Curious About Dropshipping? Here’s Why It’s Such a Lucrative Business Model

Are you looking to start an ecommerce business or grow an existing one? Dropshipping could elevate your startup with low upfront costs and a global market.  

The dropshipping business model allows you to forward customer orders to a supplier or manufacturer, who then sends the physical product to your buyers. In other words, the supplier handles the product and you manage the customer. 

In the next five years, the dropshipping market will grow by nearly $8.5 billion as more ecommerce founders use this method for their online businesses1. You can thank platforms like Shopify and AliExpress for a simplified process that makes this a go-to method for virtual shops.

In 2010, AliExpress allowed you to partner with relatively inexpensive suppliers outside the US2.  Entrepreneurs finally earned a decent rate for the items they sold in their online stores, allowing dropshipping to take off for the next decade. 

Enter Shopify and Oberlo in 2015, integrated apps that allowed you to launch a virtual store connected to AliExpress dropshippers, producing a streamlined ecommerce experience. 

We’ve compiled a guide to understanding the ins and outs of this lucrative industry. Read on to assess whether your product would flop or flourish under a dropshipping business model. 

Biggest Ways to Save With Dropshipping

Dropshipping’s appeal is its ease and affordability. You don’t store, ship, or develop the products you sell. But dropshipping offers other benefits too.

No Need to Over or Understock

While other ecommerce founders must estimate how much stock they need in advance, you can order the exact amount. Dropshipping doesn’t require any upfront investment in your product because you forward your manufacturers however many customer orders you receive. You eliminate the guesswork and only purchase as many products as the market demands. 

Your Overheads Are Tiny 

Don’t worry about purchasing warehouse space or filling your spare room with products. Your dropshipping suppliers will store all the physical goods for you, saving you valuable dollars on overheads. You can operate from the comfort of your home with a stable internet connection. 

Keep Up With Demand by Employing Multiple Suppliers

Sticking to one manufacturer exposes you to a single point of failure. If you put all your eggs in one basket and that basket breaks, your customers are left picking up the pieces. Keep popular items in stock longer by ordering them from multiple manufacturers. You can then continue selling without interruptions while other ecommerce businesses await a restock. 

Experiment With New or Trending Products

Introducing a new product or line can be risky for typical ecommerce businesses. How much stock will you need to test the market? If you dropship, you only ever order what the market demands. If interest lags, you cancel that line with your supplier, so no unwanted stock to shift.  

With dropshipping, you leave the physical prep and shipping to your suppliers to focus on growing your business. 

Attract More Customers While Suppliers Handle the Labor 

Since you don’t have to build, prep, or ship products to consumers, you can spend more time on marketing and customer relations to entice new and returning buyers to your shop. 

If customers swoon over a specific product or collection, your supplier can handle the uptick in orders while you manage customer relationships. This also allows you to scale your business easier than handling every function alone. And if you need to fulfill more orders? Add new dropshipping suppliers to your network. 

Build upon the success of those sales by engaging in social media or SEO marketing, or springing a small budget on paid ads. Manufacturers might consider a bulk order discount, so attracting more orders could increase your margin.

Beware and Prepare for These Dropshipping Drawbacks

Like any other business model, dropshipping comes with its downsides. You’ll have to judge whether those downsides outweigh the benefits of adopting this fulfillment method. 

Lack of Control 

A huge disadvantage to dropshipping is your lack of control over the quality of the product and any shipping errors that might occur. As far as the customer knows, you are the face of their shopping experience, and any inconvenience reflects on you as a founder. Even if the manufacturer is at fault, you face any customer backlash. 

Be prepared to own these mistakes and rectify them. You might take a hit in revenue to provide them with free shipping for a return and replacement item. Or consider upgrading their item or sending a freebie with the new shipment. 

Either way, using dropshipping means paying for manufacturers to deal with the products while you deal with the customers. If this arrangement doesn’t appeal to you, you might consider a traditional D2C ecommerce business model where you oversee everything from marketing to shipping. 

Rising Competition Results in Low Margins 

Dropshipping is a popular business model because it’s accessible and affordable. You’re entering a crowded market and your competitors might undercut you for the same product. You then have to choose between losing revenue or engaging in a price war where you’ll lose margin. 

If you want to raise your margin without losing customers, step up your marketing game to make your online store stand out. Emphasize high quality and stellar customer service so your buyers know what they’re paying more for. 

It also helps if you build an audience of potential customers before launching. Create excitement for your products pre-launch through social media campaigns. Collaborate with influencers to spread the word about your store and gather testimonials as social proof. 

The more customers you attract, the more items you can purchase in bulk from your supplier at a discounted rate. Some founders find more success when they incorporate dropshipping into an existing ecommerce store rather than starting fresh for this very reason. 

Shipping Complexities Could Frustrate Customers 

The average buyer likely doesn’t realize you use multiple dropshipping suppliers for your store. They might purchase multiple items and balk at the shipping charge since the products will ship from numerous locations. 

One way to avoid this dilemma is to charge a flat rate for specific items. Perhaps smaller items ship for four dollars while larger items ship for eight. Or, charge a flat shipping rate regardless of the weight and size of the item, taking on the cost yourself. You’ll pay a bit more initially, but customers are likely to add more items to their carts and return to your store. Then you’re covering those shipping costs with increased revenue from more purchases. 

Limited Product Changes 

Changing the design or build of a product isn’t as simple when dropshippers handle the manufacturing. Some suppliers might refuse to make changes while others might take a long time. If you value customization and adjustments based on customer feedback, consider fulfilling orders yourself so you can implement changes quickly. 

Dropshipping Knowledge at Your Fingertips 

The dropshipping business model has existed for decades, ever since mail catalogs emerged in the 1950s. Although it’s spread worldwide with the advent of the digital marketplace, the principles remain the same. Use those principles to give your ecommerce business an edge. 

Sources

1https://www.researchandmarkets.com/reports/5455705/dropshipping-market-research-report-by-product?utm_source=CI&utm_medium=PressRelease&utm_code=5pz6sg&utm_campaign=1625631+-+USA+Dropshipping+Market+(2021-2026)+By+Product+Type%2c+Organization+Size%2c+and+State+with+Cumulative+Impact+of+COVID-19&utm_exec=elco286prd

2https://dodropshipping.com/when-did-dropshipping-start/


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