Historically, dropshipping has been a way for manufacturers to get their product to consumers quickly. For decades, this process was mediated by retailers.
For example, if you needed a new washing machine you might head to your local appliance store to check out new models. Most of these mom-and-pop shops had a display floor and perhaps even ran an appliance repair business on the side, but very few housed inventory on site. When customers placed an order, the retailer would send the order onto the manufacturer. The manufacturer would then drop-ship the product directly from the factory to the customers home.
Naturally, the retail and manufacturing world has changed dramatically since the advent of online retailing, and so has dropshipping. These days, dropshipping revolves around wholesalers/suppliers who sell hundreds of different brands to hundreds (even thousands) of different retailers.
Why does this matter to online sellers?
When dropshipping products to customers, many sellers assume that the old rules of dropshipping apply to them — in other words, you might assume that the product is being sent directly from your supplier/manufacturer to your customers (or if you’re in FBA, directly to an Amazon warehouse).
Here’s the rub: your inventory might be making another stop along the way, which means more fees for your business.
If your manufacturer or supplier says they will dropship the product for you, be sure to clarify exactly what they mean. If they say they’ll send your inventory to a “fulfillment center” via dropshipping, they’re not necessarily talking about an FBA fulfillment center. Many times these “fulfillment centers” are simply separate warehouses that store inventory — and that’s it. They are not true dropship warehouses; your product cannot be sent directly to your customer. Compare that to a true FBA fulfillment center, which holds your inventory until an order is placed, then packages and sends the product directly to your customer.
Remember: “You sell it, we ship it” is the heartbeat of dropshipping. All the handling, shipping, packaging, and fulfillment is handled for you — in fact, the whole point of this business model is that you don’t have to lift a finger.
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Some of the other benefits of dropshipping include:
- Since you don’t have to personally handle any of your inventory, dropshipping creates a great opportunity for sellers to offer a wide variety of products.
- Low overhead when you launch your business. All you need is a website! Setting up a seller account is quick and fairly cheap, considering the benefits that come with accessing these online global marketplaces.
- No long hours fulfilling orders during the holidays (or any other time of the year).
Some of the challenges include:
- Customer support can be a pain because you’re not in control of the fulfillment process.
- Managing inventory issues can be a headache, too. Stay on top of what’s in stock with your vendor to avoid customers ordering something that is out of stock.
- Profit margin’s can be lower since you’re paying someone to fulfill every order. Here’s a glimpse at the pricing for a fulfillment service available to Amazon sellers called Fulfillment by Amazon (FBA).
- Competition from other sellers selling identical product can make it challenging to maintain a profitable company.
For more advice from the experts about creating a smooth dropshipping process, check out our recent video on this topic.