How does dropshipping work?

The question that we get asked time and time againĀ is:
How does dropshipping work?

Drop shipping may sound like a complicated way to sell products, how ever once you have looked into the sales process it is one of the easiest and cheapest ways to sell online.

Drop shipping is a form of supply chain management. Drop shipping dictates how you list items for sale, how you sell your items and how you send goods to customers.

So how does drop shipping work?

  1. You list items for sale that you do not own.
    Drop shipping allows you to list items not physically own. Instead you list items for sale that your supplier has in stock.
  2. You only purchase items once you have a confirmed order.
    Instead of pre-purchasing stock in bulk, you purchase individual stock units from a supplier once you have received an order for them.
  3. You do not handle or ship out any stock.
    Instead of shipping out the stock you have on hand, you get the supplier to send out the individual orders directly to your customers.

As you can see from the above list, essentially you only need a limited amount of capital to start a drop shipping business. The whole idea of a drop ship business is to utilise your suppliers assets (their stock on hand, their warehousing, their staff and their shipping services). This is the reason it is very important to make sure you only use reputable suppliers, as you are sending products sight unseen directly to your customers.

The last thing you want is a supplier who cannot supply your items, dispatches the wrong item, sends their own advertising with the package or even worse gets in contact directly with your customers.

Although drop shipping is a reasonably simple concept, it can be difficult to get set up. You need to make sure that products listed for sale are actually still available and have not changed price. It is very hard to go back to our customer and ask for more money for the same item once they have paid.

This is why automation is essential in running a successful drop shipping business.

A very basic diagram to display how drop shipping works.

Goes to your store.
Makes a purchase.
You purchase the item customer purchased from the supplier.
You have the supplier ship the item directly to the customer.

Your profit is the difference between what you sold the item for and the price you purchase the item for.


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