Dropshipping is an online business model that places a mediator between the wholesaler/retailer and the customer. It’s considered the perfect business opportunity for fledgling business gurus and those who don’t know where to start.
Dropshipping is even touted as one of the most worthwhile side hustles of today. And what makes it so? Well, let’s take a look at how it works.
Does Dropshipping differ from traditional business models?
Traditionally, it was necessary for a person starting a business to have sufficient capital. This capital would be used to but warehouse facilities, raw materials, products, overhead, and much more. However, with the recent shift of retail online, business-as-usual is starting to look a little different.
Where did Dropshipping come from?
With e-commerce sales at an all-time high and a more extensive online market than ever, businesses are continually looking for new ways to appeal to a tech-savvy audience. However, marketing isn’t always cheap nor easy, and the online marketplace can often be rife with competition. This is where Dropshipping comes into play.
What does a “dropshipper” do?
A dropshipper is a person who essentially acts as the front-of-store for a business. They don’t essentially own any inventory or even leave the comfort of their own homes. Everything they do, they do online.
The dropshipper markets a product or several products from a third-party business.
They create online advertisements for a product that eventually attract sales. Once a deal is made, the dropshipper then makes an order from the wholesaler who either ships the product to the dropshipper or directly to the customer.
As you can see, the seller never actually handles the product throughout the entire transaction, making drop-shipping an entirely hands-off business model. The third-party supplier takes care of the ordering process and the product itself while the seller must manage customer service, marketing, communication, and sales.
How does Dropshipping generate revenue?
So, where does the seller make their profit in this business model? By advertising the product at a slightly higher price than that of face-value, the seller can then claim the difference for themselves. The margin of difference is their profit. Since margins cannot be too high (too costly for buyers,) the goal of the Dropshipping business model is to maximize sales. However, merchants are free to mark up the products to whatever price they wish; there are no limits or regulations in place.
Why Dropshipping is growing
The reduced liability and low-risk of the Dropshipping business model are attracting more entrepreneurs every day. It is estimated that 33% of businesses take part in some form of Dropshipping, and this percentage is only expected to grow with time. Due to the online nature of this business model, it’s also particularly attractive to entrepreneurs who wish to work flexible hours, from home, or simply as a side hustle.
Entrepreneurs can also make Dropshipping into their main business due to its incredible scalability. It’s up to the entrepreneur how many products they want to market and how many third-party businesses they deal with.
With an ever-changing online marketplace, it looks like Dropshipping is here to stay. Both businesses, wholesalers, and manufacturers are flocking to it alike alongside entrepreneurs as a means of streamlining business and boosting sales.
Fortunately, the customer rarely loses out in this business model as long as deals are upheld, and shipping runs smoothly. Dropshipping hasn’t revolutionized the online market place, but it is the result of a missing link.
