Dropshipping 101: Everything You Need to Know
This post was last updated on July 14, 2021.
Whether you’re already active in the world of eCommerce or looking to dive in and start an online store, you’ve probably heard the term dropshipping. It’s certainly maintained its lead as one of the hottest trending topics in the industry over the past couple of years.
The number of Wix stores connecting dropshipping to their accounts grew by over 123% YoY in the first half of 2021.
In this dropshipping 101, we’ll explain the ins and outs of dropshipping and everything you need to know to start dropshipping like a pro. It includes:
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What is dropshipping?
Dropshipping is a type of retail fulfillment that lets you sell products without managing, storing or shipping inventory. Instead, you connect with dropshipping suppliers and source products to sell online. Customers check out on your site, then you forward the order info to the supplier, and the supplier fulfills the order.
Unlike traditional online retail, dropshipping releases the merchant from having to fulfill their orders. That means you skip the time and cost of manufacturing products or acquiring stock, storing inventory, and shipping to customers. One of the main benefits of dropshipping is that it simplifies fulfillment processes for merchants. It can also reduce initial overheads and outlays which is important for entrepreneurs building a startup eCommerce business, especially those operating on a small budget.
On average, Wix stores who add dropshipping products increase AOV (Average Order Value) by 40% and sales revenues by 79% within the first 4 months.
However, to be successful, you’ll need to do your research and carefully choose your dropshipping suppliers and products. Our guide to the 20 best dropshipping products to sell online will help you to learn more about how to do your research and choose products for your dropshipping business.
So, as a dropshipper you might be wondering, if your supply and fulfillment are taken care of then what’s your role as a business owner? There’s still plenty to do. You’ll have to research the market, choose the right products, build your online store, calculate your profit margins, run targeted marketing campaigns and provide great customer service. An all-in-one platform like Wix eCommerce can help you to manage these steps.
How dropshipping works
Most all-in-one eCommerce platforms, like Wix, provide easy integration with an array of dropshipping suppliers and print on demand companies, like Modalyst, Printful and Printify. Once you’ve chosen your supplier and connected their app to your online store, here are the next steps to consider:
Choose products. Browse dropshipping marketplaces to find the right products for your business. Use the keyword search and filters to narrow your options and choose products that will appeal to your target audience and align with your brand values.
Import items to your online store, develop a dropshipping pricing strategy and set your prices. You have complete control over your listings and profit margins.
Accept customer orders. Import your chosen dropship items into your online store inventory and make them visible to your shoppers. Now customers can find the items they want, check out and pay on your site.
Forward customer orders to the supplier. Submit your customer orders and shipping details to your supplier. Then, pay the dropshipping supplier on your customer’s behalf.
Ship and fulfill orders through the supplier. Your supplier ships each order directly to your customers’ addresses. You’ll get a tracking number in the system so you can update your customers. If the supplier offers white label shipping, you can even use your branding on the packaging.
Sounds simple, right? That’s because it really can be. However, there are some key factors to be aware of that will impact your chances of dropshipping success. When you choose to dropship, you are placing your product supply and, to some degree, your business’s reputation in the hands of a third-party supplier. This is why it’s so critical to find a reliable supplier and good quality products. We’ve covered this in more detail in our blog post on the best dropshipping products to sell online.
The pros and cons of dropshipping
Now that you know a little about dropshipping, it’s time to determine if it’s right for your business. Here are some factors to consider:
Reasons to dropship
01. Start selling with less capital You can simplify the process of starting an online store by choosing to dropship. Usually, when retailers begin their business venture, they need to pre-purchase and warehouse stock. Instead, when you dropship, your suppliers absorb this cost, meaning that you won’t need to tie up large amounts of capital in order to start selling online. Simply set up your online store, connect to a payment provider, integrate with a dropshipping supplier and choose your products.
02. Worry-free warehousing No need to fill your garage with stock. Your suppliers will be responsible for warehousing and shipping your products. Not only will you save money on storage facilities, but you can also expand your product offering as you won’t be limited to physical storage space or geographical boundaries. Since manufacturing and warehousing are taken care of, you can focus your funds on marketing and customer service.
03. Operate from anywhere Without a physical tie to your products, you can manage your dropshipping business wherever you have WiFi. Just make sure that you can quickly and easily get in contact with your suppliers and customers should there be any queries regarding an order.
04. Develop your testing ground Dropshipping lets you test a wide variety of products and quickly adjust your inventory to the latest trends. When you source products from suppliers with no upfront costs, you can be more agile as nothing is locking you into selling that product. If a product isn’t selling, just remove it from your website and pick something else. You can also use dropshipping platforms to see what’s trending and quickly add it to your product offering, allowing you to jump on a lucrative trend much faster than in traditional retail models.
05. Scale efficiently If you receive tons of orders in a traditional eCommerce retail model, you need to do more work—sourcing, handling, packing and shipping the products. As this whole process is the supplier’s responsibility, you can expand your business with fewer logistical headaches and fewer staff members. However, more sales will always equal more work at some stage in the supply chain, be it website maintenance or customer support.
Reasons not to dropship
01. Lack of quality control When you dropship, you have to trust that your suppliers are sending your customers good quality products. However, without inspecting every delivery yourself, it’s tough to control this. You also have limited control over shipping times. Both product quality and shipping times can cause customer satisfaction problems for your business. However, to minimize this risk, you should ensure that you are using vetted and reliable suppliers through a dropshipping marketplace like Modalyst or Spocket that is integrated with your eCommerce platform. It’s also wise to order test samples so you can see if your chosen products live up to your standards.
02. Customer service challenges Customer service may be more difficult. Unless you have in-depth experience with the products you sell, questions may come up that you can’t answer. To solve this, make sure you have a way to communicate directly with your suppliers. You’ll also need to manage returns and exchanges. Depending on your supplier, you may need to handle the refund process on your own as well.
03. Low margins The dropshipping market is highly competitive. The low barriers to entry, including low overheads and quick setup, make it an attractive option for entrepreneurs. With many dropshippers sourcing products from the same selection of independent and large marketplaces, you’ll probably notice that other businesses are selling near-identical products to yours, and some at a lower cost. While this is a popular strategy to attract customers and get a foothold on the market, driving down your prices in an effort to match the competition will only lower your profits. Before you start dropshipping, do your research to see what your competitors are selling and charging, and do your calculations to determine which products can be sold at a higher profit margin. You might discover an alternative niche with a greater potential for profit.
04. Shipping considerations If you choose to ship internationally and source internationally, shipping costs will vary depending on the location of your customer and supplier. If customers live far from where your products are warehoused, shipping will be pricier. Additionally, if you connect to multiple dropshipping platforms and a shopper purchases items that will be fulfilled by different suppliers, for example a t-shirt from Printify and leggings from Modalyst, then you’ll incur separate charges. Ultimately you will need to decide if your business can absorb these costs or if you should pass them on to your shoppers.
05. Limited customization Dropshipping offers limited opportunities for customization. Choosing products from a third party supplier means that you don’t have control over what the product looks like, or, how it’s branded and presented to your customer when shipped. Without customization it will be hard to set your product offering apart in a saturated market. To counteract this potential issue, seek out dropshipping suppliers who offer white-labeling so that they can fulfil your orders and ship your products with custom branding and packaging. Or use print on demand suppliers like Printful or Printify to create one-of-a-kind designs that can’t be found elsewhere.
How to make dropshipping work for you
Ultimately, there are many ways in which you can use dropshipping to build or enhance your eCommerce business. You can:
Sell only dropshipped items. In the first half of 2021, the number of Wix stores selling online purely through dropshipping grew by 84%. Top selling merchant BWSS Fit uses a direct-to-consumer (D2C) model to sell high quality fitness equipment to shoppers looking to keep fit and recreate a gym style workout from the comfort of their homes.
While other websites stock similar products, BWSS have worked hard to differentiate themselves in an incredibly competitive market. Their easy-to-navigate website has strong imagery, helpful fitness content and honest customer reviews. Additionally, their transparency regarding their D2C business model, international suppliers and shipping estimates appeal to shoppers who are willing to trade faster shipping times for better value.
Use dropshipping to enhance your store’s existing inventory. Think of a coffee roastery boosting their online sales by selling dropshipped espresso cups. Or a clothing store selling bespoke t-shirts fulfilled by a print on demand company. This path is ideal for merchants who recognize that their business could benefit from adding additional items to their inventory, but don't have the time or budget to source them directly.
Sweet Mana is a skincare and lifestyle company with a wide range of products. The company's ethos is very much about relaxation, mindfulness and healing the spirit. While their main draw is their handcrafted botanical skincare they use dropshipping to bolster their offering to other avenues, such as travel photography prints.
Boost your eCommerce business’s existing revenue by selling print on demand merchandise. Even if your eCommerce website isn’t primarily an online store—perhaps you specialize in providing a service—you can still consider diversifying your offering.
Little Tail Farms in Dunlap, Tennessee, is an animal farm, or so-called brick and mortar business, that uses dropshipping as an additional revenue stream. Website visitors who might be looking to book a farmstay or farm tour, can’t miss the Gifts menu which brings them to the farm's online store where they can purchase a range of branded merchandise, from hoodies to phone covers, as a memento of their stay.
Is dropshipping legal?
Dropshipping is completely legal. To be clear, you are selling products with the suppliers’ permission. Make sure to run honest marketing campaigns and comply with online sales tax laws.
How do dropshippers make a profit?
As a dropshipper, you’ll need to balance your costs and revenue. First, consider the wholesale prices of the products you source as well as your marketing efforts. Then, price your products wisely to ensure that you’re earning more than you’re spending on your dropshipping business.
The key to a smart dropshipping profit margin? Remember to stay competitive. Of course, you want to cover your costs and earn revenue. Make sure to research the competition’s prices to get a reasonable range and then choose a profit margin balance that will win over customers.
How much does dropshipping cost?
There are 3 main costs to consider when starting a dropshipping business online:
Your eCommerce platform plan: $17-$35 per month with Wix.
Your website domain: $5-$20, depending on your domain name. With Wix, your domain is free for the first year when you upgrade to a Business and eCommerce Premium plan.
Your marketing: This depends on your strategy. Each Wix Business and eCommerce Premium plan comes with built-in professional marketing tools. Additional costs, like targeted Facebook Ads, can add around $79 per month.
Is dropshipping worth it in 2021?
That’s up to you. Do your research when selecting the best dropshipping products to sell, put your best marketing efforts forward and learn about the advantages and disadvantages of the dropshipping business model.
Dropshippers take minimal risk. It requires only a small investment, there’s no commitment to order minimums and it allows you to test out new markets. Best case scenario, you start a successful online business.
So, what are you waiting for? Customize your online store, connect to a dropshipper and start selling today.
Marketing Writer, Wix eCommerce
Geraldine is a marketing writer for Wix eCommerce. She uses her broad experience in journalism, publishing, public relations and marketing to create compelling content and loves hearing user success stories.