What is Dropshipping and How Does it Work? Full Guide

Dropshipping Introduction
What is Dropshipping

What if I tell you that I earn money from selling products to customers but I do not actually manufacture or own these products? That is precisely how dropshipping works. This means a Dropshipper accepts the order from the customers and ships the order directly from the manufacturer to the customer. In Dropshipping there is no involvement of the warehouse and maintaining the inventory.

The seller does not have to deliver the product, as the manufacturer takes care of that. A Dropshipper is a middleman that manages the order for the customer. He serves the order from the manufacturer to the buyer. It also comes with little less than no barrier entries as very little investment is needed.

Dropshipping is meant to be scaled as other expenses like product manufacturing, maintenance, and warehousing are not in this business. All the efforts and time invested in scaling the business to the maximum. It is easy to understand the concept, but every business has a lot of minor work inside that contributes to 50% of its work. Let’s understand the complete working or Dropshipping.

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How does Dropshipping work?

It starts with the customer buying the product. When a customer buys a product from the seller (Dropshipper), they pay the retail price to the seller that he has set. The seller then pays the manufacturer/supplier, the wholesale price, and the remaining is his profit. As we discussed that very less inventory cost has to be bared by the seller here, there are certain things he needs to start dropshipping.

dropshipping details
How Does it Work?

eCommerce store– Little Investment in having a platform or website is needed to be visible in order to make sales.

Get a Domain – Build a unique identity for eventually building a brand. What can be better than having your own domain to have a separate identity?

Advertise – Since the dropshipping main job is to get the product delivered from a manufacturer to a seller, they also have to ensure the continuous flow of orders. For this online advertising is the way. Through SEO, SEM, organic, and paid advertising, dropshipping businesses can get a huge push and reach the right people.

A dropshipping original means for work is marketing its product as per the customer’s need. To make sure you expand your dropshipping business well, you need to work in detail with ensuring customer satisfaction. What can be the main goal for customer satisfaction by any drop shipper? If you look closely, you understand that you (the dropshipper) will be the sole person who introduces the customers to the product.

Here is when your work of understanding the product need of the customers comes into the picture. Once you know this, you will be able to deliver the right product that they are looking for. Another main aspect is the delivery process. A dropshipper does not take the charge of the delivery of the product.

This means a manufacturer will take care of it, but since a dropshipper is a middleman between the customer and manufacturer, you can track the delivery. Granting your customers the best experience is a job of a dropshipper. Now that we know how dropshipping works, let us truly study the benefits a dropshipping business holds.

Benefits of Dropshipping

benefits of Dropshipping business
Benefits of Dropshipping

Dropshipping has many significant benefits. Let’s discuss some of them below.

1- Easy Expansion

While other businesses will need you to take care of delivery, order, inventories, and dropshipping clear off them all. It is relatively easy to expand this business if you have the right marketing and expansion plans. This offers a great profit to the dropshipper as they will need to only look after the right marketing.

2- Low Investment

Let’s address the elephant in the room. We all know why most people do not opt for business. The investment needed is often out of the capacity of the Business working wiped off because Dropshipping will need very minimum Investment.

No Physical stores are needed to show the products. A minimal Investment is only required for an online platform that reaches a wider audience. A dropshipper also enjoys the freedom of completing the process without him buying any product. The product is directly delivered from the manufacturer

3- Various Products served

You do not incus any inventory so here you can offer a variety of options to your customers. Offering a variety of products to consumers allows them to come back again to your service. In this, you do not need to get any product beforehand and hence it becomes easier to offer variety. Simply just list all the products in your online store and you will be able to sell them. Fewer efforts and more sales.

4- Flexibility to All the Parties

You know there is not a physical meeting of any buyer and seller in this, there is flexibility in the work done. A dropshipper does not need to work from a geographic location which makes the work possible from every part of the world.

It also becomes easier for the manufacturer as he is able to sell more products by simply connecting with dropshipper around the globe. It opens the doors of opportunities for both and makes the process and lot more smooth.

5- Offers Time and Efforts Concession

A dropshipping business brings with it the huge benefits of finding a customer. As a dropshipper, you just have to list the product. Your right marketing will do everything for you. From bringing the customers to your site to creating a huge customer base that builds your authority in the market.

The time you save can be invested in expansion. Since eCommerce has taken over, dropshipping has been a lot easier and hassle-free. You simply accept the order, provide an invoice and track the delivery, that’s it. A manufacturer will get more customers from you due to your database and hold over your customers and both earn a handsome profit.

How to start a dropshipping Business in 2023?

We are well aware of the entire definition and the pros this business has, now it’s time to gear up and learn how can you start your own dropshipping Business.

scope of dropshipping

1- Time and effort

It is well clear that this business does not need investment but what it needs is your time. Give complete blood and sweat to your business when you build the foundation. It is not your traditional business that you will increase money input and expect growth. Of course, we do understand that it is a new form of business so take steps slowly. Set goals, and expectations, research in one and build a strong platform.

2- Set Finance

It is advisable that you keep your finance check before starting any documentation for your business. Set a separate account that eliminated the confusion between your personal and
business accounts. Have your business credit card for the large merchandise purchase. Check your business requirements and choose the one that offers rewards for similar purchases.

3- Get your EIN

Once you fix your finances, your next step is to set an Employer Identification Number (EIN) that every business needs for filing taxes and everything that you do in your business. Apply for EIN easily now with the online service (Link)

4- Other Licences

Apart from the standard license, you may need to check the local business license of your state. In some cases, there are laws for small business also that operates from home. Make sure you check those. Check the sales tax rules if any are applicable. You may also need to register as a retailer. All these things will be available once you take help from a legal entity

5- Type of Business

The final step you need for starting is to decide the type of business. If you are really serious and can handle the business alone then you can start as a sole proprietor or can opt for a business partner. It is necessary to understand your business needs and your vision for the same so that
it becomes easier.

Scope of Dropshipping

In 2018, a global report for the dropshipping business was valued at around 102 billion worldwide. Let’s talk about 2022. After Covid-19 hit the world and changed the mode of payments and shopping, dropshipping is adding an opportunity market to grow wildly. Due to the preference of the customers have shifted to online shopping.

This way, the demand of using mobile phones is never going to go down, and hence disposable income will rise. This will lead to choosing eCommerce for shopping. The Internet is the place where your dropshipping business will be surviving. Internet usage is increasing and people’s usage is doubled. In such a case you need to be found by your consumers there. Your dropshipping will grow when you stand out.

The market size is huge due to small and medium-sized organizations in the market. Big players are planning on acquiring to hold the authority amongst the competition. One thing you can understand is there is huge scope for your dropshipping business but focus on these things:

  • Wide product portfolio
  • Customer-centric platform
  • SEO to reach the consumers
  • SEM in the beginning to support sales
  • Organic Marketing for long term growth

Dropshipping is expected to grow more by 2025 and here is your time to earn profit. Here are your takeaways from this article to help you start a successful Dropshipping business.

Invest in a good eCommerce platform – If you want your customers to not only visit your online store but make a purchase. If you want your customers to become loyal customers then you have to make it all about the ease of process for them. A good eCommerce platform will help you achieve all this. There are multiple dropshipping platforms like Shopify, and BigCommerce available.

Study the competition – Like big players are acquiring small ones you can focus on building an irresistible product catalog for your consumers.

Customer Experience – Take feedback seriously and work on them. The only job you have to take care of is ensuring a smooth checkout and delivery for your customers for them to stick to you. I am sure this gave you a clear idea of dropshipping. So if you consider starting your own Dropshipping business, you already have all the information needed.

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