A dropshipping business is a great way for new entrepreneurs to enter the ecommerce world because it’s fairly low risk and easy to manage with little experience.
Sound like something you’d be interested in? Well, in this article, we’ll explain what a dropshipping business is, along with how to start a dropshipping business.
What is a Dropshipping Business?
A dropshipping business involves the seller purchasing stock from a third party without storing it. In short, the seller (you) acts as a middleman between a wholesaler or manufacturer and customers. When a customer places an order, the seller sends the details to the third party, which ships the order.
How Does Dropshipping Work?
On the surface, it might sound like a dropshipping business doesn’t really benefit the manufacturer/wholesaler. But it actually makes things easier for them, as they only need to hold and process the stock. The seller does all the hard work marketing and listing the products.
There are 3 key players in a dropshipping business:
The manufacturer or wholesaler is where the stock comes from. Because they’ve got the space, they hold on to the inventory until it’s sold. As a result, they also package and ship the items when a customer places an order.
The retailer is the middleman. They set up a website or host dropshipping on Amazon or another ecommerce site. They do the marketing, product listings, and everything else it takes to sell an item.
The customer’s role is pretty simple: they buy the products from the retailer. To do so, they use the customer-facing website rather than buying from the manufacturer. A dropshipping purchase works just like any other ecommerce sale from the customer’s perspective.
The bottom line of a dropshipping business is that the retailer acts as the connection between a company with dropshipping supplies and someone wanting to buy them. It saves the manufacturer time and money and means the seller doesn’t need a massive warehouse.
Benefits of Dropshipping
1. Easy to Set Up
When it comes to how to start a dropshipping business, all you need is a product in mind and a website. To make it even easier, you can do dropshipping on Amazon with a standard seller account. As such, it’s one of the easiest ways into online selling.
2. No Infrastructure Needed
Along with not needing a warehouse, you also don’t need a business office. Plenty dropshipping businesses happen from sellers’ homes because you just need a computer.
Because a seller doesn’t need any real drop shipping supplies (a warehouse), it’s an infinitely scalable business. All the seller does is find new products, list them, and sell them. It’s easy to expand product lines because you don’t need to think about where you’ll store them. And, as a $17.5 billion industry, there’s plenty of money to be made.
Similarly, dropshipping is low risk. This is because, if a product doesn’t sell well, you don’t need to worry about disposing of unwanted stock. On the other hand, if a product is doing well, you can increase your sales easily.
5. Easy to Manage
With a dropshipping business, you can manage everything from a web browser. Tracking sales is simple, as is designing a website. Of course, it can be as complicated as you want, but it’s a very beginner-friendly business model.
Cons of Dropshipping
1. Low Margins
Dropshipping has low profit margins for sellers. This is because the manufacturer or wholesaler is making and holding the product, which are the most expensive parts. Also, it’s quite a competitive market, so you’ll find yourself working against retailers selling at lower prices than you.
2. Inventory Problems
A business that owns and holds its stock (generally) knows how much it has. Sure, issues still happen, but stock counts are easier if everything is in front of you.
But with a dropshipping business, you might be sourcing your products from several companies. Not only does this make it more complicated to keep track from your end, but it also puts another step in the chain where things can go wrong.
For example, a supplier’s stock list might not update, leading to unfulfilled orders. This is becoming less of an issue as everything becomes automated, but it can still happen.
3. Complicated Ordering and Shipping
From a customer’s perspective, ordering is the same as always. But from the retailer’s side, it can get pretty complicated. Dealing with several suppliers means sending out different orders and tracking different shipments.
For example, a customer orders 3 items from your store. Unfortunately for you, these 3 items all come from different suppliers. It means you’ll need to send 3 orders and incur 3 shipping charges. Once you factor in potential shipping delays or issues, it all gets a bit complicated.
4. Challenging Customer Service
You might already be able to sense a theme in the downsides of a dropshipping business. In short, they all come down to not having control over your supply chain. This is where customer service fits in, too.
If you owned your dropshipping supplies, you could easily deal with any customer issues. These might be returns, lost or damaged items, or simply complaints.
But when you act as the middleman, you need to relay these problems to the supplier and ensure the customer is satisfied with the outcome. This might sound simple enough, but when you have an upset customer who wants a resolution ASAP, any delays are not ideal.
Start Your Business Using Textr Team
The bottom line is that a dropshipping business can be an easy way into the ecommerce market. This is due to its low startup costs and minimal risk. But to run a remote business like this, you need an effective comms platform.
This is where Textr Team comes in. It gives you everything you need to run an ecommerce business, including managing customer and team contacts, SMS campaigns, and customer tagging. The result is better collaboration and stronger customer relationships.
So, start your 7-day free trial of Textr Team today. You can download the app for mobile or web browser to begin running your dropshipping business.
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