The Ultimate Guide to Drop-shipping
What is Drop-shipping?
Dropshipping is a type of business model that allows entrepreneurs to start an online business and sell products to their buyers without stocking up items by themselves. Instead, when a dropshipping store wants to sell something, it purchases the item from a third-party supplier and ships directly to the customer.
How does Drop-shipping work?
The working process of dropshipping is quite simple. It includes 3 simple steps:
The store owner uploads the products he wishes to sell on his E-commerce store. A customer sees the product and places an order on the website.
The retailer receives order details and forwards it along with the customer's details manually or automatically to the dropship supplier.
The supplier packages and ships the required products directly to the customer with the store owner’s branding.
Dropshipping is a lucrative shipping business model as it eliminates the costs of warehousing to the store owner. With drop shipping, a supplier does not need not purchase the entire product inventory and redirects the orders to the correct supplier. Furthermore, you do not need to have a physical business location.
Benefits of Dropshipping
1. More customers
Wholesale suppliers can display a retailer's products in their physical or online stores and market their products directly to their customers. As online business owners, retailers will expand their market and reach more customers; otherwise, not possible if they had not partnered with wholesale suppliers.
2. Easy to get started
Running an e-commerce business is a lot easier if a retailer does not have to deal with physical products. With drop shipping, they do not have to worry about:
Managing or paying for a warehouse
Packing and shipping your orders
Tracking inventory for accounting reasons
Handling returns and inbound shipments
Continually ordering products and managing stock level
3. Increased Wholesale buyers
Wholesale retailers are more likely to partner with a dropship supplier. Suppliers do not need a warehouse or stock inventory since they are the ones to ship the products directly to their customers.
4. Flexibility
The drop shipping model offers an unmatched level of flexibility. Wholesale merchants can run their businesses from anywhere and anytime with an Internet connection. With the Internet, a supplier can communicate directly with manufacturers or store owners and at the same time with customers.
Dropshipping allows merchants to partner with multiple wholesale suppliers and sell more products to their customers. Manufacturers get more flexibility as there is more product movement on the supply chain.
5. Leverage
In business, being able to multiply your money, time and effort is leverage. By offering drop shipping to wholesale customers, you will prioritize establishing relationships with these buyers.
Having reliable dropship wholesalers who will do the shipping for you balances the burden between the merchant and the supplier.
The Supply Chain
The dropshipping supply chain is focuses on three key players: manufacturers, wholesalers, and retailers.
Manufacturers
Manufacturers who create the product, do not sell directly to the public but, they sell in bulk to wholesalers and retailers. Buying directly from the manufacturer is the cheapest way to purchase products for a resale, but most of them have a minimum purchase requirement that must be met.
Wholesalers
Wholesalers buy products in bulk from manufacturers, and slightly increase their prices for profit, and then sell them to retailers for resale to the public. If they have a minimum purchasing requirement, they are much lower than those set by a manufacturer.
Retailers
A retailer is an E-commerce store owner who sells products directly to the public at a profit. If you run a business that fulfils orders using dropshipping suppliers, then you are a retailer.
The Dropshipping Process
The process of dropshipping is unique matter to discuss. Let us take an example, Mr Ken wants to buy a new smartphone from Damien’s Phones. Let us look at how it goes:
Step 1: Customer Places Order with Damien’s Phones
Mr Ken needs a case for his new smartphone and places an order via Damien’s Phones’ online store. Once the order undergoes approval, a few things happen:
Damien’s Phones and Mr Ken will get an email confirmation (identical) of the new order that is automatically generated by the store software.
At check-out, the software captures and automatically deposits Mr Ken’s payment into Damien’s Phones’ bank account.
Step 2: Damien’s Phones Places the Order with Its Supplier
Damien’s Phones forwards the order to a sales representative at Electronic Accessories. Electronic Accessories has the retailer's credit card on file and will bill it for the price of the goods, inclusive of shipping or processing fees.
Step 3: Electronic Accessories ships the order
Assuming the item is in stock and the wholesaler could charge Damien Phones’ card, Electronic Accessories will box up the order and ship it directly to the customer. Even if the product is from Electronic Accessories, Damien’s Phones’ name and address will appear on the return label and its logo will be present on the receipt and packing sheet. Once the shipment is complete, Electronic Accessories will email an invoice and a tracking number to Damien’s Phones.
Step 4: Damien’s Phones Notifies the Customer about the Order
Once the customer receives the tracking number, Damien Phones will send the tracking information to the customer, using an email interface that is built into the online store interface. With the order shipped, the payment collected, and the customer notified, the order and fulfilment process is complete. Damien Phones’ profit (or loss) is the difference between what it charged Mr Ken and what it paid Electronic Accessories.
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