Dropshipping is an e-commerce business model where organizations take online customer orders for specific products, find wholesale suppliers that can meet their needs, and arrange the order fulfillment at a marginal profit. Dropshipping is ideal for companies that want to sell products to customers without a physical store or manufacturing facility.
In this definition...
What is dropshipping?
Dropshipping is a business model that doesn’t rely on a brick-and-mortar store to connect with, source, and sell to potential customers. This practice is most commonly known for its e-commerce applications with the rise of internet connectivity. An online business can use wholesaler manufacturers to fulfill customer product orders from any location without a physical office or storefront.
Also read: Best Small Business Wholesale Suppliers 2021 | Small Business Computing
Dropshipping Parties
| Wholesale Manufacturers | Dropshipping Platform | E-commerce Business | Online Customer |
| A company mass producing and often shipping products for resale by retail and e-commerce businesses. | An online company — often accessible through a web app — sources products through wholesalers for e-commerce. | An online company—without a physical infrastructure—selling goods through a wholesale producer. | A customer making a product purchase online from an e-commerce business. |
How does dropshipping work?
Dropshipping’s business model relies on the internet to gather customer orders and payment, communicate orders to the manufacturer or wholesaler, then keep the customer informed of the order’s progress and shipping status.
With expanding connectivity every year, online engagement between manufacturers, entrepreneurs, and customers means an increasingly complex global supply chain. Individuals up to enterprise organizations have wholesale manufacturers—located domestically and abroad—available and capable of manufacturing, customizing, and delivering products for online customer orders.
Dropshipping helps sellers avoid investing in physical infrastructure while still serving customer orders by using a wholesale manufacturer’s supply chain and logistics capabilities while also offering the customer competitive pricing. Specifically, depending on the dropshipping platform and wholesale vendor, the e-commerce business can work directly with the manufacturer on customizing specific products, quality assurance checks, shipping logistics, and more.
Read more: Creating an Omnichannel Supply Chain: A Macy’s Case Study | TechnologyAdvice
What are dropshipping platforms?
Dropshipping platforms are the online exchanges connecting wholesale producers with e-commerce businesses. E-commerce and dropshipping platforms offer a medium for wholesalers, retailers, and entrepreneurs to evaluate and engage in a business relationship.
For wholesale manufacturers, platforms offer a space for extending business globally by accepting and delivering wholesale orders.
For e-commerce businesses, platforms can offer hundreds of wholesale producers to choose from with added tools at a subscription price.
Dropshipping Platforms
- AliExpress
- Importify
- Inventory Source
- Oberlo
- Megagoods
- Printify
- SaleHoo
- Spocket
- Worldwide Brands
Compare two leading e-commerce solutions with Alibaba vs AliExpress 2021 | Small Business Computing
Pros and cons of dropshipping
| Pros | Cons |
| Accessible online business model | Highly competitive market |
| Minimal startup expenses | Smaller profit margins as middlemen |
| Reduced risk with fulfillments | Reliance on third parties for operations |
| Saves time and effort | Cost of maintaining online store |
| No reliance on a physical location | Risk of bad-faith suppliers |
Is dropshipping still a viable business model?
While dropshipping offers e-commerce multiple benefits, sellers face two challenges.
Market saturation: Anyone can dropship
The proliferation of the internet creates new opportunities for individuals with access, resources, and determination. Like other e-commerce markets, dropshipping is available to billions of global users with few barriers to entry for startups.
This quandary means it’s easy to get started, highly competitive, and sometimes difficult for buyers to distinguish between online business offerings. Dropshipping models rely on extensive marketing to connect with existing or new customers to meet the manufacturer’s wholesale order pricing requirements.
Marginal profit
Dropshipping businesses operate as a middleman between wholesalers and customers and can do so without leaving the comfort of their couch. With customer orders providing the necessary funds to make a wholesale bid, the risks of losing money are low; however, this also limits profit potential.
Also read: How the COVID-19 pandemic made e-commerce boom | TechRepublic
Amazon FBA vs. Dropshipping
One of Amazon’s most popular services is Fulfillment by Amazon or Amazon FBA, where businesses can pay to have their products listed, stored, packaged, and shipped to online customers. FBA allows vendors to send products to Amazon fulfillment centers worldwide, where the e-commerce giant’s extensive logistics and shipping operations fill customer orders at a competitive and flexible cost.
Unlike FBA, which directly points to Amazon’s influence in e-commerce, dropshipping remains a general business model describing procurement and fulfillment by wholesale vendors. Dropshipping companies can also sell their products on Amazon’s marketplace, but without FBA, the online business or partnering wholesale vendor is responsible for shipping to customers. As these products do not pass through an Amazon fulfillment center, this twist is known as Fulfillment by Merchant (FBM).
Additional Coverage
- 8 must-have e-commerce tools for boosting revenues in 2021 | TechRepublic
- The Best Supply Chain Management Software & Tools | TechnologyAdvice
- How Shopify is Becoming an E-Commerce Powerhouse | Small Business Computing
- Five logistics innovations supporting e-commerce in 2021 | TechRepublic
