What is Dropshipping? How Does Dropshipping Work in 2023?

What is dropshipping? It’s a unique way to run an e-commerce store that lets you get started with little to no investment.

More specifically, dropshipping lets you skip the heavy inventory requirements of running an e-commerce store, instead letting you outsource inventory management and order fulfillment to third-party suppliers.

What is dropshipping? Explained in more detail

Simply put, dropshipping is a business model you can use to run an online store without inventory. It helps you sell products directly from the wholesaler to the customers. As a retailer, all you need to do is keep an online product catalog – you don’t need to hold any inventory.

Every time a customer places an order, you’ll forward it to your supplier, who will then ship the product(s) directly to the buyer. There is no hassle for packaging or shipment. Furthermore, you can export all the product details from the wholesaler (such as Alibaba) to your own e-shop.

Think of it as a three-step process:

1. The customer places an order for $100 (product price).
2. You pay the supplier $50 (wholesale price).
3. The supplier ships the product to the customer and you keep $50 (profit amount).

How does dropshipping work?

There are three important factors in a dropshipping business: the supplier, your store, and the customer.

1. Supplier – First, you need to find a supplier/wholesaler. The supplier will be responsible for your order fulfillment and holding the physical inventory. One of the most popular sources for suppliers is AliExpress, but you can find plenty of independent suppliers as well (though it takes a little more work).
2. Your store – This is the actual e-commerce store at which a customer will place their order. You just need to upload the product catalog, including clean images, item details, and a unique description. There are different e-commerce platforms that work well, with WooCommerce and Shopify being the two most popular options.
3. Customer – After an order is placed, you will get a notification, and you can direct it to your supplier. You only need to pay your supplier when a converted visitor makes the payment.

Dropshipping model vs inventory model

An inventory store is where you keep a stock of your products. In this model, products are shipped from your store. Unlike drop shipping, an inventory requires a lot of investment because you need to have the physical products on-hand at all times.

Ease of work

Now that we’ve answered the question of what is dropshipping, let’s compare its effort to the traditional inventory model.

The inventory model requires you to set up a warehouse to keep stock for the items you are going to sell. You also need to hire employees for physical work. Additionally, it is important to get your inventory insured. Managing your inventory and storage space could be a bit difficult.

Dropshipping, on the other hand, requires no storage space, as the supplier will take care of direct shipments. You can manage your e-commerce store remotely and individually. Basically, the only things you’re responsible for are collecting orders and providing front-facing customer service.

Packaging and shipment

With the dropshipping model, your supplier will handle the entire shipment process from packaging to delivery. There are minimal handling charges (in addition to product cost).

In the case of inventory, you need to handle and ship products on your own, so you will have better control over the delivery process.

Cost-effectiveness

The main reason most start-ups choose a dropshipping model is its low capital requirements. You don’t need a physical space for dropshipping, so there is no investment for a warehouse, buying bulk stock, or hiring multiple employees.

However, your margins might be lower, as the supplier will want a larger cut for handling fulfillment.

Additionally, because there’s so little capital investment required, there are fewer barriers to entry for competitors.

Basically – just as the dropshipping model makes it easy for you to get started, it also makes it easy for potential competitors to get started, which is another thing that can drive down your margins.

Can you dropship using WordPress and WooCommerce?

While Shopify is one platform that a lot of dropshippers use, it’s not the right tool for everyone, especially because you’ll need to pay comparatively high monthly fees even at the beginning when your store is small.

Thankfully, you can also use WordPress and WooCommerce to create a dropshipping store.

WooCommerce is currently the most budget-friendly platform for starting an online store. You can use WooCommerce for free and only pay the hosting charges. When you’re just getting started, you can find quality WooCommerce hosting for as little as $3.95 per month.

Also, Shopify has fewer theme options in comparison to WordPress, so you can get an upper hand over your e-commerce competition.

We have a quick guide to help you set up a WooCommerce-based dropshipping store in just a few minutes. And you’ll also want to consider these must-have WooCommerce plugins.

Conclusion

Now that you can answer “what is dropshipping”, it’s time you choose your product supplier.

Do you have any additional questions about dropshipping or how it works? Ask away in the comments!