Dropshipping 101: The Retail Fulfillment Method for 2020 and Beyond
Whether you’re just opening your first eCommerce store or you’re an established merchant, there are certain decisions you need to make about your business. One such decision is how you will manage inventory and fulfill customer orders.
In this post, we’ll introduce one retail fulfillment method that is taking the eCommerce industry by storm: dropshipping. This will include a look at how it compares to other methods, and the pros and cons of its use. We’ll also share three dropshipping tools you can use in your online retail business if you choose to go this route.
Let’s get started!
What is Dropshipping?
In simplest terms, dropshipping is a retail fulfillment method that enables companies to sell products without the management of physical inventory. Instead, inventory management tasks including storage, fulfillment, and shipping are outsourced to a dropshipping supplier that ships products to customers on behalf of the retailer.
This is in contrast to other eCommerce business models, and here’s how.
In-house fulfillment is the traditional fulfillment method in which merchants fulfill products themselves. They handle all tasks associated with storage and fulfillment, including storage, inventory tracking, packaging, and shipping.
This is most often used by small businesses, though large businesses can also use this method if they have enough storage space and the money to hire a fulfillment crew.
A fulfillment center is a company that stores and manages inventory on behalf of retailers. And while this may seem similar to dropshipping, their is a major difference: product origin.
Dropshipping involves products created by manufacturers or wholesalers. The retailers simply facilitate the sale of these products. On the other hand, fulfillment centers will store goods that are made by the retailers themselves, or a manufacturer that the retailer hired independent of the fulfillment center.
This method is often used by small-to-medium businesses whose inventory and number of daily orders has outgrown their current business setup.
The Pros and Cons of Dropshipping
As with any eCommerce method, there are pros and cons to dropshipping. Let’s take a look.
Pro 1: No Startup Costs
With the traditional eCommerce methods mentioned above, you will be expected to purchase materials or inventory. Beyond that, you will also need to pay for inventory storage and perhaps even an inventory management team.
But with dropshipping, there are no startup costs involved.
Dropshipping enables you to offer an expansive line of products without purchasing them upfront. This is because dropshipping retailers only pay for the product’s wholesale price after a sale has been made.
The cost of the product (and other costs, such as shipping and handling) will be subtracted from your gross profits either after each sale, or on a predetermined basis (such as weekly or monthly).
Pro 2: Little to No Risk
We mentioned above that dropshipping means you don’t have to purchase inventory upfront. That’s great news for your wallet, but it has one more benefit: little to no personal and business risk.
What does this mean exactly?
Traditional retailers warehouse their inventory, or pay someone else (such as a manufacturer) to do it for them. Once the inventory is in their hands, they’re 100 percent responsible for any and all damages and loss that occur.
So, whether there’s flooding, an electrical fire, or theft, the retailer must take the loss.
This risk even further extends to their transport and shipping responsibilities from which damage or loss becomes more of a possibility.
Dropshipping retailers do not have any responsibility for the goods they sell on their website. They don’t have to worry about damage or loss within the warehouse, and the dropshipping provider will often even cover loss during shipping.
The benefits of this are obvious, but this also means you can offer a larger array of products to your customers without worrying about the additional responsibility associated with them. You can even sell goods that are the most likely to be damaged or stolen – such as electronics – without the fear of damaging your company’s bottom line.
Pro 3: Almost Limitless Scalability
The low risk associated with dropshipping provides your business with significant flexibility. And, even more importantly, almost limitless scalability.
To be scalable is to be able to increase or decrease the quantity of products you offer. While their may be times that you want to decrease product quantity, it’s more likely that growth will be your focus.
And that’s fine when you choose an eCommerce model like dropshipping.
Dropshipping enables you to grow your business and sell dozens, hundreds, or even thousands of different products with ease. You don’t have to worry about cost or warehousing, and you don’t have to concern yourself with other business responsibilities often associated with growth such as hiring more employees, or moving into a larger retail space.
With dropshipping, you have the ability to decrease and increase your offerings whenever you’d like.
Con 1: Low Profit Margins
Perhaps the greatest con to dropshipping, and the reason that many eCommerce retailers shy away from it, is the low profit margins.
Dropshipping doesn’t give you much choice over product price. In fact, many prices are automatically set and cannot be changed at all. And even further, the cost of products (i.e. what you will pay) is set by the manufacturer.
Con 2: Less Control Over the Process
For some, the fact that dropshipping means you have no part in the manufacturing, storage, and shipping of products is a major positive. But this does mean you have very little control, if any, over the process.
You can of course choose your dropshipping company, which means you can select the one that provides you the most control possible. However, there will always be parts that you will have no say in.
For example, some dropshippers enable you to utilize branded packaging and/or invoices. You can also choose your shipping provider in many cases. However, other companies may only allow the use of their own packaging, and they may have a very limited list of shipping providers.
You have to determine if the benefits – no startup costs, low risk, and scalability – are worth the loss of control.
3 Dropshipping Tools to Use for Your Business
With the increasingly popularity of dropshipping, there are an abundance of tools to choose from. Here are just a few to consider.
If you haven’t heard of Shopify, you’re in for a treat!
Shopify is an eCommerce platform that enables you to create a storefront with relative ease. It’s one of the top platforms in the industry, and with good reason. It not only has all of the features you’d need to start and run a successful eCommerce shop, but it also has an extensive collection of apps to expand those features
One such app? Oberlo.
Oberlo is a dropshipping application that enables you to browse products available within their vast marketplace and add them to your Shopify store in minutes. These products includes everything from apparel to technology.
And once the products are imported to your shop, you can customize the listings to better speak to your customers.
Best of all, Oberlo offers automatic order fulfillment. This means that once an order is placed on your website, the request is sent direct to your supplier so it can be prepared and shipped.
If Oberlo isn’t your cup o’ tea, then Spocket may be what you’re looking for.
Spocket is similar to Oberlo in many ways. Specifically, the app offers a wide range of products, simple order fulfillment, and real-time shipment tracking.
However, there is one area in which Spocket stands out: bulk import.
Using Oberlo, you can only import one product at a time to your Shopify store. But Spocket enables you to import as many products as you’d like to streamline the process.
Spocket also offers competitive prices and fast shipping times, so it’s certainly an option to consider.
Are you not on Shopify but still interested in the features offered by Spocket? Spocket can be used on WooCommerce, too.
Shopify is perhaps the most popular eCommerce platform, but it’s not the only solid one. Other options, such as WooCommerce, exist with very similar features
WooCommerce is an eCommerce software that works seamlessly alongside your WordPress site. It works just like Shopify as it enables you to sell products on your website and expand the software’s offerings with extensions.
One such extension is Dropified.
Dropified is a dropshipping extension that enables you to import products to your shop. It includes automatic order fulfillment and management options, similar to Oberlo and Spocket, and it’s even free for up to 500 products and 50 orders per month.
Is Dropshipping Right for You?
Dropshipping is a unique retail fulfillment method that is right for the right kind of retailer.
Those who want to sell their own products, or who want significant control over the process, would not benefit from its use. However, those who want to expand their current product offerings with low costs and little risk may find it the best choice for them.
Do you have questions about dropshipping, or how to implement it within your business? Let us know in the comments section below!