What is dropshipping?

Dropshipping is a fulfillment model that skips traditional distribution channels and ships the products directly from the wholesaler or manufacturer. Retailers who dropship don’t purchase products ahead of time to sell, or keep inventory in stock within their own warehouse. Instead, the retailer processes customer orders by forwarding them directly to the supplier. The supplier then picks, packs, and ships the product to the customer directly. Payment for the order is handled by the retailer, who sells products at a markup and keeps the difference remaining after paying the cost to the supplier.

A dropshipping supplier can be the manufacturer of the product, a wholesale distributor of the product, or any other part of the supply chain. What makes it dropshipping is that the retailer who processes the sale does not hold the inventory, but sends the order to the supplier for fulfillment. Some retailers even dropship from other customer-facing retailers. Generally, the earlier a supplier is in the supply chain, the cheaper a dropshipper will be able to source the product, because each step in the supply chain tends to add a markup.

By having your products shipped directly from the supplier straight to your customer, you can save on shipping and warehousing costs, delivery time, and the hassle of managing your own inventory. While there are some disadvantages to the shipping model – such as placing one of the most crucial aspects of your business in the hand’s of a third-party – the advantages, for many companies, significantly outweigh the cons.

Let’s take a look at some of the many unique benefits you can potentially reap by adopting a dropshipping fulfillment model.

1. Lower Capital Requirement

For many retailers, one of the toughest aspects of starting a business is figuring out how to approach inventory. Traditionally, merchants spend thousands of dollars on inventory investment, which can significantly eat into a business’s starting capital. With dropshipping, however, you don’t have to buy products or worry about low stock. Starting a dropshipping company means reduced upfront costs, less stress, and fewer responsibilities, with more time and money to allocate to other aspects of your growing business.

2. Flexible Location

Today’s customers demand unparalleled shipping, quick to dissolve their relationship with businesses that fail to meet their expectations. By using a dropshipping company, your business can gain a geographic advantage. Businesses located in the Central U.S. can benefit from a supplier located on the West Coast, and vice versa. Having your products close to the customers who buy them puts you in a position to ensure your brand can deliver exceptional service from the point of order all the way to delivery.

3. Save time and money

Running a dropshipping empire means that your business won’t be burdened with the hassles of managing and paying for a warehouse. You won’t need to track inventory, handle returns, or restrict your office to a particular location. As long as you have an internet connection to stay in touch with your suppliers and customers, you have the freedom to take your business anywhere and everywhere across the globe.

4. Wider Product Selection

Because merchants are typically required to pre-purchase their products, it’s usually easier and cheaper to purchase a select few items in larger quantities than to offer a diverse selection. But with dropshipping, you can sell however many products you want on your online store without having to worry about inventory or costs.

5. Reduced Risk

Starting a business comes with many risks, not the least of which is the thousands of dollars you’ll potentially invest in inventory. With a dropshipping model, if things don’t pan out the way you planned, you can make a relatively clean break, without fear of being stuck with thousands of dollars worth of inventory.