The eCommerce industry has been booming in recent years. Even before the pandemic, eCommerce platforms have been allowing both entrepreneurs and consumers to meet online and make transactions. This sector has further boomed during the pandemic, as people have got stuck at home, and businesses have gone digital.
But the question is: how can businesses capitalize on the eCommerce market and meet the order fulfillment demands? The answer is dropshipping, a popular type of eCommerce business. While the name sounds complex, it is actually a simple concept. It is an order fulfillment process where an online business doesn’t necessarily keep goods or products.
In this article, we’ll delve into what dropshipping is and how it works. Keep on reading to learn more about its benefits and drawbacks.
What dropshipping is and how it works
As mentioned, dropshipping is an order fulfillment process. However, it doesn’t necessarily require an online business to stock products or goods. As such, a dropshipping company acts as a middleman between the product suppliers and the consumers.
As a dropshipping business, you sell certain products that you don’t keep in your inventory. When consumers are interested in these products, you have to fulfill the orders. You perform these requests by having the suppliers sent their products directly to the consumers. You’ll basically earn by selling the products at a retail price while buying them from the suppliers at a wholesale price. There are many platforms to choose from for your dropshipping solution.
One good example is Shopify, which is considered the best eCommerce platform for dropshipping. Once subscribed, its software allows you to set up an online store and sell various products. It enables you to connect to Oberlo with millions of products posted by manufacturers or suppliers so that you can sell unlimited products. Depending on the plan, you can utilize tools and features such as invoice generation, live chat function, and even a return management app for Shopify.
The rise of dropshipping in modern times
The dropshipping model has been around since the 1970s. It has taken roots from big-box, mail order, and catalog stores like Sears and Amazon. In the past, local, regional, and national warehouses would handle order fulfillment for most brick-and-more businesses. However, the eCommerce industry has become a game-changer.
Dropshipping has further intensified when the eCommerce industry has become increasingly popular. In recent years, there has been a shift towards the direct-to-consumer (D2C) business model. As such, dropshipping has been deemed as a desirable order fulfillment method for efficient logistics.
Dropshipping has soon evolved into a link for the supply chain of small and medium-sized enterprises (SMEs). Ultimately, it has connected suppliers and consumers worldwide.
The pros and cons of dropshipping
It’s important to understand that dropshipping has both advantages and disadvantages. While aspiring online entrepreneurs are looking to take advantage of its potential benefits, they must also be wary of its possible drawbacks. Take note of the following:
- Scalability: You have the option to launch and add new products to your eCommerce business. Doing so helps you scale up your dropshipping business as long as you partner with the right company.
- Overhead reduction: You need not worry about housing stocks for your online business. You simply focus on selecting the right partner, choosing the right products, and fulfilling orders properly. Having a physical store or a warehouse can be quite costly as you have to pay for lease, utility bills, and regular maintenance fees.
- Easy inventory management: You’ll find inventory management easier and more efficient as most eCommerce platforms enable this. For product management, your chosen eCommerce platform has built-in tools and features you can take advantage of.
- Abundant data and information: You’ll earn rich knowledge on things such as volume of orders, types of products being ordered, delivery methods for shipping products, and many more.
- Add-on fees: For added features in your chosen eCommerce platform, you may need to pay some fees. For instance, you have to pay a monthly fee if you install Oberlo and want to sell more than 500 products.
- No direct control: You have no direct control over those products being sold as you don’t stock them in your warehouse.
- Quality control issues: As you don’t have quality control over products, you must choose the right manufacturers or suppliers for selling products.
- Choosing the wrong partner: Choosing the wrong partner in your dropshipping business can lead to all sorts of problems.
At this point, you now have a robust idea of what dropshipping is and how it works. Be sure to weigh in the pros and cons mentioned above. With the rise of dropshipping, you might want to take the plunge and venture into the eCommerce business.