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What is dropshipping and how does it work?

what is dropshipping and how does it work

Dropshipping is a popular way to sell online without stocking and shipping goods. That means no inventory, no warehousing costs, no packaging, no last-minute delivery headaches—essentially, you can outsource everything that happens after a shopper makes a purchase.

Dropshipping represents a special type of freedom in the eCommerce space. But as the saying goes, with great freedom comes great responsibility. To successfully launch a dropshipping business, you need to conduct research, build a fully functioning eCommerce website and support your online store with a solid marketing and customer service strategy.

This comprehensive guide will explore the benefits and complexities of dropshipping and outline everything you need to know before getting started with starting a business.

Ready to start selling? Try Wix’s dropshipping website builder today. 

What is dropshipping?

Dropshipping is a type of retail fulfillment business that outsources production, warehousing and shipping to a third-party supplier. If you dropship some or all of your products, you don’t stock or fulfill those items yourself. Instead, when you receive customer orders, you route them directly to manufacturers or wholesalers for direct shipment to customers. You don’t pay for the items until they are purchased by your customers.

This arrangement can be a win-win for everyone involved. Sellers get to focus on curating and promoting items as opposed to managing inventory and warehouses; suppliers get to focus on making and delivering goods without needing a retail operation; and shoppers gain access to products they can’t necessarily find at their local stores. 

what is dropshipping

What is a dropshipper?

A dropshipper is an intermediary between consumers and suppliers, curating and promoting the goods that suppliers ship to customers. Retail businesses can operate exclusively as dropshippers, or they can stock some products themselves and dropship others. 

Dropshipping is booming thanks to the rise of eCommerce, but sellers in any channel can be dropshippers. In the 20th century, catalog brands such as JCPenney and Sears used a form of dropshipping when routing mail orders directly to manufacturers for faster delivery. Today, retailers with limited physical floor space or pop-up sellers can display samples and fulfill orders using dropshipping. 

Whatever type of business that dropshippers choose to start, this niche is growing. The global dropshipping market is projected to jump more than 30% through 2027, according to data by Research and Markets. 

what is a dropshipper, example

How does dropshipping work?

The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn't stock or own inventory. Instead, the seller purchases inventory as needed from a third party—usually a wholesaler or manufacturer—to fulfill orders.

Here's a simplified step-by-step overview of how it works:

  • You find a supplier who offers dropshipping services and select products from their catalogue to list in your online store.

  • A customer places an order for a product on your online store.

  • You forward the order details to your dropshipping supplier.

  • Your dropshipping supplier packages and ships the order directly to your customer under your business name.

  • You pay the wholesale price to the supplier, keeping the remaining profit yourself.

how does dropshipping work

Benefits of dropshipping

Dropshipping is an attractive retail model for a variety of reasons. Some of the main benefits of this type of business idea include:

  • Low startup costs: If you use dropshipping and free or low-cost eCommerce site tools to launch an online store, your cash outlay is minimal. You don’t need to pre-purchase inventory and your suppliers typically absorb the cost of storing and shipping products (though in some cases, may charge you for shipping).

  • No warehousing: Since suppliers hold inventory, you don’t need to lease storage space or fill your garage. You also avoid warehouse labor costs, which have risen an average of 8% since 2020, according to the Wall Street Journal.

  • Expansive product selection: Since you're not limited by physical storage space or geography, you can sell as many products as you want. In addition, the selection of products available to you is nearly unlimited, giving you the freedom to curate a unique assortment. If items don’t sell well, you can pull back quickly without needing to offload residual inventory.  

  • Operate from anywhere: In the past, retailers were tethered to physical store locations. Now, if you operate an online-only dropshipping business, you can manage your eCommerce site from anywhere with internet access. 

  • Automated workflows: Once your store is up and running, much of the day-to-day order management can be automated. While you still need to monitor customer service and marketing promotions carefully, the mechanics of purchases, fulfillment and shipments can run in the background. Merchants using Wix’s dropshipping solution can automate inventory management, order routing, order tracking and more.

  • Scale efficiently: The combination of automation and supplier outsourcing means you can grow your business quickly with fewer staff members and logistical headaches.

what is dropshipping: benefits

Dropshipping drawbacks and limitations

Despite being flexible and offering low barriers to entry, dropshipping has potential drawbacks. If you’re considering launching a business built on a dropshipping business idea, be aware of these caveats:

  • Stiff competition: Because dropshipping offers so many potential benefits, millions of other sellers are trying their hand at it. And unless you lock in an exclusive contract with a supplier, there’s nothing to prevent them from dropshipping for a competitor. To stand out, you need a strong brand differentiator, top-notch customer service and comprehensive marketing strategies

  • Low profit margins: Because there are so many potential suppliers, including ones from overseas, many dropshippers stake their brands on rock-bottom pricing, which can make it tough to eke out a profit or to compete with higher price points. While high-ticket dropshipping can be successful, you’ll need to cover additional fulfillment fees for upscale packaging and insurance, and customers will expect concierge-style customer service, which can also be costly.

  • Lack of quality control: Since you're not physically handling the products yourself, you don’t know whether suppliers are delivering quality goods or cutting corners, or whether they’re offering counterfeit merchandise. The challenge is especially steep if you source products from overseas suppliers, where safety standards may not match local regulations and quality may not be up to par. A growing number of stories are circulating about customers feeling duped after receiving products that don’t match the online descriptions. But as the seller of record, your brand is on the line.

  • Sustainability and social concerns: Half of consumers would be willing to pay a premium of up to 10% for ethically and sustainably made products, according to PwC. But it’s hard to vouch for products and manufacturing processes you haven’t evaluated in person, which puts you at risk for accusations of “greenwashing.”

  • Customer service accountability: If customers have problems with order delivery or the products themselves, it’s up to you to resolve the issues, even though you didn’t make the items or ship the packages. Tight cooperation with your dropshipping partners and responsive communication on their part is essential. When vetting potential suppliers, quiz references extensively to ensure you’ll be able to meet customers’ expectations.

  • Lack of recourse: Before signing a contract, review the terms and conditions with an attorney. If your dropshipping partner is overseas, work with a legal firm that has experience on the ground there. Otherwise, you may have few options if the relationship sours or, worse, defective or damaged products cause a customer harm. 

How to start dropshipping with Wix

Now that you know everything there is to know about dropshipping, you’re ready to take the plunge—and there’s no easier way to get started than to use Wix eCommerce. With Wix’s end-to-end platform, you can start building your website, connect to dropshipping suppliers and manage products and orders from a single administration interface. The steps to get started are simple:

  • Design your website: Use Wix’s website builder to create an eCommerce site with the right tools for dropshipping automatically built in. No coding is required; Wix’s interactive platform will walk you through the process and give you a range of online store templates to choose from, as well as the ability to customize everything to your preferences. Additionally, built-in AI tools can automatically generate text for product descriptions, FAQ pages, email newsletters, social posts and more.

  • Connect to the Modalyst dropshipping hub: Wix’s Modalyst marketplace connects you with thousands of vetted dropshipping suppliers who deliver high-quality products and reliably fulfill orders. You can browse items by categories, including name brands, trending items and independent labels.

what is dropshipping - wix and modalyst

  • Choose dropshipping products: Select your product assortment and import the items to your Wix site. Customize the product pages, including the product descriptions, to be unique, engaging and reflect your brand voice. Add lifestyle images to supplement or replace the standard catalog photos. Pricing and inventory are automatically updated to reflect the suppliers’ latest information and displayed on your pages. 

  • Set your product costs: Establish a baseline price markup formula based on your suppliers’ prices so you can see how much you’ll earn on each product before launching it for sale. As mentioned earlier, remember to factor in your costs, including overhead for fulfillment fees, marketing and customer service. Many suppliers handle the shipping costs directly; if yours does not, you’ll want to factor that in, as well.

  • Get ready to transact: Set up Wix Payments to transact orders and accept payment via credit and debit cards, digital wallets and “buy now, pay later” solutions. 

  • Monitor orders: Once launched, you can review and track orders via the Wix dashboard. Follow up with suppliers to ensure they’re fulfilling orders, and obtain tracking numbers so you can monitor estimated delivery dates.

Dropshipping examples to inspire your business

Ultimately, there are many ways in which you can use dropshipping to build or enhance your eCommerce business. Below are three examples of ways that you can leverage dropshipping.

01. The Boho Birdy

Australian company and Wix merchant The Boho Birdy offers affordable “boho”-style apparel, bridalwear and homewares. Dropshipping is baked into the brand’s identity as a low-cost shopping source, and the selection is carefully curated to highlight eclectic finds that align with their aesthetic. Flowy apparel, paisley prints and natural fabrics dominate, and the site offers retro band T-shirts from the 1960s and 70s. 

The unique selection is backed by an extensive FAQ, multiple payment options and easy access to customer service via live chat—proactively addressing shoppers’ questions and easing purchases.

the boho birdy

02. Sweet Mana

If you already run an eCommerce business and want to add more items to inventory, but lack the time or budget to source and stock them yourself, you can use dropshipping to complement your existing product mix. 

Sweet Mana is a skincare and lifestyle company with a wide range of products. The company's ethos is centered on relaxation, mindfulness and healing the spirit; the intent is to inspire “a state of island bliss.” The core offering is Sweet Mana’s branded line of handcrafted botanical skincare products and candles. To extend the site’s product offering, Sweet Mana uses dropshipping to offer travel photography prints with a meditative subject matter that aligns with the brand. Curated selections of crystal jewelry, virtual feng shui kits and beach-ready bikinis and sun hats round out the assortment.

dropshipping skincare products

03. Little Tail Farms

You don’t need to be a retailer of physical goods to take advantage of dropshipping. Whether you sell software subscriptions or work in the community as a charity or school, you’ve likely got fans who appreciate clever merchandise tie-ins. With branded merchandise created via print on demand, you can supplement your primary revenue stream and provide fun options to your existing customer base. 

The owners of Little Tail Farms raise adorable dwarf goats, babydoll sheep and other unique breeds of farm animals. The company’s primary source of income is agritourism—visitors who stay overnight or take two-hour tours to meet the animals. The Little Tail Farms Store provides additional income via print-on-demand logo T-shirts and accessories that serve as mementos of customers’ visits. 

what is dropshipping - Little Tail Farms products

What is dropshipping FAQ

Is dropshipping worth it?

Given the resources and effort involved, it’s reasonable to ask: Is dropshipping worth it?

In response, consider the potential market. Revenue from retail eCommerce in the U.S. is projected to grow 51% from 2023 to 2027, according to Insider Intelligence. What’s more, spending is forecast to grow in categories that have so far been underserved online. While apparel, furniture and electronics will still claim a significant share of eCommerce dollars, health and personal care products, and food and beverage items, are each forecast to account for at least 10% of eCommerce sales by 2027.

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