What is Dropshipping?

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Coby Nikolaus
July 24, 2020

What is Dropshipping you ask?

Drop Shipping is a retail method in which you don't keep products in stock. Instead, you partner with a supplier that stocks its own inventory. You transfer customer orders and shipment details to them, and the suppliers ship the order directly to the customer.

To better understand, checkout this diagram from Oberlo:

How to Start a Dropshipping Business in 2020 - Oberlo

To simplify, this is dropshipping in 4 steps.

  1. You list the supplier’s product on your store for customers to buy.
  2. The customer purchases something from your eCommerce store.
  3. You order that same exact item that the customer paid for from your supplier.
  4. Your drop shipping supplier ships this item directly to your customer. So your customer receives the item that they’ve ordered from you.

Customers come to the store, and after they purchase, you contact your suppliers. Then they ship the items directly to the customer. You aren’t buying any inventory. All you’re doing is making an agreement with the drop ship supplier to sell their products on your website.

You get their price lists and put their products for sale on your site. When someone buys, you place that order with the supplier.  You only order the product after the customer has paid you. Then you’ll contact that supplier, and say “ship item XYZ to customer ABC.” Then they ship it and charge you.

The difference between your retail price and what you pay your supplier is the net profit.

Advantages of Starting A Dropshipping Business

1. No Inventory Costs

There are no inventory costs. So when you’re starting out with drop shipping, you aren’t laying out any of your money for inventory.

The truth is that when you’re a traditional retailer, inventory is your biggest expense. You need to physically have the products to sell but with drop shipping, you don’t.

2. You're Location Independent

With a drop shipping business, you really can live and work from wherever you want.

3. No Handling Returns

These items are not coming to you if returned. If you own a drop shipping business, you won’t have returned products showing up at your house.

4. It's Easily Scalable

After you do it one time, it’s very easy to do it over and over again.

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