Digital Commerce

Dropshipping 101: What it is and how it works

Gain a thorough understanding of dropshipping and its potential advantages for your e-commerce business.

3 minutes, 51 seconds

Dropshipping has become a popular way for entrepreneurs to start an e-commerce business without the need to hold inventory or handle shipping logistics. If you're looking to venture into dropshipping, it's essential to understand the basics and how to set up your online store effectively. In this blog, we'll walk you through the process of starting dropshipping and introduce you to a helpful tool - the Releasit app - that can benefit your operations and boost sales.

What is dropshipping?

Dropshipping is a business model that allows you to sell products to customers without holding any inventory. In a typical retail setting, the seller purchases and stores inventory and then ships products to customers when they make a purchase. However, with dropshipping, the seller partners with suppliers who handle the inventory storage and shipment processes. When a customer places an order, the seller forwards the order details to the supplier, who then ships the product directly to the customer.

What is a dropshipper?

In a dropshipping arrangement, the retailer (or "dropshipper") markets and sells products through an online store, but does not keep the products in stock. Instead, when a customer places an order, the retailer forwards the order details to the dropshipper, who then ships the product directly to the customer.

Dropshippers are a crucial part of the dropshipping business model, as they handle inventory management, storage, and shipping, allowing retailers to focus on marketing and customer service. This model can be beneficial for retailers looking to start an e-commerce business with minimal upfront investment and inventory management.

How does dropshipping work?

The exact logistics of dropshipping depend on your arrangement, but typically follow this sequence:

Product Selection: The dropshipper selects products to sell from a supplier's catalog. These products are listed on the dropshipper's online store at a retail price higher than the supplier's wholesale price.

Customer Order: A customer visits the dropshipper's online store and places an order for a product. The customer pays the retail price listed on the store.

Order Notification: The dropshipper receives the customer's order details and payment, then forwards the order information to the supplier.

Supplier Fulfillment: The supplier processes the order, packs the product, and ships it directly to the customer using the dropshipper's branding and packaging.

Customer Receives Product: The customer receives the product as if it came directly from the dropshipper, unaware of the intermediary supplier.

Benefits of dropshipping

  • Low startup costs: Minimal investment is needed to start a business.  
  • Reduced risk: Less risk of losing money due to lost merchandise or over-ordering.
  • Location independence: Can fulfill orders from anywhere.
  • Scalability: Accept more orders without increasing inventory.
  • Wide product selection: Sell a broad range of items without pre-purchasing inventory.

Why dropshippers should embrace Cash on Delivery

Dropshipping businesses can benefit from offering Cash on Delivery because it can appeal to a wider range of customers, including those who:

  • Don't trust online transactions: Some customers may be hesitant to enter their credit card information online due to security concerns. Cash on Delivery offers them a way to pay for their order without having to share their financial details.
  • Prefer the flexibility of Cash on Delivery: Some customers simply prefer the convenience of paying for their order upon delivery. This might be because they want to inspect the product before paying for it, or they might not have their credit card readily available.

By offering Cash on Delivery, dropshipping businesses can tap into these potential customer segments and increase their overall sales. Additionally, Cash on Delivery can be particularly beneficial in regions where it is a commonly used payment method. In these markets, customers may be more likely to trust and complete a purchase if Cash on Delivery is available.

Wrapping up

Dropshipping offers a range of benefits for e-commerce entrepreneurs, including lower overhead costs, reduced risk, and flexibility. However, it's important to consider the potential challenges, such as customer experience and reliance on suppliers. By understanding how dropshipping works and exploring alternative fulfillment methods, you can make informed decisions to simplify your business operations.

Ready to optimize your business? 

Check out Releasit Cash on Delivery for a convenient way to manage cash on delivery orders.

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