How Dropshipping Works and It’s Benefit to Retailers
Dropshipping has become a known word in the retail industry and refers to the delivery of a product to a customer without seeing it physically, packing, or shipping it. With this method, all items sold are delivered directly to consumers by the manufacturer instead of through the retailer, with no cash and carry option utilized.
There are many advantages to dropshipping, the main one being that it reduces the burden on merchants while placing less effort on physical stores to procure customers. With an e-commerce model, dropshipping results in less expenses incurred by wholesale buyers as they only have to pay for products actually sold which means more sales and profits generated.
Also read: Customer Lifetime Value – How to Calculate, Definition, Uses, and More
Table of Contents
How Dropshipping Works
Dropshipping gained traction around 2006 through Chinese online retail service, AliExpress, where it became popular in North America with the launch of Chinese e-commerce retailers. During that time, no one really knew what dropshipping was but over time, many entrepreneurs took initiative and began to launch stores that yielded big returns.
These success stories soon inspired others to get into the dropshipping industry and now it is a common term known in the retail world.
Why is dropshipping so popular these days? This is arguably one of the top questions that those who are interested about getting into the field ask and the quick answer is that the media and a few companies have changed the game and made everyone want to know more.
The other reason is profit margins, of course. On average, dropshippers can expect to earn between 20 to 30 percent for every sale. This equates to approximately $1,000 to $5,000 per month, with the remaining money going to purchasing the product from a supplier, plus the dropshipping fees, and associated host dropshipping websites, and marketing expenses.
The amount of money that can be earned for a year makes dropshipping even more attractive for some people, as some are able to generate upwards of $100,000 a year as a successful store that pulls in more hours.
This level of success, however, requires that you choose the right suppliers and build the brand from the ground up with the most trusted partnerships. Just like any other business, there is no way to maintain a solid, profitable business without laying the groundwork and being true to your loyal base.
As one of the most profitable passive income sources around, dropshipping enables you to procure trending products in the marketplace that can be sold online to consumers worldwide. These products can be sold online through various niche shops in a wide variety of industries from fashion and furniture, to home decor and beauty products.
Business Model Planning
The profitability of dropshipping to merchants is enticing as it is a low-risk business model which enables you to sell your products directly to consumers without all of the normal associated risks. There are several third party warehouse fulfillment companies that are in the dropshipping game, with the following among the most prominent today:
- Worldwide Brands
Is Dropshipping Worth It?
With so many benefits attached to dropshipping, it is almost a no-brainer to consider it worth the investment of time and energy to get a reputable business off the ground. With business owners only responsible for purchasing the product from the actual supplier that then handling stocking and shipping, it means less overhead and less stress.
More than 15 years later since it gained popularity, it is clear to see that dropshipping has only increased interest worldwide and the current trends show that this will continue well in the future as more people learn about the potential associated with the practice.
A Win for Retailers
There is definitely an upside to using dropshipping as it is a highly regarded technique that can ramp up revenue when used in the best way. Anyone that would like to get into drop[shipping would do well to put in the research necessary in order to get a glimpse of the bigger picture. At its core, however, dropshipping is best utilized by more established companies that have earned the respect of customers and retailers in order to truly succeed.
Companies that are already established and benefit from a heavy flow of traffic don’t have to worry about building their brand and can instead focus on the fine details that generate additional revenue over time. The most successful retailers categorize dropshipping as a great complement to their business, but never the main component of their company’s bottom line.
Also read: Word of Mouth Marketing – What is, Creating, Building a Business, and More