What’s Dropshipping? A Guide for Small Business Owners

Key takeaways:

• Dropshipping is a spin-off of the eCommerce business model that removes inventory and fulfillment duties from the business owner / retailer.
• It has a lower barrier of entry, making it ideal for small business owners looking to make headway in the retail market.
• Selecting a reliable supplier is important because they directly influence quality control and delivery, which a dropshipping business has no direct control over.

Dropshipping is an affordable option for entering the eCommerce space. It allows you to sell products without requiring an actual inventory on hand. You leverage third-party vendors to sell products to your own audience.

Dropshipping allows you to start your own eCommerce business while side-stepping most of the hassle. In fact, recent studies suggest that 84% of online retailers have a hard time finding a reliable supplier.

So, we’ll help expand your business opportunities by answering the question: what is dropshipping? We’ll discuss the ins and outs of the business model and explain its advantages and disadvantages.

What is dropshipping?

Dropshipping is a retail business model in which the seller doesn’t handle traditional vendor duties like inventory management. Instead, dropshippers outsource the procuring, storing, and shipping duties to partner businesses.

The dropshipping business model is advantageous to all parties involved. The sellers get to focus on marketing efforts to increase their reach and expand their pool of customers. The suppliers can focus on developing products without worrying about retail operations. The customers gain access to niche products they won’t find while window shopping at their local malls.

The key players in a dropshipping business

Unlike a traditional sales transaction, dropshipping relies on more than just the retail store. Different players are working behind the scenes to keep a dropshipping business running.

Here are three players that make a dropshipping model possible:

1. The dropshipper/business owner (you)
   • Role:
     • You’re responsible for running the dropshipping business. You need to manage the online store, customer services, marketing, and overall business strategy.
   • Responsibilities:
     • Store management. Keeping the online store up and running.
     • Product selection. Choosing what your store offers customers.
     • Marketing. Getting the word out on your business via email, social media, and search engine optimization (SEO).
     • Customer service. Address customer issues such as returns, complaints, inquiries, and suggestions.
     • Order processing. Handle the details of an order by forwarding it to suppliers, tracking packages, and ensuring a successful delivery.
2. The supplier/wholesaler
   • Role:
     • It’s the company that manufactures, stores, and delivers products to customers on behalf of the dropshipper.
   • Responsibilities:
     • Product inventory. Ensures there’s enough supply to fulfill customer orders.
     • Fulfillment. Packages and ships products to customers’ addresses. They handle storing, shipping, and packaging products.
     • Product quality. Ensures that every product passes a standard of quality. It filters poor-quality products away from the customer to provide high-quality service and maintain the dropshipper’s brand value.
     • Supply chain management. Handles potential disruptions by addressing issues like stockouts or shipment delays.
3. The eCommerce platform provider
   • Role:
     • The platform provider hosts your online store and is responsible for keeping it online. It provides the software and infrastructure needed to build, maintain, and manage your site.
   • Responsibilities:
     • Platform management. Provides the tools, features, and themes required to establish your online store and brand.
     • Payment gateway integration. Ensures you have access to payment gateways required for online transactions.
     • Security. Gives access to security systems that keep your and your customer’s sensitive data private while stored in your store’s database.
     • Technical support. Provides assistance to keep your store online through support chat, email, or voice calls.

How dropshipping works

Dropshipping doesn’t work like a traditional retail store. The sales interaction doesn’t just end with the customer. The dropshipper has to relay the customer’s requests to the supplier to complete the business transaction.

Here’s a summary of the complete dropshipping experience.

Choose a niche market

A dropshipping business cannot operate like a dollar or department store. Keeping a diverse product selection works contrary to the dropshipping model. Having various product types means dealing with more suppliers, making business hard for a dropshipper.

Selecting a niche yet profitable product market is optimal for a dropshipping business.

Identifying profitable niches

Think about what makes you excited. Maybe it’s trendy gadgets, eco-friendly products, or stylish fashion. Find a niche that not only interests you but also has potential customers who are passionate about it. Identifying a niche that’s within your line of interest will motivate you to keep going and be innovative.

Evaluating market demand

Research, research, research. Check if people are searching for products in your chosen niche. Tools like Google Trends can give you insights into the demand for specific items. The more demand, the better the chances of sales.

Find reliable suppliers

Screen the people you work with. A supplier is the lifeline of a dropshipping business. They’re responsible for your entire supply chain. So, partnering with a reliable wholesaler can make or break a dropshipping business.

Researching reputable suppliers

Trustworthy suppliers are the backbone of dropshipping. Look for those with a solid track record, good reviews, and a reputation for delivering quality products.

Ensuring product quality and delivery times

Your customers’ happiness and satisfaction depend on the products they receive and when they get them. Communicate with potential suppliers to understand their product quality standards and shipping times. Be transparent with your customers regarding these so you can set proper expectations.

Set up an eCommerce website

Your online store is part and parcel of your brand. If you create a store with easy-to-find products and a user-friendly interface, building a steady supply of customers will come easily.

Selecting the right eCommerce platform

Choosing the right platform makes all the difference. Consider Network Solutions’ online store builder solutions. Network Solutions is a reliable solutions provider that has a proven track record of helping customers succeed online with its extensive product offerings and personalized support.

Designing a user-friendly website

First impressions matter. Your website should be user-friendly and appealing so that it’s easy for visitors to navigate your website. Use Network Solutions’ website builder to whip up your online store within minutes. You’ll have complete control of how your website looks with its pre-made templates and convenient drag-and-drop feature. If you don’t have enough time to spare, consider availing of website design services and let our design experts create your website for you instead.

Integrating payment gateways

Security is crucial in eCommerce. Integrate secure payment gateways to protect your customers’ transactions. A secure shopping experience builds trust and encourages repeat business.

Manage orders

Work with your suppliers to ensure customers receive orders on time. Delays and delivery hiccups will cause customers to lose trust in your brand. Build a rock-solid order process to keep customers happy and develop a good reputation.

Order fulfillment process

Inform your suppliers about orders, and they’ll take care of shipping the products to your customers. A seamless order fulfillment process keeps customers happy and your business running smoothly.

Advantages of dropshipping

Dropshipping comes with benefits that make it attractive for small business owners. It’s a low-investment business strategy that can multiply profits by tenfold. Here are some advantages small business owners can look forward to when starting a dropshipping business:

1. Low startup costs
   • No inventory costs. Your business doesn’t need to purchase or store inventory, requiring little to no startup capital.
   • No warehousing fees. Suppliers are responsible for storing your inventory. So, business owners won’t have storage-related expenses.
2. Low risk
   • No overproduction. You aren’t saddled with unsold products because you only make orders when customers decide to purchase.
   • No inventory management risks. Products never spoil or become obsolete because you hold no inventory.
3. Easy to start
   • Low entry barrier. Platforms like Network Solutions make building an eCommerce store easy. You don’t need coding knowledge or servers to start your online store.
   • No technical requirements. You don’t need specialized supply chain or inventory management know-how when managing a dropshipping business. You can focus on marketing and customer engagement tasks that expand your brand awareness.
4. Flexible location
   • Work from anywhere. An online store removes management restrictions. You don’t have to be in an office to run your business. You can manage your dropship business from the comfort of your own home. 
   • No need for a physical storefront. Your dropshipping business is entirely online. You don’t need a physical store, eliminating expenses like rent or utilities.
5. Scalable
   • Easily expand. Dropshipping removes half the requirements for a retail business: procurement and inventory. You can expand your business by targeting new customers or exploring a new niche without worrying about expenses a typical retail company has to deal with.
   • Automated systems. ECommerce store platforms include automation features for order forwarding, inventory updates, and customer service. These features can easily scale to handle higher volumes.
6. Lower operating costs
   • Less staff required. Your dropshipping business doesn’t require staff to a physical store. It also doesn’t need staff to handle inventory management. A dropshipping business inherently requires fewer staff to keep running.
   • Reduced overhead. Dropshipping deals with fewer expenses than brick-and-mortar stores. You won’t have to deal with overhead for storage or rent.

Disadvantages of dropshipping

Dropshipping isn’t all upsides. It still comes with its share of disadvantages. Before you commit to a dropshipping eCommerce business, consider these downsides:

1. Lower profit margins
   • High competition. Thanks to its low barrier to entry, dropshipping is a common business model for many small business owners. Due to the diverse competition, you might have to lower prices to compete.
   • Supplier pricing. The transactions between you and your supplier are of lower volume than those in a traditional retail business. Therefore, wholesale prices for your products are higher than those for bulk purchases.
   • Increased advertising costs. Heavy competition and lower margins make it necessary to invest in marketing to generate leads. Increased expenses for advertising costs will reduce your overall profits.
2. Less quality control
   • Reliance on suppliers. Dropshipping heavily relies on suppliers to output high-quality products. Your business has no control over whether customers receive defective products, which can negatively impact your reputation even if you have no direct responsibility.
   • Delivery inconsistencies. Suppliers control the delivery schedules of products. You have no oversight over the delivery partners or means. Customers might complain about delivery oversights or delays, which you have no control over.
   • Customer complaints. Customer complaints about product quality become difficult to deal with. Because suppliers manufacture and deliver the products, you can’t directly address customer issues. If the supplier has a poor customer service system, it will reflect poorly on your brand.
3. Shipping and delivery issues.
   • Longer shipping times. International suppliers will cause delays in shipping. If you work with an overseas supplier, delivery times can take longer than expected. With people used to timely delivery like Amazon Prime, long delivery dates will infuriate your customers.
   • Complex shipping. If you work with multiple suppliers, shipping can become an issue. Customers who order multiple products might have goods coming from different suppliers. This leads to delivery issues where products arrive at different times due to having separate suppliers — leading to customer frustration.
   • Shipping errors. Dropshipping businesses have no direct influence over shipping. Errors like sending the wrong product or improperly updated tracking information are more likely to happen because you have no control over shipping.
4. Inventory management challenges
   • Stock availability. Suppliers might run out of stock or discontinue a product without notifying you. This can lead to backorders, canceled orders, and poor customer service when customers order affected products.
   • Inventory sync issues. Suppliers that don’t regularly update inventory lists can cause issues with your store listing unavailable items. This issue leads to customers losing trust in your brand.
   • Returns and refunds. Dropshipping has issues with refunds. You don’t deal with the fulfillment portion of retail, meaning you must deal with a middleman (the supplier). This turns into a slow process, frustrating already dissatisfied customers.

Build your online store with dropshipping

Inventory and shipping are two of the most stressful things an entrepreneur has on their plate. You won’t know for sure whether you’ll sell all your products or ship out all your orders without hiccups. If you want to skip these hassles,  dropshipping is for you. With these handful of things out of your mind, you’ll be able to start selling and earning right away.

Ready to set up shop? Get started with Network Solutions’ Online Store Builder plans and manage your online store with ease. Visit Network Solutions and get started with your eCommerce journey today!

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