What is dropshipping?
Here’s a picture of an actual ship being dropped. This is not what dropshipping is.
It’s really just a fancy word for outsourcing the inventory and shipping side of your ecommerce business.
Rather than going down the traditional route of ordering in stock, keeping it in your warehouse (or sitting room perhaps, if you’re a fresh startup) and then posting it out when orders come in, you can fulfil orders directly through the wholesaler or manufacturer.
So when orders come in you simply transfer them to the dropshipping partner who then handles all of the fiddly delivery logistics.
Simple. No warehouse. No inventory woes. No logistical headaches when it comes to getting products out to your customers on time.
Example of a dropshipping partner
Perhaps the most high-profile example of a dropshipping partner is Amazon and its ‘Fulfilment’ service (FBA).
Amazon will store sellers’ inventory, pick it, pack it and ship it across the EU as and when orders are made via the Amazon site.
Edit: Amazon’s FBA qualifies as a third-party logistics (or order fulfilment) provider rather than a dropshipping partner because you still have to buy the stock up front, whereas with dropshipping you only purchase stock once the sale has gone through.
I can feel a dropshipping vs. order fulfilment post coming on…
More time for other tasks
The most obvious benefit in using dropshipping is, as with all forms of outsourcing, an increased ability to focus time and effort on other areas.
By letting somebody else take care of inventory and shipping issues, you can spend more time on areas such as sales, marketing, PR, recruitment – all the things that are so crucial to success in the early days of a startup and beyond.
Less startup capital required
When you’re thinking of starting your first business, unless you’re one of the lucky few it’s highly likely that a lack of capital is going to be one of the biggest barriers.
And the fact you’re new to the game means you’re unlikely to get much credit from manufacturers or wholesalers.
But because it removes the need to buy stock up-front, dropshipping enables people with relatively low startup funds to deck out an ecommerce site with products.
Easier to try new things
Trying out new products in a traditional ecommerce format is relatively risky. You’ll likely need to purchase a large quantity of something, so if it doesn’t sell you’re stuck with the leftover stock.
But with dropshipping there is no need to order in bulk as you’re going direct to the source. So it’s easier to test the water with new products with relatively little financial risk.
Last year I did a Q&A with the founders of Postboxed.
One of the reasons they gave for keeping and managing their own inventory was that they wanted full control over the packaging and posting.
This is particularly important for gifting sites like theirs, but whatever your business, from a general customer experience point of view it pays to have as much control as possible over your products: how they’re packaged, delivered, and so on.
Tight profit margins
Nothing in business comes without a catch. Of course there is a cost involved when using a dropshipping service.
Not only that but the nature of dropshipping means you are selling other people’s products, meaning it is very difficult to compete on price, particularly with the likes of Amazon, Argos et al.
Which leads me to my next point…
Lots of competition
I mentioned in my intro that it’s easier than ever to set up a shop and start selling. But paradoxically this means it’s also more difficult than ever to make a success of it because there’s so much competition.
Because almost anyone with access to Google can set up a website and start churning out ‘quality content’ these days, you are going to be up against lots of other people who have access to the same products and are probably selling them at very similar prices.
It is therefore vital that you differentiate yourself in some way if you’re going to make a success of your dropshipping business.
This could be through clever marketing or a unique range of products, but either way it’s going to be a struggle.
What’s your experience?
Have you successfully used dropshipping in your ecommerce business? Had any particularly good or bad experiences with it?
Let me know what your views are in the comments below.