What Is Dropshipping – Types, Pros & Cons of This Business Model – Latest News

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If you want to start an online business, there might be several ideas that stand out. For example, becoming a blogger has been a popular choice for avid writers for more than a decade. Similarly, starting a freelance business is another common way to make a living online.

The growth of e-commerce has also opened more opportunities for making money online. From starting your own Etsy store to subscription box services, there’s an incredible amount of opportunity if you know where to look.

However, two of the most daunting aspects of starting your own e-commerce business are upfront cost and logistics. Inventory is expensive and complicated. If you’re starting a business on a tight budget, it might be difficult to secure competitive prices on a small amount of inventory and to deliver flawless customer service simultaneously.

Considering these challenges, it’s no surprise that dropshipping businesses have grown in popularity. If you want to start an online business without the financial and logistical challenges of traditional e-commerce, this business model is one of the best options.

What Is Dropshipping?

Although you might not realize it, you’ve probably bought something from a store that uses dropshipping. In fact, dropshipping is the business model of more than 30% of online stores.

Dropshipping is a type of fulfillment process where the seller never handles physical inventory or shipping responsibilities. Instead, a dropshipping business purchases inventory from a supplier who then ships products directly to consumers following an order.

As an example, if you purchase a T-shirt from a store that relies on dropshipping, that store would accept payment for your order and then purchase inventory from a shirt supplier. That supplier then receives your shipping details and sends you your T-shirt as part of the agreement. You, the consumer, receive that shirt like any normal online delivery. The online store processes the order without ever touching a T-shirt.


Pros and Cons of Dropshipping

Dropshipping is a unique business model that powers a significant portion of e-commerce. However, there are several pros and cons worth considering before you launch your own business.

Pros

Dropshipping’s popularity stems from its simplicity. This fulfillment method removes several links in the supply chain, and there are numerous benefits of dropshipping worth noting:

  1. Low Upfront Capital. Traditional e-commerce might require large purchase orders to secure lower prices on your inventory. Additionally, you have to pay for warehouse space, fulfilment costs, and potentially employees to help manage logistics. In contrast, you don’t need to purchase upfront inventory for a dropshipping business because orders fulfill upon purchase. Warehouse space isn’t a concern either. Dropshipping expenses are more related to marketing costs and running your website, not employees and logistical headaches.
  2. Scalability. Because dropshipping stores pay for inventory as customers place orders, your margins are clearly defined. You have to pay for marketing, and you have to pay the dropship supplier to make and ship your products. Everything else is your profit margin, so it’s easier to adjust product pricing and marketing strategies to scale growth compared to traditional businesses with more complicated expense sheets.
  3. Return on Investment Potential. It’s possible to start a dropshipping business for under $100 because your only necessary upfront expense is creating your website. However, if you find a popular product that sells well online, you can easily recoup that upfront expense and begin generating profit.

Cons

Despite dropshipping’s popularity, there are several disadvantages to consider that relate to competition and finding the right products:

  1. Product Competition. In the earlier days of e-commerce, it was easier to pick a flashy consumer-facing product, find a supplier who could manufacture it cheaply, and drive online sales by promoting your store on social media. These days competition is fiercer, and dropshipping business owners are quick to move on trending products.
  2. Product Lifespan. Another con of dropshipping is that profits often involve chasing trends. For example, when fidget spinners were all the rage, a plethora of dropshipping stores launched. When the hype surrounding spinners fell off, so did the stores.
  3. Supplier Difficulties. To keep prices down, dropshipping businesses usually source products from overseas suppliers. In particular, Chinese wholesale websites Alibaba and AliExpress are two popular options. If you sell multiple products, it probably means you’re working with several Chinese suppliers unless you find a single supplier that manufacturers everything you want to sell. Different sellers have variable shipping rates, fulfillment speeds, and return policies. Ultimately, the more you have to negotiate with your suppliers, the more complex your store becomes.
  4. Customer Service Difficulties. As a dropshipping store owner, you have little control over quality assurance and shipping procedures. Additionally, many dropship businesses sell cheaply-made goods from overseas which may be lower in quality. This results in dropshipping stores generally having higher return rates and customer complaints than more established online brands. As you scale, customer service becomes more challenging, and you might have to outsource your customer service work or hire an employee.
  5. Easier Said Than Done. Dropshipping gets a bit of a negative reputation because it’s often marketed as an easy way to make money online because of the business model’s simplicity. However, it’s important to note that turning a profit with dropshipping is difficult. Realistically, it’s not uncommon to have several unsuccessful attempts before finding a winning product. If you’re serious about dropshipping, you should be willing to invest capital to test several products and stores until you find one with potential.

Types of Dropshipping

Dropshipping is a business model, not a specific type of store. However, there are several types of businesses that commonly rely on dropshipping for fulfillment.

1. Shopify Dropshipping

Starting a dropshipping store with Shopify is one of the most popular options for beginners and experienced e-commerce veterans alike. While there are numerous Shopify alternatives, Shopify has several features that compliment dropshipping, such as:

  • Affordable Hosting. You can start a Shopify dropshipping business for just $29 per month.
  • Built for E-Commerce. Shopify supports a large volume of online transactions, processes payments securely, and tracks shipping and customer details.
  • Theme Flexibility. Shopify has dozens of free themes that are customizable, making it easy to design a storefront to fit your vision. You can also create custom Shopify themes or hire someone to design a storefront if you want specific features.
  • Useful Plugins. Like WordPress, Shopify has a host of free plugins that can improve your storefront and marketing efforts. With just a few plugins, you can set up email marketing, coupon codes for customers, and a loyalty program to award repeat buyers. Ultimately, these additions help store owners provide a better customer experience and optimize their conversion rate, which boosts revenue.

Shopify also has plugins that help simplify dropshipping. For example, once you create your store, you can use plugins like Oberlo to import products from AliExpress to your store. Oberlo imports product images and descriptions, and gives you full control over pricing when adding products to your store.

If you have zero e-commerce experience, Shopify is the most beginner-friendly option. Between affordable monthly pricing, comprehensive free themes, and plugins that help drive sales, it’s not surprising Shopify is such a popular e-commerce solution.

2. Print On Demand

Print on demand, known as POD, is another dropshipping model that’s ideal if you prefer designing your own products rather than depending on overseas suppliers.

POD suppliers let you upload your own designs to existing product templates to sell on your store. Like dropshipping other merchandise, when you generate a sale, your POD supplier manufactures and ships the merchandise to your customer. This provides greater creative control, although you’re confined to selling products that the POD manufacturer supports.

Thankfully, popular POD suppliers like Printify and Printful have a diverse product line, with popular products including:

  • Coffee mugs and tumblers
  • T-shirts and hoodies
  • Canvas prints
  • Stickers
  • Hats
  • Keychains
  • Backpacks

You also have options for where you sell your POD merchandise. Shopify is still a viable platform for sellers. Etsy is also a common choice because of how popular POD products like prints and shirts are on their marketplace.

Additionally, you can simplify the process further by selling on a POD marketplace. Websites like Redbubble and Society6 are popular marketplaces where artists upload their designs to various products and earn a commission for every sale.

Selling on a POD marketplace means you don’t have to deal with website hosting, customer service, and monthly fees. Howe

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