business without breaking the bank on inventory. Here’s what you need to know about dropshipping, including how it works, finding a dropship company, and the pros and cons of this increasingly popular option.

What is Dropshipping?

Dropshipping is a sourcing method that allows e-commerce retailers to sell products without stock inventory. Instead, vendors purchase a product from a third-party supplier at wholesale price when an order comes in, then ship it directly to customers. If you want to learn more about dropshipping for your online store, read on! 

How Does Dropshipping Work?

To put it simply, dropshipping works when a retailer purchases goods from a wholesaler or manufacturer, then sells them directly to customers without holding stock of items. When you buy a product from your favorite retailer, there’s always one thing that you should remember—they don’t always have all of those products in stock. Instead, retailers usually place their orders with suppliers regularly. Once they’ve received an order for a particular item, they will send their request to fulfillment centers (traditionally located overseas). This way, they can cut down on overhead costs such as storage and labor associated with having inventory at their physical locations. Dropshippers usually maintain listings on major e-commerce sites like eBay or Amazon to build up traffic. 

They will list all of their available products, pricing information, and photos. If someone places an order through their listing, they’ll contact their supplier to determine how many units are available and how much each unit costs. They’ll then purchase enough units from their supplier to fulfill each customer’s order before shipping it out using a fulfillment service like DHL or UPS. In some cases, dropshippers may also offer additional services such as warehousing, packaging, and handling returns for sellers who may not be able to do so themselves.

Types of dropshipping

There are three types of dropshipping to consider: 

1. Wholesale 

2. Multilevel 

3. Direct-to-consumer 

You can read a breakdown of each one here, but know that direct-to-consumer dropshipping is what we’re talking about in our guide below!

What is Wholesale Dropshipping?

Dropshipping has been around for a long time, but it wasn’t until recently that online platforms began to offer their services. Dropshipping is when a vendor (usually an e-commerce store) doesn’t keep any inventory on hand but instead sources its stock from third-party suppliers. When a customer orders a product from that vendor, they order directly from these suppliers—and pay for shipping. The vendor (the e-commerce store) then gets paid by its supplier after receiving payment from its customer. Essentially, an online dropshipper needs to place and fulfill orders using existing inventory shipped to them by other vendors or manufacturers.

What is Multi-level Dropshipping?

Multilevel dropshipping means you have a wholesale supplier who fulfills a retailer’s order, but instead of making one shipment to that retailer, they make two shipments – one for you and one for them. In other words, both you and your supplier sell to different end-users, unaware that their orders pass through each other from the manufacturer to the consumer. To add another layer of complexity (and security), dropshipper/reseller networks exist as aggregators between manufacturers and retailers. Here’s how multilevel dropshipping works. 

You find a supplier, which could be an individual seller or dropshipper network such as Oberlo. You then set up an account with your chosen wholesaler and place an order for products. Once these products arrive at your warehouse, you ship them directly to customers without seeing or touching them yourself. Your wholesaler handles all customer service and returns issues related to these orders, allowing you to grow your business elsewhere. The beauty of dropshipping is that it can be used by anyone with an internet connection and a credit card. There’s no need for upfront investment or storage space for inventory like traditional ecommerce businesses require.

What is Direct-to-consumer Dropshipping?

Direct-to-consumer dropshipping is a business model that ships products directly to consumers. This cuts out any middlemen like distributors or wholesalers, which helps keep costs down for shoppers. Many drop ship companies will allow you to get started with zero inventory. If a customer orders an item from your store, you’ll purchase it from their distributor and then ship it directly to them. The benefit of dropshipping is that it eliminates many upfront costs, like storage fees or other miscellaneous expenses that can be hard to predict when starting on your own. Plus, with direct-to-consumer shipping, you won’t have to find as many customers; they’ll come right to you!

Best platforms for Drop shipping

There are many reasons why you may wish to start dropshipping products. Maybe you’ve realized that having your inventory can be expensive and time-consuming. Or perhaps you have no interest in dealing with physical products or don’t have a big budget for upfront expenses. That’s where drop shipping comes in! It allows business owners to sell goods without inventory, so they never need to worry about holding on to an item for long periods just in case someone decides to buy it. It also means less money up front – something small businesses especially appreciate! 

In short, drop shipping is a method of retailing in which a retailer does not keep stock of items but instead relies on wholesalers or manufacturers to produce and ship items directly to customers. Read our guide below if you’re interested in learning more about how dropshipping works! We’ll explain what exactly drop shipping is and how it benefits both sellers and buyers. We’ll also look at some popular platforms that make selling online more accessible. So let’s get started…

List of top Drop shipping Companies

WordPress, Shopify, Oberlo, Doba, Supply Shopify, etc. Dropshipping companies will provide you with a platform to list products for sale without holding any inventory. These dropship companies take care of sourcing your orders from their vendors and sending them directly to your customers on your behalf. This allows you to save money while still providing quality products at low prices. Most drop ship companies will require a monthly fee that usually ranges between $30-$100 depending on whether or not you want access to special features such as analytics or marketing tools. 

The good news is that many drop ship companies offer free trials, so you can try before you buy!

Also check, How to Start an Online Store for Business




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