What is dropshipping and how does it work?

We unpack this type of business operation. And explore some dropshipping business ideas to consider.
· 28 March 2024 · 5 minute read

What is dropshipping?

Dropshipping refers to a type of retail fulfilment method where a business doesn’t stock the products it sells. Instead, when the business sells a product, it purchases the item from a third-party. This is often a manufacturer or wholesaler. The product is then shipped directly to the customer. As a result, the business typically never handles or even sees the product it sells.

In today’s eCommerce landscape, dropshipping is growing in popularity. This is because of its capability to streamline the process in the supply chain. And because it eliminates the need for businesses to carry stock.

Read on to explore the benefits of eCommerce dropshipping. Plus, some things to consider. We’ll also explore how dropshipping works, and how it differs from more traditional forms of business operations. For example, warehousing or owning a retail store.


The benefits of dropshipping

Low entry barriers

One of the biggest advantages of dropshipping is the low entry barriers. You don’t need a lot of capital to get started. And you don’t need to pay for any stock upfront. You also don’t need to worry about the costs associated with warehouse management.

If you’re an aspiring entrepreneur with limited funds, eCommerce dropshipping could be an accessible option for you. 

Global reach

A dropshipping business can operate on a global scale. This is because the business can source a diverse range of products from across the world. Dropshipping businesses can also cater to international customer bases.

Ease of scalability

eCommerce dropshipping can be a great business model for those looking to quickly scale or grow. Businesses can adapt their product offerings, without the constraints of having to manage physical inventory. This agility can serve businesses well, when they’re trying to respond quickly to new market trends or customer demands.

Less operational complexity

Business operations can become a lot simpler, when you take away the need to manage stock and fulfil orders. This can result in more time for you to manage things like customer service and growing your online presence.

eCommerce platforms integration

Online marketplaces, apps, and eCommerce platforms are changing the way customers shop online. These channels can easily be integrated with dropshipping. For example, your business website can facilitate this business model.

Learn more about how to use eCommerce platforms to reach more customers.

Digital marketing integration

Digital marketing channels, including social media, can align nicely with the eCommerce dropshipping model. These social platforms can be powerful tools for businesses trying to thrive in the eCommerce landscape.

Small businesses can leverage channels like Facebook, Instagram and TikTok to attract new customers and sell their dropshipping products.

Learn more about how to increase sales with social media.

Testing capabilities

For some small businesses, eCommerce dropshipping can be a low-risk way to test the demand for various products and explore different dropshipping business ideas.

Businesses can enter the market without having to commit to bulk inventory purchases. This can be a great way to manage the risks associated with stocking products that may not.


Things to consider with dropshipping

Dependency on suppliers

The biggest limitation with launching an eCommerce dropshipping business, is probably the dependency you then have on your dropshipping suppliers.

In fact, the overall success of your business is highly dependent on the reliability of your suppliers. If your suppliers’ experience shipping delays or product quality issues, this can directly impact you. This is why carefully selecting efficient and trustworthy dropshipping suppliers is so important.

Slim profit margins

Sometimes dropshipping can have lower profit margins in comparison to more traditional retails methods. Generally dropshipping businesses don’t buy in bulk, and therefore can’t leverage economies of scale. As a result, the cost per unit for their products may be higher. And this can make it a struggle to be competitive on price.

Limited control over customer experience

Due to the heavy reliance on suppliers to manage inventory levels and order fulfillment, dropshipping businesses typically have less control over the customer experience.

If products are sourced from international suppliers, extended shipping times could result in customer dissatisfaction. Customer experience issues could also arise when dealing with returns or quality control of the product. This can negatively impact brand image.

Customer trust 

Some customers may have a negative perception towards eCommerce dropshipping. They may associate dropshipping with longer wait times and lower quality products.

Some customers may also favour supporting businesses that locally source their products or want to understand the story behind the brand. Creating a strong brand identity can be hard with dropshipping. This can be especially true if you’re selling products that are widely available through different sellers.

Extreme competition 

The dropshipping market can be incredibly saturated. Due to the low entry barriers, you may find many others have the same drop shipping business ideas as you. Therefore, identifying niche and high-demand products is essential for success.


Is dropshipping right for you?

Despite these ongoing challenges, a lot of eCommerce dropshipping businesses still thrive. And with the low entry barriers, simplicity and agility, it’s not hard to see why.

Are you considering dropshipping? If you are you’ll need to thoroughly research and understand the complexities of how dropshipping works before embarking on this journey. You’ll also need to carefully select reliable suppliers and implement effective marketing and customer experience strategies to help you stay competitive.


Originally published February 2024, updated March 2024

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