What is Dropshipping?

What is Dropshipping and what are its advantages and disadvantages? Since 2021 I have been living and thinking of a way to make an extra income using my experience with creating websites. I wanted to increase my income in a simple, efficient way and work on this project with pleasure without stress, etc. Documenting myself on the internet I found 2 ways in which I can make the project feasible, namely:

Personally, I opt for the second option, Dropshipping because I find myself in most of the situations listed below. If you want to start your own business in the future and sell products using the online environment, I recommend reading this article at the end.

So What Is Dropshipping? It is a method of retailing in which a store does not keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and ships it directly to the customer. As a result, the seller does not have to deal directly with the product. For more details, see the Wikipedia site.

The biggest difference between dropshipping and the standard retail model is that the retailer does not have its own stocks or inventory. Instead, the seller purchases the necessary inventory from a third party – usually a wholesaler or a manufacturer – to deliver the orders.

What is Dropshipping - advantages

What Dropshipping is, it’s a great business model for aspiring entrepreneurs to get started with because it’s affordable. With dropshipping, you can quickly test different business ideas with a limited disadvantage, which allows you to learn a lot about how to choose and market products on demand. Here are some other reasons why dropshipping is such a popular model.

What is Dropshipping - advantages

Less capital is needed

Probably the biggest advantage of dropshipping is that you launch an online store very easily, without having to invest thousands of euros in merchandise stocks.

With the dropshipping model, you don’t have to buy a product unless you’ve already made the sale and been paid by the customer. Without significant inventory investment, it is possible to start sourcing products and launch a successful remittance business with very little money. And because you’re not committed to selling through any pre-purchased inventory as in a traditional retail business, there’s a lower risk of starting a dropshipping store.

Easy to start

Running an e-commerce business is much easier when you don’t have to deal with physical products. With dropshipping, you don’t have to worry:

Managing or paying a deposit;
Packing and shipping orders;
Tracking the inventory for accounting reasons;
Handling returns and incoming shipments;
Continuous product ordering and inventory management.

Small expenses

Because you don’t have to deal with buying inventory or managing a warehouse, the costs are quite small. In fact, many successful dropshipping stores are run as a home-based business, requiring little more than a laptop and a few recurring expenses to operate. As you grow, these costs are likely to increase, but will continue to be lower than in traditional stores.

Flexible location

A dropshipping business can be run almost anywhere with an internet connection. As long as you can easily communicate with your suppliers and customers, you can run and manage your business.

A wide range of products for sale

Because you don’t have to pre-purchase the items you sell, you can offer a range of trendy products to your potential customers. If suppliers store an item, you can display it for sale in your online store at no extra cost.

Easier to test

Dropshipping is a useful method of fulfillment for both launching a new store and for business owners who want to test their customers’ appetite for additional product categories. For example, completely new accessories or product lines. The main advantage of dropshipping is, again, the ability to display and sell products before buying a large quantity of products in stock.

What is Dropshipping - disadvantages

We’ve seen what dropshipping is and its advantages, but let’s see what its disadvantages are. All the benefits I mentioned make dropshipping a very attractive model for anyone starting an online store or for those who want to expand their existing product offerings. But like all approaches, dropshipping has its drawbacks. In general, convenience and flexibility come at a price. Here are some shortcomings to consider.

What is Dropshipping - disadvantages

Small margins

Small margins are the biggest disadvantage to operating in highly competitive competition. Because it’s so easy to get started and the overhead costs are so minimal, many competing stores will set up stores and sell items at lower prices in an attempt to increase revenue. Because they have invested so little in starting a business, they can afford to operate on tiny margins.

Typically, these sellers will have low quality websites and poor customer service (if any) that you can use to differentiate your business. But that won’t stop customers from comparing their prices with yours. This fierce competition will quickly affect potential profit margins in a niche. Fortunately, you can do much to alleviate this problem by selecting a niche that is right for dropshipping.

Inventory problems

If you have all your own products, it’s relatively easy to keep track of which items are in stock and where your stock is low. But when you stock up on multiple warehouses that fulfill orders for other merchants, your inventory may change daily. Fortunately, these days, there are a number of applications that allow you to synchronize with your providers. This way, dropshippers can “send” orders to a supplier with a click or two, and they should be able to see in real time how many products are still in the supplier’s stock.

Transport complexities

If you work with multiple vendors – as most dropshippers do – the products in your online store will be supplied by a number of different dropshippers. This complicates shipping costs.

Suppose a customer places an order for three items, all of which are only available from separate suppliers. You will incur three separate shipping charges for sending each item to the customer, but it is probably unwise to pass this item on to the customer. And even when it makes sense to include these taxes, automating these calculations can be difficult.

Vendor errors

Have you ever been accused of something that was not your fault, but you had to accept responsibility for that mistake anyway? Even the best suppliers make mistakes when it comes to fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre, low-quality suppliers will cause endless frustration with missing items, unpleasant deliveries, and poor quality packaging, which can damage the reputation of your business.

Limited customization and branding

Unlike custom or on-demand printing products, dropshipping does not give you much control over the product itself. Usually the shipped product is designed and marked by the supplier.

Some vendors may add product changes to your business, but even then, the vendor has the most control over the product itself. Any changes or additions to the product itself usually require a minimum order quantity to make it viable and accessible to the manufacturer.

Frequently asked questions about dropshipping

Throughout this dropshipping article, we’ve looked at the steps you need to take to start a profitable business. But before we continue, it’s worth looking at the answers to some common questions you may have about what dropshipping is and how it works.

How much do I need to invest to start dropshipping?

Although it is difficult to predict the exact costs for any individual business, there are a few things in which every dropshipping business will have to spend money to get started. Here’s a quick rundown of the essential costs.

Online store

The estimated cost for an online store is approximately between 25-30 euros / month

To create and host your online store, you’ll need to find an e-commerce platform or website builder. You can start a shop on Shopify. You’ll be able to seamlessly sync with the Oberlo marketplace for source products, and you’ll have access to a full selection of free themes and bookmarking tools so you can get started quickly.

Domain name

The estimated cost for an domain name is approximately between 15–20 euros / year

It’s hard to build trust with customers without your own domain name. Although there are a number of top-level domains available, e.g. with your brand, if available. Use the domain name search generator to get started, or learn more about how to create an attractive business name.

Test orders

The estimated cost: varies

Although dropshipping allows you to have minimal involvement in managing your overall product catalog, you should spend some money as well as some time to test the products you intend to sell. If not, you run the risk of displaying a product with too many deficiencies or defects, which will lead to unhappy customers and wasted a lot of time making a profit.

Online advertising

The estimated cost for an online advertising is recommended that you have a budget of at least EUR 500 to get started.

Every ecommerce business should look for ways to reduce the average cost of acquiring a customer through organic channels such as content marketing, SEO and word of mouth. But for starters, advertising is usually a key channel for most product-based businesses. The most common channels include search engine marketing (SEM), display ads, social ads, and mobile ads.

How does a dropshippers make money?

Dropshipping businesses act as product curators, selecting the right mix of products to market to their customers. Remember, marketing is a cost that you incur, both in time and money, in helping potential customers find, evaluate, and buy the right product. You’ll also need to include the cost of providing customer support whenever a product or shipping issue exists. Last but not least, the initial price for which your supplier sells the product.

In view of all these costs, dropshipping companies mark individual products in exchange for distribution. This is why suppliers agree that dropshippers sell their products to them – dropshipping stores drive additional sales that the supplier would otherwise have lost. To make a profit from your dropshipping business, it’s a good idea to find out how much it costs to “buy” a customer and value your products.

Is Drophipping a Legitimate Business?

Dropshipping is just a model of fulfillment, one used by many retailers worldwide and is perfectly legal. As with any business, meeting customer expectations and building a brand that resonates with the right audience is still the key to long-term success. This question usually arises because of a misunderstanding of how dropshipping works. Most of the retail stores where you shop are probably not selling products that you personally make. Dropshipping takes this clean approach and turns it into a fulfillment model suitable for an online business. There are, of course, more fundamental things you need to do to run your business legally. Consult a lawyer who specializes in these matters to ensure that you conduct legal business in your area.

So, is it worth dropshipping in 2022?

As I mentioned, dropshipping is not a perfect, stress-free way to build a successful online business – hard work is always required to start a business. The model has some definite advantages, but it comes with a number of built-in complexities that you will have to address. We will examine these challenges and how to best address them in future articles. The good news is that with some careful planning and attention, most of these obstacles can be solved and should not stop you from building a successful and profitable business.

Thank you for reading this article to the end, I hope you found useful information on what dropshipping is and what are the advantages and disadvantages of this type of business.

All the best, Adrian