Every Friday, we answer a common question about fulfillment, shipping, or business. This week’s question comes from one of the TV fans who entered our giveaway contest for a Fire Stick. Today we will answer the following question: “what is dropshipping and how does it work?”
Dropshipping has become a popular idea in the last few years. When a concept becomes as buzzy and popular as dropshipping, it becomes difficult to tell what it actually means. That’s because people just throw around the term.
So let’s make this really simple. Dropshipping is a supply chain management method where the seller does not keep inventory. The manufacturer is the one that ships inventory. In this sense, dropshipping is nothing more than the leanest possible supply chain.
Dropshipping has variably been described as a work-from-home scam and a golden opportunity. Indeed, it can be both. That’s why were going to talk about how it works.
When dropshipping, it’s necessary to find a manufacturer who is willing to send goods directly to the buyer on your behalf. As a matter of fact, that is the only real requirement that must be met in order for dropshipping to work.
However, there are a number of hidden requirements that determine whether a given dropshipping scheme is viable in the long run. For example, there has to be a big difference in the wholesale price and the manufacturer price in order for you to make a profit using the method at all.
A Better Lemonade Stand goes on to specify a number of additional criteria that bear mentioning here. They include:
Don’t get us wrong, dropshipping has a real allure to it. There are a number of tremendous benefits to the business model, which Oberlo discusses on their site. Here are a few benefits:
Of course, dropshipping can be a highly problematic model in other ways, too. Just to name a few:
As a business model, dropshipping is available to anyone for better or worse. Anyone can do it, it’s easy to scale, and it lets you work at your own pace. That makes it a tremendous candidate for a lucrative side hustle.
However, with the approachability of the model comes intense competition. You become highly dependent on your suppliers. For this reason and others, dropshipping may not be the right model for your business.
If you decide after a considered review of the facts that dropshipping is not right for you, that’s okay! Handling inventory doesn’t have to be a hassle. That’s why companies like ours exist – to give you the time-saving benefits of dropshipping without the loss of control 🙂