What is Drop Shipping & How Does it Work?

Growing in popularity amongst budding entrepreneurs, dropshipping is a method of eCommerce order fulfilment. Seen as an increasingly dependable, low-maintenance revenue stream for sole-traders and medium scale businesses, you may need to become familiar with the dropshipping order fulfilment model as businesses diversify their processes.

What is Dropshipping?

As a method of online order fulfilment, dropshipping is when a retailer sells a product to a customer, without holding any physical inventory: instead, relaying wholesale purchases to a third-party supplier or manufacturer, who will then fulfil dispatch directly to the customer.

As a dropshipper, you should never be required to handle the merchandise directly: you are merely the middleman between the manufacturer and paying customer.

Interestingly, though dropshipping is becoming increasingly popular amongst the mainstream, Amazon has been open to working with dropshippers for over a decade. In fact, in 2011, up to 34% of Amazon’s sales involve a dropshipper in some way.

How Does Dropshipping Work?

The order fulfilment process of dropshipping is simple to define. It usually involves only three steps:

  1. Customers, through your eCommerce website, will purchase a product.
  2. You, as the retailer, send order and shipping information to the supplier/manufacturer.
  3. Supplier/manufacturer sends product/s directly to the customer.

Who Can Engage in Dropshipping

Can anyone partake in dropshipping? Yes!

Put simply, absolutely anyone with a consistent and reliable internet connection can begin a dropshipping business. Meaning that you can begin to set up your very own dropshipping business today.

Ups and Downs: Dropshipping’s Benefits and Challenges

Like any business, smooth sailing is not guaranteed. There will always be ups and downs that the entrepreneur must contend with and overcome to be successful and have a reasonably sustainable business and revenue stream.

Keep reading to learn about the pros and cons of dropshipping.

Pros of Dropshipping

  • Low Start-Up Cost: As a dropshipper, you do not have the financial burden of renting a warehouse, purchasing stock in bulk or multiple insurance plans: typical costs involved in establishing a traditional retail business. You can technically begin your dropshipping enterprise with zero financial outlay at all. However, it is advisable to set aside some investment capital (anywhere in the region of £100-1000) to fund your storefront branding, marketing and social media advertising.
  • Fully Flexible Location: Do you enjoy working from home? Dropshipping allows you, as the retailer, to work from anywhere in the world. So long as you have a stable, reliable internet connection, dropshipping is a business model to consider if you value your freedom.
  • Low Skill Ceiling/Beginner-Friendly: Since dropshipping can be as easy to get into as reading an article like this, setting up a storefront and contacting suppliers, there isn’t much savvy business knowledge or expertise required to make sales. This could be a benefit to those of us who are more naturally risk-averse and less adventurous.
  • Infinite Product Range: As manufacturers and suppliers will be located all around the world, the potential in the number of diverse products you can sell is near-endless. Be it pet toys, clothing, office supplies or beauty products, you can supply the demand through your dropshipping business. Many suppliers and manufacturers have seen a substantial increase in profitability through working relationships with dropshippers 
  • No Stocktake: Retail employees can attest, stocktake is a mundane, time-consuming slog of a task. That being said, as a dropshipper you can rest easy that stock counting should never be a part of your diary.

Cons of Dropshipping

  • Low-Profit Margin: You’re the perennial middle-man: it is an unfortunate, unavoidable fact as a dropshipper. As the segway between consumer and supplier, the profit you make on every sale is severely limited by the price the consumer pays and the expected sale price the supplier has in mind. Effectively, you skim a little from the top with every sale you make.
  • Highly competitive: Due to its ease of access as a business model, dropshipping is a competitive battleground of a marketplace: becoming more so day by day. In order to remain relevant, your competitors – who will often be working with the same suppliers – will seek to undercut all competition to secure the sale for themselves. As a response, you may seek to become more competitive within the marketplace to maintain business and stay afloat: all at the detriment to your profit.
  • No Personal Brand: For many low-cost goods, consumers will often just look at the price. For dropshippers, this is doubly alarming as it will become nearly impossible to foster customer loyalty. As the dropshipper has no involvement in the creation of said goods, nor their logo on the product or packaging, there is no intrinsic way to secure a customer base loyal to you or your brand.
  • Lack of control over supply chain: As you do not own your inventory of products, nor an exclusive manufacturing contract with your suppliers, you have zero control or influence over your supply chain, particularly if there is a manufacturing shortage of popular products or necessary components.
  • The Need For Apologies: Although you do not hold any physical inventory nor control over the delivery process, as the retailer you will always be required to take responsibility and ownership of problems relating to a sale, even if the fault was genuinely out of your hands. As the only point of contact for the buyer, you will have to accept fault and apologise for errors that were not your own doing. This can be time-consuming if the error results from a missing or damaged product, as you are entirely at the mercy of the supplier. Should you offer the buyer a suitable replacement, this may have to be absorbed by your already slim profit margin.
  • Sourcing Your Suppliers: Possibly the most time-consuming, difficult and tiring part of establishing a dropshipping enterprise, sourcing a reliable supplier who wants to partner with you will provide numerous hurdles. Unless you wish to only sell goods manufactured in the location you call home or English-speaking countries (which may be more costly), language and cultural barriers may present themselves. Consider that most low-cost, fast-moving goods are manufactured in locations such as China, Vietnam and Taiwan, meaning that many of your business relations will involve communication that may not fit your timezone or cultural norms. Be kind, have patience and practice empathy.
  • A Lack of Reliable Income: Profitability can be spontaneous in dropshipping, especially for beginners who are just finding their feet. Mitigate this factor by ensuring your dropshipping business is not your only revenue stream.

Weighing Up the Options

Dropshipping does have many positives to offer an aspiring entrepreneur, though negatives are extremely important to consider before committing entirely to the idea. Though dropshipping can provide a great gateway into business for those who are financially cautious, the competitiveness and lack of couple chain control could understandably make such an order fulfilment system off-putting to some.

Alternatively, one could opt to utilise a Just-in-Time (JiT) inventorying and order fulfilment system. As opposed to sending the order straight to the supplier for them to send the product directly to the buyer, you, as the retailer, order a small amount in bulk and receive them just in time to reship them out to customers. Though this method has its own pitfalls to navigate, it may be beneficial to consider when you gain traction and determine what your most popular and fastest selling products are.

Should you opt for a JiT order fulfilment system, or any other model where you hold a form of inventory locally, experts at Breakwells can lend you a hand. With over 50 years of experience, Breakwells offer bespoke storage solutions along with specialist haulage options. With established delivery routes to remote locations such as the Channel Islands, Breakwells offer a one-stop-shop for your storage, haulage and account management needs.

Tips and Ideas on How to Start Your Dropshipping Business

Though establishing a dropshipping eCommerce business can seem a simple venture for aspiring entrepreneurs, there are a number of advisable steps you can take to maximise the potential of success.

This process is not about being overly creative or reinventing the wheel, instead, being observant to the marketplace and analysing what becomes popular or consistently demanded.

Read on to discover the steps required to maximise the potential of success in dropshipping.

Find Your Niche

Firstly, you must find the market niches you will conduct business in. Though you will often wish to work with products you know and are comfortable with, there are times when your specialties are overly competitive; therefore, you should be open-minded to the possibility of experimenting and emerge from that comfort zone to supply the demands of the marketplace.

A few ideas for popular niches you could consider are:

  • Pet Products: People LOVE their pets, as they should. The emergence of smartphones and social media has seen the spotlight shine on our pets more than ever before. Pet owners love any excuse to spoil their pets with gifts, treats and adventures. So long as the animals are safe, warm, fed and clean, pet owners will involve them in every aspect of their lives. Pets will always be with us and marketplace innovations focusing on pet care and play should be on your checklist.
  • Trending Hair, Beauty and Makeup: Social media has seen the beauty industry explode in terms of popularity and revenue. A beauty YouTuber today could become an industry-leading makeup artist on Hollywood sets in a quick turnaround. The marketplace has responded to such peculiar viral relevancy by offering products that can reliably emulate such novel techniques beauty influencers make famous. Even if such an industry feels unfamiliar to you, education on such products and potential trends can open the floodgates to increasing your profitability and broadening your catalogue.
  • Emerging Technologies: Though more high-risk, there is the possibility of a high reward. Emerging technologies, particularly smart wearable devices – such as smartwatches and smartglasses – can be seen as a boon for the budding dropshipper. As time has passed, the acceptance of visible smart wearables has seen high-end developments, such as Apple and Samsung, going all-in with their marketing strategy, which has created an increasing demand for cheaper alternatives. Though the expectation of customer after-sales care is higher – due to the increase in value of the goods involved – a dropshipper with the confidence and tangible knowledge of emerging technological trends can attain great success if they pledge the effort that is required to keep their customers happy and satisfied. 

Ensure Your Suppliers Are Trustworthy

It should go without saying that a supplier or manufacturer should be reliable in terms of their inventory, dispatch and delivery.

However, you must also do enough research and due diligence on suppliers to ensure that they have not previously been caught up in any illegal or illicit activities, such as counterfeiting of licensed goods or intellectual properties.

Stay On the Right Side of the Law and HMRC

The UK Government has advice on all that you will need to be aware of before commencing with your dropshipping enterprise.

Establish Your eCommerce Website and Marketing Strategy

Once you’ve determined your niches and secured your various suppliers, the time has come to build your eCommerce website.

There are two main ways to enter the marketplace: through existing online marketplaces, or building your website.

  • Existing eCommerce Marketplace: The easiest and most commonly used method is to use an already well-established selling platform, such as Amazon or eBay. Though your creative freedom is severely limited utilising such a route, they are highly user-friendly and well-trusted amongst consumers.
  • Bespoke Website on a Dedicated eCommerce Platform: If you are dedicated to becoming a seasoned dropshipper and have the time to invest in creating a retail brand, building your own custom website on a dedicated eCommerce platform, such as AliExpress, Shopify or even WooCommercefor those adept at digital marketing. Utilising a dedicated eCommerce platform may offer more freedom of choice in relation to shopfront customisation, branding and SEO ranking; therefore, giving you a more hands-on approach to the running of your dropshipping enterprise.

Should You Invest in Dropshipping Heading into 2022?

Dropshipping is not for everyone. Despite being easy to set up and manage in the initial stages, it is a business model that requires time, attention and dedication to become worthwhile.

ECommerce is a competitive marketplace filled with international corporate monoliths and small-scale entrepreneurs alike. Delving into dropshipping is easy, yes, however, you cannot set up your dropshipping business expecting a get-rich-quick scheme, particularly if you are also envisioning no setbacks or roadblocks on the way to your first sale.

Like anything in life worth doing, hard work, dedication and determination are required.

At Breakwells, we are serious about haulage and logistics. 

Our goal is to ensure that you and your customers are 100% satisfied with the transition of goods: from the beginning of the process to the end.

With over 50 years of industry experience, Breakwells is a family-owned business with a renowned reputation for reliable shipping and haulage services, working with enterprise-level clients from every sector

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