What Is Dropshipping, and How Does It Work?

By  //  November 29, 2021

Share on Facebook Share on Twitter Share on LinkedIn Share on Delicious Digg This Stumble This

In 2019 dropshipping’s market value was $162.44 billion and was projected to grow at a CAGR of 18.3% from 2020 to 2017 to reach a market value of $591.77. With such statistics, dropshipping can be an excellent option for you, especially if you are an aspiring online business entrepreneur.

If dropshipping is a new concept to you may be wondering what it is and how it works. But worry not, as this post clarifies everything you need to know about dropshipping. 

What is dropshipping

Dropshipping is a retail fulfillment method for online stores where they don’t warehouse the products they sell. Instead, the store buys the product from third-party suppliers as customers make orders. 

You don’t need to keep an inventory of the goods sold, making it very easy to start a dropshipping business. In fact, it is possible to start your dropshipping business at no cost. But free sometimes can be expensive, so you might want to invest in tools such as eCommerce automation software that can help bring order to your business and yield faster results.

If you need a reliable tool to help track orders, communicate with the supplier, synchronize your inventory with your suppliers, and more, this dropshipping automation software from SparkShipping is the real deal. 

How does dropshipping work

The concept of dropshipping is pretty straightforward. It involves three parties; the seller, the supplier, and the customer. 

The drop shipping process starts when a customer places an order on your online store. But because a dropshipping merchant doesn’t keep inventory, after receiving a customer’s order and processing the payment, the merchant forwards the order to the supplier and informs the customer that the product is on its way. 

The supplier can be a wholesaler, a producer, or a third party. Once the supplier receives the order, they prepare the order and send it directly to the customer. 

In this arrangement, the merchant deals with advertising and promoting the product in dropshipping business while the supplier deals with logistics.

Why you should start a dropshipping business

■ Dropshipping is scalable without much expense.

One of the most significant advantages of a dropshipping business is that the cost of infrastructure doesn’t change much as your business grows. You may only need to invest in automation tools to make handling higher volumes much easier. 

This means you will have enough to spare for product marketing and delivering high-quality customer experiences.

■ You don’t need an office.

Unlike brick and mortar businesses, you do not need a store or office to run a dropshipping business. After all, you don’t have to keep inventory. 

All you need is a computer and an internet connection to run your business. The only significant spending that your business may incur is advertising as you scale up. 

 It’s flexible

Dropshipping is one of the most flexible businesses you can start. You can work from anywhere, which means you can be on vacation and still be at work. Additionally, it allows you flexibility in choosing what works for you. 

For example, you can list new products or remove others at your own time, depending on what products are doing well or not. 

With automation, the flexibility goes to a whole new level. This is because automation software can take care of all the processes, meaning you can have your business on autopilot as you focus on other areas that matter, like advertising and sourcing new products.

Take away

While dropshipping is easy to start, one of its most significant challenges is its low-profit margins. However, as your business grows, small margins can add up to a considerable income considering the low cost of running the business.