What is Dropshipping? A Beginner's Guide to How It Works in 2024

What exactly is dropshipping? It's a popular method of selling online where you don't need to stock or ship goods. This means no inventory, warehousing costs, packaging, or delivery issues. Essentially, everything after a purchase is outsourced.

Dropshipping offers a unique level of freedom in eCommerce, but it also comes with responsibilities. To launch a successful dropshipping business, you must conduct research, build a functional eCommerce website, and support it with a strong marketing and customer service strategy.

This guide will delve into the advantages and complexities of dropshipping and provide all the necessary information before you begin.

What is Dropshipping?

Dropshipping involves retail fulfillment where production, warehousing, and shipping are outsourced to third-party suppliers. Instead of stocking and fulfilling products yourself, customer orders are forwarded directly to manufacturers or wholesalers for shipment to customers. Sellers focus on promotion rather than inventory management, suppliers prioritize production and delivery, and customers gain access to a wider range of products.

What defines a dropshipper?

Dropshipper acts as a middleman between buyers and suppliers, promoting and managing the shipment of goods from suppliers to customers. Whether as standalone entities or part of larger retail operations, dropshippers facilitate transactions without directly handling inventory. With the surge in online commerce, dropshipping has gained popularity, but it's a practice that spans various retail channels. Notably, historical examples like JCPenney and Sears utilized a form of dropshipping, and today, it caters to retailers facing space constraints or operating temporary setups. As this sector expands, projections indicate a significant growth trajectory, with Research and Markets forecasting a more than 30% increase in the global dropshipping market by 2027.

What is the process of dropshipping?

The main advantages of dropshipping are its speed and cost-effectiveness. It enables you to establish or expand an online store without the need for investments in manufacturing, inventory, or warehousing. Once you have sourced products, there is no delay in production, allowing you to start selling right away. However, successful dropshipping requires thorough planning, particularly if you are new to business. Below are seven steps outlining how dropshipping operates.

1. To start a new dropshipping venture, first, select a product category that has a significant potential market and matches your interests and expertise. Tools like Google Trends or specialized market research tools such as SaleHoo or Jungle Scout can help you assess the popularity of various products or niches over time. With dropshipping, you have the flexibility to experiment with different product offerings without the need to invest in inventory upfront. Therefore, you can explore selling items that may be bulky, fragile, or high-maintenance without bearing the associated risks.

Then, analyze other sellers operating in your chosen category and develop a unique brand positioning strategy. Understanding how your competitors market themselves is crucial for crafting your own business approach. If you already manage an online store, consider which additional categories would be suitable for expansion. Identify price ranges and product features that complement your current offerings; for instance, if your brand emphasizes sustainability, you'll need to collaborate with suppliers who uphold similar standards.

2. Once you've identified your desired product offering, the next step is to find a reliable dropshipping supplier. Start by conducting thorough research to identify suppliers known for offering quality products, dependable fulfillment services, and responsive customer support.

During your research, assess the services provided by different types of suppliers and inquire about their dropshipping options. Manufacturers produce goods directly, while wholesalers and trade companies offer products sourced from various manufacturers (although not all may offer dropshipping services).

On the other hand, specialized dropshipping companies are specifically designed to manage sourcing, logistics, and fulfillment processes. If you're interested in offering custom-branded products, look for private label dropshipping suppliers or print-on-demand solutions that can accommodate your specifications.

3. After establishing pricing terms with your supplier, analyze the costs involved to determine the appropriate pricing strategy for your products. Calculate the selling price needed to cover expenses such as fulfillment fees, marketing, and customer service overhead.

When determining your pricing strategy for dropshipping, take into account your target audience and their preferences. Consider whether you're catering to high-end consumers or those seeking bargains, and determine the margin required to accommodate promotions and discounts.

If you're integrating dropshipping into an existing retail business, assess how your new product pricing aligns with other product categories and its impact on the overall profit margin.

4. If you don't have an existing retail store, the first step is to establish an eCommerce website. Wix eCommerce offers a user-friendly platform for creating professional-looking online stores, even without prior website-building experience. With its intuitive website builder and advanced selling features, setting up a website becomes accessible to everyone.

You can manually input products and categories or import data directly from your supplier's catalog. Rather than using generic product descriptions provided by the supplier, take the time to customize the content to align with your brand's voice. Highlight product features that resonate with your target audience and emphasize the product's best attributes.

Additionally, create informative customer service content to address common inquiries related to order fulfillment, returns, and exchanges. According to a survey by Digital Commerce 360 and Bizrate Insights, more than half of shoppers consider free return shipping to be an essential factor influencing their purchase decisions, while 27% prioritize flexible return policies.

5. To gain a competitive advantage in dropshipping, effective marketing of your products is essential. Digital marketing plays a crucial role in attracting potential customers to your website and informing existing customers about new product offerings. Here are some key steps to follow:

Establish a multichannel strategy

Expand your reach by listing and promoting your products across various platforms such as Instagram, Facebook, X, Google, and others. Relying solely on your website for audience outreach is not recommended.

Engage in email marketing

Keep your subscribers informed and engaged by sending them newsletters and promotional offers. Wix's built-in email marketing tool provides intuitive features and analytics to help you design and send effective campaigns.

Create valuable content

Utilize blogs, videos, and infographics to deliver value to your audience and attract visitors to your site. Share engaging content on your social media platforms to build rapport and trust with your audience.  AI functionality can assist in creating compelling social media captions, providing you with multiple options and hashtags to choose from.

6. Processing orders and payments in dropshipping can vary depending on the technology and tools you and your supplier employ. With integrated dropshipping solutions like Modalyst order processing is often automated, with orders automatically routed to your supplier as they come in.

However, in some instances, manual intervention may be necessary to forward orders to your supplier. In such cases, it's essential to carefully review all order details for accuracy before passing them on to your supplier. Once forwarded, your supplier takes on the responsibility of shipping orders directly to customers.

7. Offer efficient customer support : As the front-facing seller, it's your responsibility to engage directly with customers and address their inquiries promptly. Delivering timely and knowledgeable assistance is crucial for building your brand's credibility and cultivating the trust necessary for repeat business.

Your supplier should offer transparency regarding order fulfillment, enabling you to easily access details about shipment progress and estimated delivery dates. Moreover, establish a process for reporting issues with faulty or inaccurate orders to ensure alignment between you and your supplier.

Advantages of Dropshipping

Dropshipping presents an appealing model for various reasons. Its advantages include:

Minimal startup costs

With dropshipping and free or low-cost eCommerce tools, launching an online store requires little initial investment. You avoid pre-purchasing inventory, and suppliers typically handle storage and shipping costs, albeit sometimes charging for shipping.

Elimination of warehousing

Without the need for storage space or warehouse labor, you sidestep leasing costs and labor expenses, which have seen an average increase of 8% since 2020 according to the Wall Street Journal.

Wide product selection

Unconstrained by physical limitations, you can offer a diverse array of products. The abundance of available items allows for the curation of unique assortments. Additionally, should products underperform, you can swiftly adjust without the burden of leftover inventory.

Location-independent operation

Unlike traditional retail, online-only dropshipping businesses afford the flexibility of managing operations from any location with internet access.

Automated processes

Once established, much of the day-to-day order management can be automated. While monitoring customer service and marketing remains necessary, tasks such as purchases, fulfillment, and shipments can be streamlined.

Efficient scalability

Through automation and outsourcing to suppliers, scaling your business can be achieved rapidly with minimal staffing and logistical complexities.

Dropshipping comes with its own set of limitations and risks:

Intense competition

The popularity of dropshipping has led to a crowded marketplace with numerous sellers vying for attention. Without an exclusive supplier contract, competitors can easily enter the fray. To distinguish yourself, you'll need a strong brand identity, exceptional customer service, and a robust marketing strategy.

Narrow profit margins

With countless suppliers, including those overseas, many dropshippers resort to offering rock-bottom prices, making it challenging to turn a profit or compete with higher-priced alternatives. While high-ticket dropshipping is feasible, it requires covering additional expenses like upscale packaging and insurance, along with providing premium customer service.

Quality control issues

As you don't physically handle the products, ensuring quality becomes a concern. There's no guarantee that suppliers deliver top-notch goods or adhere to ethical standards, especially when sourcing from overseas where safety regulations may differ. Instances of customers receiving subpar products can damage your brand's reputation.

Sustainability and ethical concerns

With consumers increasingly valuing ethically and sustainably made products, it's difficult to verify the manufacturing processes of items you haven't inspected firsthand. This leaves you vulnerable to accusations of "greenwashing."

Customer service responsibilities

Despite not being directly involved in product creation or shipping, you're accountable for resolving any issues customers encounter. Close collaboration with dropshipping partners and prompt communication are vital. Thoroughly vetting suppliers and obtaining extensive references can help ensure you meet customer expectations.

Limited recourse

Before committing to any agreements, carefully review the terms and conditions with legal counsel, particularly if dealing with overseas partners. Without proper legal support, you may have few options if disputes arise or defective products result in customer harm.

Finding Reliable Dropshipping Suppliers

Establishing a strong relationship between seller and supplier is crucial for dropshipping success. To find reliable partners, follow these steps:

1. Conduct thorough research: Seek out suppliers with expertise in your product niche. Reach out directly to manufacturers you're interested in to inquire about dropshipping options. Attend trade shows and leverage online communities like the r/dropshipping subreddit for networking opportunities. Consider reputable dropshipping platforms such as AliExpress, SaleHoo, Worldwide Brands, or Modalyst.

2. Review feedback and references: Read reviews from other clients and contact them for firsthand insights. Don't hesitate to ask suppliers for references and speak to as many as possible to gauge their reliability and service quality.

3. Communicate with potential suppliers: Reach out to candidates to discuss their processes and capabilities. Inquire about order processing, fulfillment procedures, and available communication channels for retail partners.

4. Request product samples: To assess product quality and packaging standards, request samples from potential suppliers. Consider placing test orders with their existing partners to evaluate the overall customer experience.

5. Start with a small selection: Initially, establish relationships with a limited number of suppliers, ideally three to five. As you gain experience and insights into customer service needs and marketing costs, you can gradually expand your product range from existing suppliers or onboard new ones.

Witness dropshipping in action: 3 illustrative examples

Discover the versatility of dropshipping with these three real-world scenarios:

Generating Additional Revenue with Print-on-Demand Merchandise

Little Tail Farms, known for their adorable dwarf goats and babydoll sheep, primarily generates income through agritourism activities. In addition to offering farm tours and overnight stays, they operate the Little Tail Farms Store, featuring print-on-demand logo T-shirts and accessories. These merchandise items serve as souvenirs for visitors, capturing fond memories of their farm experiences. By tapping into print-on-demand services, Little Tail Farms creates a secondary revenue stream while engaging their customer base with unique and personalized merchandise options.

Offering Exclusive Dropship Products

The Boho Birdy, an Australian brand specializes in budget-friendly bohemian-style apparel, bridalwear, and homeware. Embracing dropshipping as a core component of their business model, they curate a selection of eclectic finds that resonate with their aesthetic. Their inventory features flowy garments, paisley prints, and natural fabrics, alongside retro band T-shirts from the 1960s and 70s. The brand prioritizes customer convenience, providing an extensive FAQ section, multiple payment options, and easy access to live chat support for seamless shopping experiences.

Augmenting Existing Inventory with Dropshipping

Sweet Mana, a skincare and lifestyle company, emphasizes relaxation, mindfulness, and spiritual healing through its range of products. While they offer their own line of handcrafted botanical skincare products and candles, they leverage dropshipping to expand their product offerings. By partnering with dropshipping suppliers, they introduce travel photography prints, crystal jewelry, virtual feng shui kits, and beachwear accessories to complement their core selection. This strategic approach allows them to diversify their inventory without the logistical complexities of traditional sourcing and stocking.

Is dropshipping a worthwhile endeavor?

Considering the investment of resources and effort, one might reasonably inquire: Is engaging in dropshipping a worthwhile pursuit?

In response, take into account the potential market. According to Insider Intelligence, revenue from retail eCommerce in the U.S. is anticipated to increase by 51% from 2023 to 2027. Additionally, spending is predicted to rise in categories that have historically been less represented online. While apparel, furniture, and electronics are expected to remain significant players in eCommerce, health and personal care products, as well as food and beverage items, are each projected to constitute at least 10% of eCommerce sales by 2027. These burgeoning categories present a promising opportunity and could serve as a starting point for researching which products to offer. These factors should be considered when evaluating the viability of starting a dropshipping venture.