Understanding dropshipping

In this tutorial you will learn, the pros and cons of dropshipping

Pros: * Low upfront costs * Lower risk than other business models * Freedom from holding physical inventory

Cons: * Low barrier of entry means more competition * Lower profit margins * Little to no product customization

Let's quickly answer the question, what is dropshipping? So, dropshipping is a fulfillment model that allows you to buy products directly from manufacturers and suppliers, and ship them directly to your customers. This means, unlike other traditional e-commerce fulfillment models, you never actually carry any inventory, you don't buy products in bulk, and you don't even have to worry about shipping orders yourself. Instead, the dropshipping supplier handles all of that for you. So, let's see dropshipping in action to get a better idea of how this all works and why so many entrepreneurs fall in love with this model.

So, a customer comes to your store, places an order for a product that costs them 50 dollars. You then place an order with your supplier for that product and it costs you twenty dollars. The supplier then ships that order to your customer directly. You earn thirty dollars gross profit and the entire process is invisible to your customer. So instead of buying thousands of that product at a wholesale price, carrying inventory in your home or warehouse and running down to the post office to ship orders out to your customers, a dropship supplier handles all of that for you.

So now that we understand what dropshipping is, what are the advantages and disadvantages to this kind of fulfillment model? First, let's start with the pros. Stores that use a dropshipper have low startup costs, since you're not buying products in bulk, your initial investment will be much smaller. Also, the risk is generally lower. If you choose a product to sell and you can't make it work, you're not tied down to the large inventory you need to sell through to make your money back.

Dropshipping allows you to quickly pivot, since there's less commitment. Lastly, a store that uses a dropshipper isn't tied down to the location of their inventory. This means you can technically run your business from anywhere in the world. Now, this all sounds great, but what are some of the disadvantages that new store owners should be wary of? First, because dropshipping has a low barrier of entry, it also has a lot of competition.

A supplier you're working with for that amazing product might also be dropshipping for dozens of other stores like yours. So we're going to talk later about how to overcome this and add value to what you're selling. Also, generally, products that you dropship will have a lower margin than if you bought that same product in bulk. So, while the cost of dropshipping might be 20 dollars, the product might cost you 11 dollars per unit if you bought it in bulk.

However, we're going to talk about finding suppliers that allow you to have a large margin. Lastly, there's little to no customization when it comes to using a dropshipper. When you buy in bulk, you have the opportunity to brand and customize the product you're selling. With dropshipping, that isn't always possible, and it depends on the supplier. Some might allow you to change the branding, others might allow you to customize the packaging. However, don't expect this flexibility, treat it as a bonus.