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What Is Dropshipping and How Does It Work?

Traditionally, a seller purchases inventory from a source and stocks their store or warehouse. Dropshipping changes this model, where now the seller does not maintain an inventory but rather purchases it once orders start coming in. One immediate benefit that becomes evident is requiring less upfront capital to start.

Another benefit is that it is easy to scale, as it is not necessary to purchase inventory space. Dropshipping is a very profitable way to make money if you manage the business aspects correctly, especially with software available on the web. According to research and markets, in the United States alone, dropshipping is a $15 billion industry.

What is dropshipping?

As we already mentioned it is a way of selling goods without keeping inventory in stock. The seller is in charge of forwarding the orders to the manufacturer. Once the manufacturer has fulfilled the order a supply chain begins to form for the user, with the retail business acting as a middle man.

This type of approach does not require a physical store, brick, and mortar, so to speak. It is possible to fulfill orders completely from your home. Dropshipping is a profitable way to achieve what big stores have worked to achieve over a long time. As the demand for quicker products and more options increase, dropshipping is set to be more profitable in the future.

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How does dropshipping work?

Dropshipping nowadays requires a very small investment to start. In comparison to establishing a good outlet, now you can have an online store platform that provides you with the tools needed to create a catalog, display your products, receive orders and payments, and everything you need.

The fee is usually between $20-$60 a month. Next, you want to add some legitimacy to your website and buy a domain name, this can cost between $5-$20 a year. Now you are ready to set up a test order and test your model. After which, implementing a marketing strategy is necessary to gain market exposure. Yes, some elements have changed with technology evolving every day it is easier and easier to create a dropshipping business.

What is a dropshipper?

A drop shipper is a person who practices dropshipping, taking orders from customers and delivering them to the manufacturer. They make a profit by selling the items for more money than what they paid the manufacturer.

It is a legal business because it is an ecommerce fulfillment model that is used by many large global businesses. It can take some time to create a lot of sales, so it is important to have a plan. Some things that dropshippers do to attract business do competitive research, getting their finances in order, analyzing and improving their offerings as well as deciding on a business structure.

Pros of dropshipping

  • Minimal startup risk, if any adjustments are necessary, it is possible to deal with them as you haven’t concretely established a business
  • Lower storage and low logistics cost. You save a lot of money not maintaining an inventory of items.
  • Flexible catalog, you open yourself to offer a much wider variety of products.

Cons of dropshipping

  • Dropshipping may have low-profit margins depending on the items you sell.
  • It is a highly competitive market, chances are others have exclusive deals with their suppliers.
  • You have no control over the supply chain. If the manufacturer defaults on the orders, you may have to reimburse some money.
  • Some suppliers aren’t always honest about the origin of their products

Do you need a website for dropshipping?

No, not. You can take advantage of social media platforms to promote your dropshipping services. It is recommended to have a website so that your reach is extended beyond your local community. They offer tools that let you create catalogs and manage orders as well. A website also serves as an authority if you have a good reputation for the quality of your products. People will recognize your brand and websites add more legitimacy to that.

Which platform is best for dropshipping?

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Shopify offers services such as experimentation with new products, suppliers, and sales channels. They have helped many businesses increase their sales by a factor of 20. They also offer many tutorials and blog posts dedicated to teaching you how to take full control of all the tools so you can use more advanced features like finding dropshipping suppliers and finding the most popular products.

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Woocommerce is another great choice. It is highly compatible with outlet sources like AliExpress and Amazon. They offer order automation, the ability to easily add dropshipping suppliers, and importing inventory. Another great feature is the ability to assign products to dropshipping suppliers and then give them access to a special panel that shows any pending orders to fulfill, all without you having to always forward the request.

What type of hosting is best for ecommerce?

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Siteground is a great choice for hosting your eCommerce site. They offer a pre-installation of woocommerce, a free CDN service to minimize load times for your websites no matter where your users log in from as well as being an ultra-fast hosting server by offering SSD disks and proprietary technology such as OpCache.

WPX is our next recommendation. It is currently one of the fastest hosting services available. They offer a really friendly team of developers that can facilitate the process of hosting your e-commerce site, in case you need help with the heavy lifting. They also offer extras like unlimited SSL certificates, DDoS protection, a staging area to test your changes, and data centers located in the USA, UK, and Australia.

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Do I need hosting for Shopify?

No. Buying a domain is not necessary. All of the processing happens on Shopify’s owned servers. Your site will come with a Shopify domain such as my-store.myshopify.com. The importance of having your domain is that it will be shorter and easier to remember as well as add more legitimacy to your website. Users tend to shop from more reputable online sources. 

Is Amazon a dropshipping company?

It is a combination of dropshipping and a traditional company. It maintains inventory for some items and dropships others as they accumulate. Usually, they fill up very quickly because Amazon is such a big company. They do let you dropship on the marketplace, as long as you are the seller of record for products.

Victor Martinez

Web designer & digital marketer helping online businesses grow online. With 10+ years of experience.


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