Understanding the Basics of Dropshipping: What It Is and How it Works

Posted on Jun 13, 2023

Understanding the Basics of Dropshipping: What It Is and How it Works

What is Dropshipping?

Dropshipping is a business model where the retailer doesn't keep the products in stock. Instead, they partner with a manufacturer or supplier who holds the inventory and fulfills orders on behalf of the retailer. When the retailer makes a sale, the supplier ships the product directly to the customer.

How Does Dropshipping Work?

The dropshipping process involves three main players: the retailer, the supplier, and the customer. The retailer sets up an online store and lists the products they want to sell. When a customer places an order, the retailer forwards it to the supplier who then ships the product to the customer. The retailer earns a profit by selling the product at a markup price.

Advantages of Dropshipping

  • No need to hold inventory
  • Low start-up costs
  • Flexible location and work hours
  • Wide range of product selection
  • Ability to test new products without committing to inventory costs

Challenges of Dropshipping

  • Higher product costs due to the supplier taking care of inventory and shipping
  • Difficulty in controlling product quality and shipping times
  • Competitive market with many dropshippers selling the same products
  • Dependency on supplier for smooth operations
  • No control over shipping and handling processes