Dropshipping bypasses traditional distribution channels by shipping directly from the wholesaler or manufacturer. Dropshippers do not purchase products ahead of time to sell, or keep inventory in their own warehouse. The retailer processes customer orders by forwarding them directly to the supplier. It is then picked, packed, and shipped directly to the customer by the supplier. Payment is handled by the retailer, who sells the products at a markup and keeps the difference after paying the supplier.
Dropshipping suppliers can be manufacturers, wholesalers, or any other part of the supply chain. Dropshipping business is when the retailer does not hold the inventory but sends the order to the supplier for fulfillment. Many retailers even drop ship from other retailers. The earlier a supplier is in the supply chain, the cheaper a dropshipper will be able to source the product, since each step adds a markup.
Take a look at some of the unique benefits you can potentially reap by adopting a dropshipping fulfillment model.
1. Capital Requirements are Lower
One of the most challenging aspects of starting a business is figuring out how to handle inventory. Traditionally, merchants spend thousands of dollars on inventory, which can significantly eat into their startup capital. Dropshipping, however, means you don’t have to buy products or worry about low stock levels. How to start a dropshipping business: Reduced upfront costs, reduced stress, and fewer responsibilities allow you to devote more time and money to other aspects of your growing business.
2. Location Flexibility
The customer of today expects unparalleled service, and if a company fails to meet their expectations, they are quick to terminate their relationship. Dropshipping companies can give your business a geographic advantage. Businesses located in the Midwest can benefit from a supplier located on the West Coast, and vice versa. When you have your products close to the customers who buy them, you can ensure that you can provide exceptional service from the moment of order all the way through to delivery.
3. Save Money and Time
With dropshipping, your business won’t have to worry about managing and paying for a warehouse. You won’t need to track inventory, handle returns, or limit your office location. You can run your business anywhere across the globe as long as you have an internet connection to stay in touch with your suppliers and customers.
4. A Wider Selection of Products
Usually because merchants must pre-purchase their products, it is easier and cheaper to purchase a few items in large quantities than to offer a diverse selection. Dropshipping allows you to sell as many products as you want without having to worry about inventory or costs.
5. Risk Reduced
One of the risks of starting a business is investing thousands of dollars in inventory. A dropshipping model allows you to make a relatively clean break if things don’t work out as planned, without having to worry about being stuck with loads of inventory.