In this article, we’ll be talking about what exactly dropshipping is how things work with this type of online business model.
You probably hear all the time about this brand-new method of making money online without really investing a lot of money or without holding any inventory.
Why don’t we go over some of the basics?
What is a Dropshipping Business Model?
A dropshipping business model is a type of business model where a seller purchases a product from a wholesaler at a wholesale price and then ships it directly to the customer.
As a seller, you’ll ONLY need to place an order with your supplier or the wholesaler AFTER an order is placed by your customer.
And this is why, in most cases, there are zero to very little upfront costs involved when starting out.
Keeping things simple, wholesale is what you, the seller, are buying for and retail is what you’re selling for.
How does a Dropshipping Business Model Work?
So, here’s how the dropshipping system works.
Step 1: The seller browses the Internet to find the item(s) to promote and its supplier(s).
Step 2: Once the items have been chosen, the seller lists those item(s) on his/her online store and then promotes them to the market audience.
Step 3: Once an order (at a retail price) is placed on the dropshipping website, the seller then places an order (at a wholesale price) with the supplier.
Step 4: The item(s) are shipped directly to the customer.
Step 5: The seller keeps the margin (retail price – wholesale price).
During the entire process, as a seller, you don’t really touch a single piece of inventory in most cases.
All you’re doing is hosting this service, driving traffic to it, and generating sales.
You’re driving the customer to your online store and then you’re sending the order from your store to the supplier who takes care of the rest.
Benefits of a Dropshipping Business Model
Talking about the good stuff with this type of online business model, there is a lot to cover but we’ll try and keep it as short and simple as possible.
With the consistent growth of the dropshipping industry, there have to be good reasons for it, right?
Let’s take a good look at a couple of them:
Easy to get started, fast
A dropshipping business can be quite simple and easy to get started, even for beginners, as they won’t need to get a business loan, or do all of the business planning, so people can get started in a matter of just a few days or weeks.
However fast you want to move, you can get started creating your own online business and finding products to sell.
That’s definitely a huge advantage especially since you hear stories of people working for months or years even to try and get their business started.
No need to have a lot of inventory upfront
When starting out a dropshipping business from scratch, generally you don’t need a huge upfront inventory.
As we’ve discussed earlier, the way that dropshipping works is whenever someone places an order on your website, you instantly purchase the product from the supplier and get it sent to their address directly.
So, because you’re not actually having any kind of inventory in your garage or a warehouse, you’re not sitting on money that you could be selling in case the product isn’t selling very well.
It’s kind of a nice way to remove the risk of having all that money upfront for start-up costs like inventory, warehousing space, and the process involved in figuring out which product works the best.
Easy to test products without huge risks
When you’re at the stage of choosing products to sell, it can be important that you actually try and test it out yourself.
You don’t necessarily have to purchase a hundreds of thousands of them at once and then find out that no one really likes them.
You can start testing out the products with zero to low risk while seeing what people are gravitating to the most.
A good approach can be uploading multiple products on your dropshipping store driving traffic to each of them via paid advertisement and finding your winner that generates more conversions.
