Dropshipping is a fulfillment model that skips traditional distribution channels and ships the products directly from the wholesaler or manufacturer. Retailers who dropship don’t purchase products ahead of time to sell, or keep inventory in stock within their own warehouse. Instead, the retailer processes customer orders by forwarding them directly to the supplier. The supplier then picks, packs, and ships the product to the customer directly. Payment for the order is handled by the retailer, who sells products at a markup and keeps the difference remaining after paying the cost to the supplier.

A dropshipping supplier can be the manufacturer of the product, a wholesale distributor of the product, or any other part of the supply chain. What makes it dropshipping is that the retailer who processes the sale does not hold the inventory, but sends the order to the supplier for fulfillment. Some retailers even dropship from other customer-facing retailers. Generally, the earlier a supplier is in the supply chain, the cheaper a dropshipper will be able to source the product, because each step in the supply chain tends to add a markup.

By having your products shipped directly from the supplier straight to your customer, you can save on shipping and warehousing costs, delivery time, and the hassle of managing your own inventory. While there are some disadvantages to the shipping model – such as placing one of the most crucial aspects of your business in the hand’s of a third-party – the advantages, for many companies, significantly outweigh the cons.

Let’s take a look at some of the many unique benefits you can potentially reap by adopting a dropshipping fulfillment model.

1. Lower Capital Requirement

For many retailers, one of the toughest aspects of starting a business is figuring out how to approach inventory. Traditionally, merchants spend thousands of dollars on inventory investment, which can significantly eat into a business’s starting capital. With dropshipping, however, you don’t have to buy products or worry about low stock. Starting a dropshipping company means reduced upfront costs, less stress, and fewer responsibilities, with more time and money to allocate to other aspects of your growing business.

2. Flexible Location

Today’s customers demand unparalleled shipping, quick to dissolve their relationship with businesses that fail to meet their expectations. By using a dropshipping company, your business can gain a geographic advantage. Businesses located in the Central U.S. can benefit from a supplier located on the West Coast, and vice versa. Having your products close to the customers who buy them puts you in a position to ensure your brand can deliver exceptional service from the point of order all the way to delivery.

3. Save time and money

Running a dropshipping empire means that your business won’t be burdened with the hassles of managing and paying for a warehouse. You won’t need to track inventory, handle returns, or restrict your office to a particular location. As long as you have an internet connection to stay in touch with your suppliers and customers, you have the freedom to take your business anywhere and everywhere across the globe.

4. Wider Product Selection

Because merchants are typically required to pre-purchase their products, it’s usually easier and cheaper to purchase a select few items in larger quantities than to offer a diverse selection. But with dropshipping, you can sell however many products you want on your online store without having to worry about inventory or costs.

5. Reduced Risk

Starting a business comes with many risks, not the least of which is the thousands of dollars you’ll potentially invest in inventory. With a dropshipping model, if things don’t pan out the way you planned, you can make a relatively clean break, without fear of being stuck with thousands of dollars worth of inventory.

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Let’s take a look at some of the finer details of using a dropshipping company to see if this is the right model for your business.

The Order Process

Although each dropshipping company will be different, most suppliers accept orders via email (Note: some also accept orders online, by phone, or even in bulk via a specially formatted CSV file). When a customer places an order at your store, an order confirmation email is sent to your supplier, who will then pick, pack, and ship the order to your customer assuming the product(s) is in stock. Your supplier will use their own shipping account to pay for shipping, but they’ll bill your account for the price of goods, as well as any applicable processing and shipping fees.

Packing Slips & Invoices

Dropshippers are invisible. That means that when a customer receives their package, your company’s name and logo will appear on the invoice, packing slip, along with your name and address on the return address label. Your customers are never aware that you have a dropshipping supplier – they exist entirely behind the scenes, allowing your business to maintain brain cohesiveness.

How do Returns Work?

Each dropshipping company has their own policies regarding customer returns. Many suppliers issue a Return Authorization (RA) number, which is then provided to the customer along with the warehouse’s address. Once the supplier has received the product, your account will receive a credit for the item. With funds in possession, you can then proceed to refund the customer who requested the refund. Many suppliers will cover the shipping cost if the returned item is defective, however, for non-defective items, the customer will usually be responsible for paying the return shipping fees.

What about International Shipping?

Not every dropshipper ships internationally. International shipments presents a number of complexities, including increased shipping costs and fees, a higher potential for fraud, and increased order processing times. Approximately half of dropshippers ship internationally, so be sure to check with the companies you’re exploring if this is a feature essential to your business.

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Methods for Finding Dropshipping Suppliers

Contact the Manufacturer

If you already know what products you’d like to sell, the easiest method is to contact the manufacturer. They will be able to point you to their authorized distributors, who may be willing to establish a dropshipping relationship with your business. After a few phone calls to the leading manufacturers of your industry, you’ll have a handy list identifying the top distributors you can potentially partner up with.

Search Using Google

Searching on Google will likely yield results, but thanks to drop shipping companies’ notoriously awful marketing, it can sometimes be a time-consuming process. Don’t expect to find what you’re looking for on page one of search results – you’ll likely have to dig deep and scour through numerous spam listings before landing on a legitimate dropshipper.

Subscribe to a Directory

A supplier directory is a database that contains profiles of dropshipping companies related to a specific product or niche.  There are numerous dropshipping directories online, and although many of them feature a screening process to ensure suppliers are legitimate, a number of them are of poor quality and provide little value. Directories are highly praised for their usefulness in brainstorming new ideas, although you likely won’t need to revisit one once you’ve found a supplier for your product(s).

Some examples of dropshipping directories include:

• Doba
• Worldwide Brands
• SaleHoo

What Kind of Dropshipping Fees Can You Expect

Pre-Order Fee

Many dropshippers charge a pre-order fee to cover the expenses of shipping, with prices typically ranging from $2 to $5 depending on the individual product. More complex items that are extremely large or heavy are likely to incur a higher fee.

Monthly Fees

Be wary of dropshipping companies that charge ongoing monthly fees, as this can be an alarming indication that the business is illegitimate. Very few genuine dropshipping companies charge their customers a membership or service fee.

Purchasing Minimums

Each dropshipping company’s purchasing minimums will vary. Some may require a minimum initial purchase size, either for your first order or per month. If you fail to meet their specified minimums, you may incur a fee. This is a popular policy among dropshipping companies to weed out potential business owners that are more interested in “window shopping” or aren’t serious about their business.

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