You may have heard buzz on the internet lately such as “I made $20,000 my first month with Shopify dropshipping!” Most of us ignore these types of posts as we inherently feel that they are too good to be true, which they probably are. While most people will not make $20,000 in their first month of dropshipping, it is a legitimate and viable business opportunity that many eCommerce retailers are currently using.
Benefits of Dropshipping
A physical warehouse is not needed to store the products that are being drop shipped. A traditional distribution center will set back most businesses $500,000 or more. Dropshipping means you no longer need a team of employees who manage, operate and maintain a shipping distribution center.
Shipping & Handling
The second-biggest liability which can be dismissed when dropshipping is the costs associated with shipping and handling. eCommerce retailers can retain a much higher profit margin by no longer needing to employ workers to unload incoming merchandise, log it into the system, place it on the shelves, pick it from the shelves, package it, and ship it.
One aspect of dropshipping that is seldom talked about is the environmental benefits that this business practice comes with. The majority of transport-related carbon emissions come from large sea vessels, airplanes and tractor-trailers. By no longer requiring the merchandise to be shipped from a distributor to the eCommerce merchant - often from across the globe - you are preventing an incalculable amount of greenhouse gasses from entering the environment. This appeals to many environmentally conscious buyers when it’s presented to consumers.
Negatives of Dropshipping
Unfortunately, dropshipping is not all peaches and sunshine. If you haven’t noticed, the single largest dropshipping company in North America is Amazon. While Amazon does offer traditional order fulfillment from its vast collection of distribution centers across the continent, they allow sellers to list their own products on Amazon for a small fee. When an item sells, a notification is sent to the manufacturer or wholesaler which listed it, and the item is sent from that company’s shipping facility.
Getting Cut Out
This is a fair business transaction and in itself is not a negative of dropshipping. The negative is that as more transactions continue to take place on the internet, dropshippers will be cut out from the equation. In much the same way that the extra shipping and handling costs were cut out of the equation, dropshippers are vulnerable to turning into unnecessary middlemen as well.
As manufacturers realize that they are losing much of their profit margin to dropshipping eCommerce merchants and their fees, they will remove them from the selling process in favor of selling directly to the consumer via their own eCommerce store. Dropshipping is a profitable business model for the time being, but dropshippers will need to innovate in the marketplace if they want to retain the relevancy that they currently have.
What Is Dropshipping?
Simply put, dropshipping is the process of eCommerce retailers selling an item on the behalf of a manufacturer or wholesaler.
Traditionally, an eCommerce retailer would purchase goods from a manufacturer or wholesaler at a discount, inventory the product, list it for sale on their website at a markup and ship the product once it was purchased. Dropshipping takes that entire process and removes all of the unnecessary shipping and handling costs associated with it.
How Does Dropshipping Work?
In a dropshipping scenario, a business relationship is established between the eCommerce retailer and the manufacturer or wholesaler. Once a relationship is established, the retailer lists the products which they would like to sell on their website as if they have them in stock and ready to ship. This is where the traditional eCommerce model is flipped on its head.
When a customer purchases the product from that eCommerce retailer, a notification is sent to the manufacturer or wholesaler that has possession of the product that was sold. At that point, the wholesaler or manufacturer ships the product directly to the customer. The manufacturer or wholesaler is paid for the agreed-upon cost of the product, and the dropshipping merchant is paid a fee for completing the transaction.
This business practice has many pros and cons which will vary depending on the type of product sold.
So, you have a current eCommerce store but would like to start adding products that can be dropshipped without entering your warehouse. Unfortunately, it can be difficult to implement a Shopify Dropshipping integration.
You won’t want to send an email or make a call to the manufacturer or wholesalers each and every time an order is placed on your website. To overcome this, pick out a dropshipping compatible application that will act as a communication channel between your eCommerce store and the manufacturer or wholesaler’s distribution warehouse. This application must be able to keep track of stock information, order notes and any other additional information. After the information is exchanged, the application will need to have the ability to update your website accordingly.
Finding the Right Application For You
Finding an application with all of the functionality you need that integrates with your current eCommerce platform can be a challenge. We recommend making a list of the real-world requirements that you must have and start researching what is available in the marketplace. One platform that is commonly used in the dropshipping space is Spocket, which offers native integrations with Shopify.
In conclusion, Shopify dropshipping is a profitable business that can bring in large returns on investment. While the dropshipping ecosystem is currently thriving, the constant threat of being cut out of the equation makes the space risky to those who choose to build websites with only dropshipped items.
Are you looking to implement dropshipping for your next website redesign? Our experienced team of eCommerce specialists would be happy to help. Reach out to us from the form below to speak with one of our eCommerce experts.
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