What is Dropshipping?
Dropshipping is a method of selling products to customers without holding stock.
Instead of buying stock from wholesalers and selling it on to the general public, dropshippers market and advertise the products, act as middlemen and pass on the sale. The dropship agent usually has either their own website devoted to sales of set products or has an account with an online auction site, such as Ebay or Ebid. Once an order has been placed by a customer and payment has been received, the order is relay on to the wholesaler or the original manufacturer of the product. The order is posted to the customer as if it had been delivered by the dropship agent.
Most retail enterprises which choose to operate based on this business model generate profits by virtue of retail prices being substantially higher than wholesale prices. Savings and discounts, compared to High Street retailers, can be passed on to customers because of the lower running costs, with the online retailer still making a profit. In some cases, the dropship retailer can negotiate a fixed percentage with their wholesaler on a commission basis.
Dropship retailers do not always sell products exclusively online. Some inner city retailers often display items for sale that can be delivered to their door via direct sales from a wholesaler they have an agreement and an account with. Their customers may see the product for themselves and place an order either online or from a catalogue list.
It is often the case that dropship agent retailers take steps to keep their status a secret in order to reduce possible competition from others who may have ideas about using the same wholesaler in order to sell the same items at a slightly cheaper price. Also, it is seen in a negative light the fact that dropshippers are more likely to be smaller enterprises and as such less able to fulfill an order. Some wholesalers offer their dropship clients the option of either leaving the return address blank, or putting their address in its place. This gives the illusion that the order was sent by the dropshipper themselves.
Dropshipping can be employed by smaller retailers who suddenly receive a large order for a product they usually sell in small volumes. They can place the orders online rather than ordering more of the same stock. This saves time taken in placing orders and receiving deliveries and the costs associated with postage and packing. Larger construction and manufacturing products are typically sold in this fashion.
Retailers who primarily or exclusively sell on online auction websites often sell as dropshippers. These retailers use their accounts to sell the items as brand new and either as a fixed price sale or as auction format. The sale price must be calculated carefully as there are additional costs that accompany selling in this way, such as listing fees, selling fees and handling fees for any online transaction agencies. Postage and packing (delivery) costs should not be forgotten either. The range of goods which are available to buy online is vast and even bespoke items are available for purchase.
The concept of dropshipping as a sales solution originated in the United States and sourcing from China is a popular method of keeping volumes high and costs low. Clients can be either individuals or established companies. Both payments and sales can be carried out over the Internet and this sector of ecommerce is becoming more significant as time progresses.
The greatest advantage of selling as a dropshipper is that there is no need to keep stock, thus reducing initial start-up costs and also maintain positive cash flow, and still offer a large number of products for sale. Overall costs of logistics are kept to a minimum since there is only one despatch process per sale. This also reduces the carbon footprint of the retail sector.
The major drawbacks of dropshipping are that goods sometimes sell out (which can adversely affect the reputation of the retailer), bogus wholesalers (who do not actually have products to sell from which profits can be made but still charge a fee), and inevitable returns which can slow down the whole operation.
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