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What is Dropshipping? Complete Dropshipping for Dummies Guide

July 3, 2024

If you’ve ever wondered “what is dropshipping?” and how it works, this guide is for you. As a developer working with various eCommerce clients, I have seen how the dropshipping model works and makes profit, from the closest.

Along the way, I came across people who call themselves dummies regarding dropshipping. They wanted to learn but they didn’t know where to start. So, here I come up with this idea to create a complete dropshipping for dummies guide that will help those who want to understand dropshipping from top to bottom.

By the end of this post, you’ll have a clear understanding of dropshipping and how you can use it to build a successful online business. So let’s get started!

What is Dropshipping? All You Need to Know

Here’s a list of all the topics discussed in this post. Feel free to click on any of them to jump directly to the section you’re most interested in.

What is Dropshipping?

Imagine dropshipping as if you are running a store. However, instead of having a warehouse full of products, you partner with a supplier who holds the stock inventory and manages everything for you.

Are you thinking about retail merchants? Yes, you are getting it right. It is the same as how retail shop owners run a shop and focus on sales while wholesalers keep everything in stock for them.

Definition: What is Dropshipping?

Dropshipping is a retail fulfillment method where an online store doesn’t keep the products it sells in stock. Instead, when an order is received, the store forwards its details with payment to a dropshipping supplier. The supplier then shipped it directly to the customer.As a result, the store owner never sees or handles the products’ shipping or inventory. He performs the job of dropshipper.

What is a Dropshipper?

A dropshipper is a person or business that opens an online store, accepts customer orders, and forwards them to a supplier for fulfillment. Dropshippers often use Meta and Google ads to spread brand awareness and sell products.

What are Dropshipping Suppliers?

Dropshipping suppliers stock products and fulfill orders made by retailers on behalf of customers. These suppliers can be individual suppliers or a platform that lists a directory of suppliers, such as Alibaba and AliExpress.

How Does the Dropshipping Model Work?

Here’s a step-by-step breakdown of how dropshipping works:

Customer Places an Order

A customer visits your online store and places an order. This online store can be set up using Shopify, WooCommerce, or another e-commerce platform.

Order is Forwarded to Supplier

Once the order is placed, you receive the order details and payment from the customer. You then forward these order details to your dropshipping supplier. This can be done manually, or automatically if you have integrated software that connects your store to the supplier.

Supplier Processes the Order

The supplier receives the order details and begins processing the order. They prepare the product for shipment, ensuring it’s properly packaged and labeled.

Supplier Ships the Product

The supplier ships the product directly to your customer. The shipping details, including tracking information, are usually shared with you so you can keep the customer informed about the status of their order.

Customer receives the Order

The customer receives the product they ordered from your store. Ideally, the product arrives on time and meets or exceeds the customer’s expectations.

Handling Returns and Customer Service

If the customer has any issues with the product, such as wanting to return it or needing assistance, you handle the customer service aspect. You’ll need to coordinate with your supplier to manage returns and address any product-related issues.

Benefits of Dropshipping

Low Startups Costs

Since you don’t need to purchase inventory upfront, dropshipping requires a significantly lower initial investment than other traditional retail models. You would need to purchase:

Domain Name
Good Hosting
Shopify Plan which is $1 for the initial month.

The costs are reduced further if you use WooCommerce instead of Shopify because that is free. However, you would need someone to build your store on WooCommerce.

You can purchase Hostinger’s 48-month plan and get a Free domain with Hosting. It is the most suitable and fast hosting service that can save money and keep your dropshipping store running smoothly. Buy from my referral link here and receive an additional 20% discount.

Easy to Start

You can launch your store quickly in dropshipping. All you need is a computer, an internet connection, a niche market to target, a domain name, and good hosting.

Flexible Location

You can run a dropshipping business from anywhere with an internet connection, giving you the freedom to travel or work from home.

Wide Selection of Products

Without the constraints of physical inventory, you can offer a broader range of products, testing different markets and niches with minimal risk.

Relief from Management and Shipping

The supplier handles the shipping and packaging of products for you, so you focus only on product hunting and making sales.

Why do Business Owners prefer Dropshipping?

There’s no need to manage or store inventory.
Lower upfront investment compared to other models.
Ability to offer a wide range of products.
Suppliers are responsible for the task of order fulfillment.

Challenges in Dropshipping

Yes, Dropshipping is easy but holds challenges, especially in the initial stage of starting a business.

Low-Profit Margins

Since you’re not buying products in bulk, your profit margins can be lower than other methods. Finding the right suppliers and pricing strategies is crucial for profitability. Finding reliable suppliers is another big challenge for dropshippers. Having one supplier is not enough in this model.

Inventory Issues

You solely depend on your suppliers for stock levels, which can lead to backorders or out-of-stock situations if not managed properly.

Shipping Complexities

With products from various suppliers, shipping costs and times can vary, potentially leading to higher shipping costs or longer delivery times for customers.

Product Hunting

Product hunting is the main challenge of this business. You need to search for best-selling products to keep stock on your storefront.

Tracking and Analytics

Efficient management and tracking are mandatory in this business model. It also requires more time to spend on finding good products, suppliers, and handling customer service.

It is a business model that needs your full attention. You will track stock, search for trends and products, handle customer service, and keep up with delivery records.

Types of Dropshipping

Now let’s explore the types of dropshipping business models that make dropshipping much easier.

Retail Dropshipping

Retail dropshipping is the most common type of dropshipping. In this model, you find a dropshipping supplier who holds the stock of products you want to sell. You list the products on your online store, handle marketing and customer service, and upon receiving an order, you forward the details to the supplier who packages and ships the product to the customer.

Wholesale Dropshipping

Wholesale dropshipping is similar to retail, but in this model, you buy products in bulk from the supplier at a wholesale discount. You should go for this model only if you have a foolproof strategy and plan. Otherwise, this can be risky if you overestimate demand and get stuck with excess inventory.

Arbitrage Dropshipping

In arbitrage dropshipping, you find products sold at a lower price on one marketplace and then list them on your store for a higher price. The original seller fulfills the order for you while you make your profit. This model mainly requires careful research to ensure you find profitable margins.

New Dropshipping Business Models - 2024

Reverse Dropshipping

Reverse dropshipping is a twist on the traditional dropshipping method. This model works on the statement “Think globally, source locally.”

Instead of sourcing products from abroad (like China) and selling them domestically on your online store, you find high-quality products made in your own country and sell them in countries where they are highly needed.

Many retail dropshippers have seen converting to reverse dropshipping since 2023. This model is beneficial for introducing high-quality or niche products to new markets and making big profits.

Key Points:

Exporting high-quality products to high-demand countries.
Introduces niche products to new markets.
Shipping times are often shorter when sending from a nearby country.

Consideration:

Requires a good understanding of market demand.
Finding reliable and reputable suppliers.
More competition from local businesses, already selling similar products.
Products could be more expensive, sourced from established brands.

Bloom Dropship

Bloom Dropship is a specific platform that supplies and focuses on dropshipping women’s clothing in the US. It helps women launch 5-star-rated boutiques and grow already-established stores by providing them with a curated selection of clothing.

Membership plan of Bloom Dropship:
Bloom Dropship offers two subscription plans: a free starter plan with restricted features and a full-service plan that offers weekly new product launches, marketing materials, and discounted shipping.

So, how does a Bloom Dropship membership work?
Connect your Shopify store with the Bloom dropship store to integrate product images, details, and inventory. They also help you build your Shopify store if you don’t have one.

You can start selling the products from Bloom Dropship on your website or socials like Instagram, Facebook, or TikTok. They also handle the shipping for you.

As you receive an order, Bloom dropship delivers it to the warehouse and sends it to your customer within days. The package includes your store’s name on it.

FashionGo Dropshipping

FahionGo Dropshipping is a platform that helps you sell clothing and accessories through dropshipping on your online store. They offer no transaction fee, so all sales made on FashionGo Dropshipping are entirely yours. You can choose to sell any product from the directory of 20,000 products.

FashionGo Dropshipping focuses on connecting you with reliable dropshipping suppliers in the United States, which can potentially mean faster shipping times for your customers and higher-quality products compared to some overseas suppliers.

Does FashionGo Dropshipping work with Shopify?
You can easily connect your Shopify store with the FashionGo Dropshipping platform to integrate product data and automate the order fulfillment process.

Things to Consider:

Reliance on reviews: Finding information about FashionGo is a challenge. Reading reviews from other users on app stores or industry blogs can help you understand their actual service quality.
Inventory accuracy: There have been some user reports of issues with product availability. It’s crucial to have backup plans if an item you list is out of stock.

Walmart Dropshipping

Walmart dropshipping isn’t traditional dropshipping. It is as simple to understand as selling on the Walmart marketplace.

There are two ways to do dropshipping at Walmart: listing your products in the Walmart marketplace or sourcing your dropshipping products as a supplier to Walmart sellers.

Selling on Walmart Marketplace: This is the most common and recommended scenario. Here’s how it works:

First, you find dropshipping suppliers who are approved to sell on Walmart Marketplace. These suppliers will handle warehousing, packaging, and shipping products directly to your customers.
You register as a seller on Walmart and create listings for those products on your Walmart store, set your prices, and handle marketing and customer service.
When a customer places an order, you forward it (and the customer’s money) to the supplier who fulfills it.
You make a profit, and the supplier gets his price.

Walmart Drop Ship Vendor program (DSV): This is a less common option where you, as a seller, act as the supplier to Walmart itself. Here’s a brief on how it works:

You list your self-sourced products in Walmart’s inventory system and ship them directly to customers when they order.
This program requires a different approval process and a higher sales volume requirement than selling on the Walmart marketplace.

Now, note that you’ll need to meet Walmart’s criteria to become a seller on their Marketplace. It is also, no doubt, a big platform with many sellers. So, standing out can be challenging.

Considerations for Dropshipping Success

What is a Good Profit Margin for Dropshipping?

A good profit margin for dropshipping depends on various factors but generally ranges from 20% to 30% and 45%, depending on the product category and supplier pricing.

Factors affecting profit margins:

Product type: High-demand, niche products can command higher margins.
Competition: In saturated markets, you might need to lower your margins to stay competitive.
Supplier costs: The cost you pay the supplier directly affects your profit potential.
Marketing & advertising costs: The financial budget of attracting customers eats into your profits.

Here are some tips:

Focus on value, not Price: Highlight the unique features and benefits of your products to justify your markup.
Negotiate with suppliers: If you plan high-volume sales, negotiate with suppliers for better wholesale prices.
Bundle products: Consider creating product bundles that offer more value to the customer and potentially increase your profit per sale.
Optimize your average order value (AOV): Encourage customers to buy more per visit through promotions or free shipping thresholds.

What is the Difference Between E-commerce and Dropshipping?

E-commerce is a broad term that describes any online retail that sells products or services online, whereas dropshipping is a specific fulfillment method within e-commerce.

To make it simple, eCommerce is when you’re running an online store, and dropshipping is when you’re using a third-party supplier to handle stock and shipping of your online store.

Dropshipping makes it easier for you to run an online store without getting worried about the inventory and shipping.

Conclusion

Dropshipping offers a flexible and low-risk way to start an e-commerce business, making it an attractive option for new entrepreneurs and small businesses. However, it also comes with challenges, such as managing supplier relationships, handling customer service, and handling low profit margins.

In this guide, we have covered everything you need to know about dropshipping, from understanding the basics to learning its challenges and exploring new business models that have gained popularity since 2023.

For those ready to dive into the dropshipping business, remember that success comes from careful planning, continuous learning, and adapting to market trends.

So, that’s all for this blog. If you are looking for a professional to build your online store on Shopify or WooCommerce, SavyCoder is just a text away to help. Approach via contact us or get a free quote.