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2018-03-26 19:31:00 How To Run Your Business English The rise of ecommerce sites like eBay and Shopify have helped launch thousands of successful businesses. Now, the emergence of dropshipping... https://dprotksf3n5y8.cloudfront.net/wp-content/uploads/2018/03/26192653/iStock-673581586.jpg Dropshipping What Is Dropshipping? | QuickBooks Australia

What is dropshipping?

2 min read

The rise of ecommerce sites like eBay and Shopify have helped launch thousands of successful businesses. Now, the emergence of dropshipping is making it even easier for budding entrepreneurs to enter the wide world of e-commerce.

What is dropshipping?

To sell products online in the past, you needed a substantial product inventory, typically stored in a warehouse, with staff to pack and send products to your customers every time an order was made. Enter dropshipping.

A fulfilment method, dropshipping is when an online merchant uses the products and distribution channels of a third party to sell products they promote on their website or online store.

Consider this scenario. A customer buys a product from your online store. You receive the order, which is then sent to the third-party manufacturer or supplier who packs and ships the product to the customer. You never physically see or handle the product, but you collect the profits, minus the wholesale cost and any delivery or service charges.

Women holding digital tabletAdvantages of dropshipping

Dropshipping significantly lowers the investment barrier to starting your own e-commerce business. Since you only pay for the product once you’ve made the sale, you don’t need to worry about the investment capital required for purchasing initial inventory.

You can also launch with a wider range of products and easily add more as your customer base grows. And if a product isn’t selling, simply remove it from your website without losing money on already-paid-for inventory.

The dropshipping model also gives business owners the freedom to work from anywhere. Without the need for a warehouse or storage facility, all you need is a laptop and an internet connection to run your online store – which, in turn, lowers your overheads.

Disadvantages of dropshipping

While there are definite advantages, dropshipping comes with its own set of challenges and complexities.

Dropshipping suppliers don’t work for free. You’ll be expected to pay the cost price of the product, as well as the shipping and handling expenses, and, in some cases, service fees to the dropshipper. This can eat into your profit margin and hurt your bottom line if a competitor tries to sell the same product for less.

Managing returns and keeping track of inventory can also cause some challenges when using a dropshipping model. For example, if a dropshipper sends the wrong product, or it’s damaged during transit, your customer will come to you to make amends. For this reason, it’s important that you understand the dropshipper’s returns policy and the level of customer support they offer.

How to get started

A suite of new tools is making it easier than ever to use a dropshipping model for your e-commerce business.

For example, Oberlo, has partnered with Shopify sellers looking to find and add products from dropshippers to their online stores. So, once you know what you want to sell, simply find a reliable dropshipper, order a sample of the product to assess its quality, and set the customer price – taking into consideration your profit margin per product.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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