Dropshipping allows you to sell and ship products to customers without keeping those products in stock. A third-party partner is used to fulfill orders.
This cost-efficient method of order fulfillment is popular among ecommerce vendors. In fact, about a third of products sold on Amazon are sold through dropshipping and Amazon’s success demonstrates that it can be a highly successful order fulfillment method for businesses.
Before making a decision to drop-ship, it is important to know the fundamentals about how dropshipping works and its pros and cons.
Also Read: Try QuickBooks Online Accounting Software for Global
How Does Dropshipping Work?
Dropshipping is outsourcing your company’s inventory and order fulfillment functions to a third-party partner. Rather than keeping merchandise in stock, you team up with a wholesale supplier that stocks the inventory for you.
With a typical drop-shipping model, your company handles marketing and sales functions. When you make a sale, you simply pass your customer’s ordering and shipping information onto your drop-shipping partner instead of handling the order fulfillment yourself. Your partner fulfills the order and ships the customer their merchandise.
Additionally, you can opt to have your customer’s order sent out with your return address and a customized invoice. This arrangement is known as private label shipping and makes it so orders appear to be shipped directly from your place of business. Customers are unaware of a “middle-man” in the process. You avoid the cost and hassle of inventory and order fulfillment in return for sharing a percentage of your profit margin with your wholesale partner.
Dropshipping is used by companies of all sizes, from authors selling print-on-demand books to major companies who rely on wholesale suppliers.
Benefits of Dropshipping
- A primary benefit of dropshipping is flexibility. Dropshipping wholesale suppliers only take their cut as orders come in, so small businesses don’t incur large up-front expenses for inventory and shipping.
- Dropshipping also appeals to businesses for its efficiency. Since vendors who use drop-shipping suppliers don’t have to spend time managing inventory and processing shipments, they have more time to focus on other business functions like marketing, sales and customer service.
- Dropshipping also represents a more efficient use of space, enabling companies to work out of a small office while still moving a large amount of product.