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Dropshipping: What is it?

Dropshipping simplifies the order fulfillment process for an online business.

Dropshipping allows an ecommerce business to outsource the procurement, storage, and shipping of products to a third party, usually a supplier.

Dropshipping is a popular option for entrepreneurs who want efficiency and low overhead. However, it can be costly. This guide will explain what dropshipping is, and how it can be used. We will also explore some other fulfillment models.

It is a business model where you promote products and offer an online shopfront. Upon order, you send the customer’s order to your supplier and they fulfill the order. Customers are then informed that the products are on their way.
You are not responsible for the fulfillment of physical orders. Dropshipping agreements may allow you to handle customer service. The dropshipping service handles the physical goods and fulfillment.

Dropshipping: How does it work?

Dropshipping is a process that depends on the arrangement. However, dropshipping generally follows this general sequence.

  1. Dropshipper signs agreement with seller
  2. Orders by customers can be made online.
  3. Seller gets the order.
  4. An order confirmation is sent to the customer.
  5. Dropshipper receives the order from seller
  6. Dropshipper ships your order.
  7. Customer receives the product.


Dropshipping: Key players

Let’s take a look at the roles of key players, beginning with the seller of records, or your ecommerce company.

Seller of record

Dropshipping begins with you. You are the seller of record (SoR) and the 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.

Dropshipping is allowed for Amazon sellers as long as the seller of record is identified as such and you are authorized by Amazon dropshipping policies.


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 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.

Based on your business model, fulfillment needs, and other factors, you can determine which dropshipping provider is right for you.


Pros and cons of dropshipping

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.


Potential benefits:

  • Overhead Costs: Dropshipping is a way to reduce overhead costs. You don’t store the products or ship them.
  • Start costs: Dropshipping is a great option for entrepreneurs looking to start a small business without much investment. They don’t have to invest in the facilities or resources needed to process orders.
  • Multi-channel Selling: Dropshipping can be used to sell your products on your domain or through Amazon.com.
  • Operating location: Dropshipping lets you fulfill orders from any location.
  • Scalability – Leveraging suppliers make it possible to accept more orders, without having to increase your inventory.


Potential limitations:

  • Competition Dropshipping is highly competitive due to its low investment and cost.
  • Product Quality: Dropshipping decreases your involvement in order fulfillment, which reduces your ability to monitor and ensure 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 aggressive in price competition. Low prices can reduce your profit margin.
  • Fulfillment timeline Dropshipping services handle fulfillment. You don’t have control over order selections, packaging, or shipment.
  • 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 special promotions or order fulfillment because you do not handle orders.

Dropshipping can be a good option for some businesses. However, it may not offer the best benefits.




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is Dropshipping right for you?

It really depends on what your business is, and what you’re seeking from it. Dropshipping is however 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 have any control over it on an ongoing 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. A recent survey found that nearly 84% of respondents viewed delivery as an integral part of online shopping.

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.

A service such as FBA is valuable for sellers who need fast order fulfillment.


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 little or no 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 business is not without its challenges. 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 you sign 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.



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