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What is dropshipping?

Dropshipping is an eCommerce method that lets you sell your products to customers without keeping any in stock. How? The business accepts customer orders and then forwards all the details to a dropshipping supplier. That supplier then packs the product and ships it straight to the customer.

Though the exact details can vary depending on the third parties you work with, dropshipping websites allow eCommerce companies and startups to outsource much of the fulfilment stages of a customer experience.

Dropshipping introduces a middleman who will handle order fulfilment on your behalf. They’ll keep the product in stock year-round, wrap it up when required, and handle the shipment for a fee. Some dropshipping suppliers will even handle custom orders, such as printing a custom graphic on a plain white or black tee when a customer requests it.

You can use dropshipping partners to handle everything from producing the goods you sell to storing them, shipping them to a specific region, and then handling the “last mile” delivery to each customer.

Becoming a drop shipper means you won’t need to invest in warehouse space. There’s also no risk you’ll have excess unsold stock if that product launch doesn’t go quite as you’d hoped. Let’s take a look at those benefits through the magnifying glass.

Running an eCommerce business often involves wearing many hats — from product development to marketing and service — and dropshipping is one way to let someone else wear a few of them on your behalf.

What’s the difference between dropshipping and affiliate marketing?

Affiliate marketing is another retail model that earns commissions by promoting another business’s products or services. 

For instance, you’ll receive a unique product link you promote through your website, advertisements, or social media posts. Whenever someone clicks on your link, you’ll earn a small commission. 

Affiliate marketing has an even lower barrier to entry than drop shipping. You don’t need business knowledge, branding ideas, or domain names. 

However, the profit margins are smaller since you need to source products, manage shipping times, or sell online directly to customers. If you want the full experience of running an eCommerce business, including managing product sourcing and shipping, without the upfront costs, dropshipping is a better option.

How dropshipping works: step by step

Let’s walk through a typical dropshipping process one step at a time.

Step 1: Work with a dropshipping supplier

First, find a dropshipping supplier that stocks the products you’re looking to market. Once you contact them and reach an agreement, they’ll keep the products in their warehouse, handle packaging, and ship to your customers whenever they make an order. 

Step 2: Build your brand

Once you know the products you’re selling online and have a partner to handle logistics, all that’s left to do is build your brand. Build an online dropshipping store, a business name, a logo, and key brand messaging to differentiate from your competitors. Then, market your new business to build your brand and start selling products. 

Step 3: Receive orders

Receiving orders works as you’d expect. A customer visits your website and clicks to buy online. They checkout, pay and receive an order confirmation. As far as they know, the stock comes directly from your online business to them.

Step 4: The supplier handles the rest

Next, forward the order details to your dropshipping supplier. They’ll handle all of the details, package your product with custom branding, and ship the order to your customer’s location. 

Step 5: You gain a happy customer

Lastly, the customer will receive their product. If all goes well, you’ve just gained a happy customer. If it doesn’t, your drop shipping partner will handle customer service.

Dropshipping benefits for eCommerce entrepreneurs

Given the increased use of digital channels for shopping and the business opportunity it represents, dropshipping can be a way to level the playing field and allow smaller players to act more like a large enterprise.

Instead of owning and operating their own warehouse, for example, dropshipping allows entrepreneurs to have help managing their inventory. There’s no need to invest in a fleet of trucks and hire drivers or become an expert in shipping products to various countries. This offers many advantages, like:

Lower startup costs

Dropshipping is the great equaliser. It doesn’t matter if you’re running an established enterprise or launching an online store for the first time. You don’t actually buy your own inventory, meaning there’s less of an initial investment. You can even run your dropshipping business model from home. All you need is an eCommerce website. As a plus, you’ll also keep low overheads, potentially increasing profit margins over time. 

Scalability and flexibility

Dropshipping is a common tactic for eCommerce, where products are sold through large online marketplaces such as Amazon and Etsy to make it easy to start an online store. However, it’s not the only option.

As a seller of record, you can also form direct relationships with manufacturers who will drop ship your wares and produce them. Then, some wholesalers might purchase your products, mark them up, and drop ship them to other retailers.

Global reach

One common roadblock for small businesses is getting products overseas. Selling to your local clientele is one thing; selling to a customer halfway around the world is much more logistically complex. 

Dropshipping gives businesses a global reach, allowing them to sell worldwide without jumping through logistical hoops. Dropshipping companies are only limited by the quality of their brand and products rather than their geographical and economic circumstances. 

Time to focus on other high-value tasks

Best of all, dropshipping may make it easier to focus on areas of the customer experience that require greater attention and creativity. This includes the brand image you’re trying to develop, the channels you use to tell stories about your products, and the time you spend addressing customer questions and complaints through customer service.

What are the challenges of dropshipping?

Every retail model has its pros and cons. Despite the benefits, dropshipping does have some notable challenges. Let’s walk through some of the cons of dropshipping now. 

Loss of control over the supply logistics and product quality

If you outsource your manufacturing, custom packaging, and shipping to a dropshipping supplier, you’re putting a lot of trust in that business. If there’s a problem, you can’t address it as quickly as if it were your own logistical network. 

If your supplier isn’t performing well, you’re in a tight spot. Either you cut ties and risk your temporarily discontinued product going off the market, or you risk losing customers and tarnishing your brand reputation. 

High competition leads to low profit margins

The beauty of starting a dropshipping business is that it’s so accessible. Anyone can do it, and many people will. Unfortunately, that also means there’s lots of competition. 

Many businesses attempt to undercut competitors’ pricing to stand out. This inevitably leads to lower profit margins, making growing more difficult. 

Building your brand

Carving out a brand identity is essential for customer loyalty. But this can be harder when you sell third-party products. For instance, it’s more challenging to assure quality and promise excellent service every time. In short, it’s harder to be consistent. And if your customer expectations demand consistency, retaining them can be tougher if quality dips or service falters.

Dropshipping best practices 

The good news is that these drawbacks are avoidable, provided you implement best practices. 

1. Choose the right niche

The dropshipping market is saturated. Do some competitor research and take the time to choose the right niche. You ideally need a market that isn’t overly competitive. There has to be room to get your foot in the door. Equally, you should choose a segment that you’re genuinely passionate about. 

2. Partner with a reliable supplier

Choose your supplier carefully. Don’t just opt for the partner that offers the cheapest rates or the best package deal. Be diligent and shop around carefully. Search for a supplier that is reputable, communicative, transparent, and, above all, committed to creating a quality product. 

3. Differentiate yourself in other ways

Price isn’t the only way to differentiate your product. Incorporate branding so consumers have something tangible to associate with your products. Commit heavily to customer service. 

Create intelligent or humorous marketing campaigns that make your brand memorable. The more you can do to stand out and build a strong brand identity, the better your chances of carving out market share. 

4. Take the blame

Authenticity goes a long way toward promoting customer loyalty. If your customers complain about missing items or poor service, own it and tell them how you will fix it. 

5. Track performance and improve

Use data analytics to improve your business strategy regularly. Learn more about your target audience, monitor KPIs, and track the competition. The more you start understanding customer habits through market research, the easier you’ll be able to work your way to the top of your niche.

Print-on-demand dropshipping in The Philippines: Prodigi

To reveal just how advanced dropshipping can be, let’s take a closer look at Prodigi, the Philippines’ print-on-demand brand. 

Dropshipping products have a reputation for needing to be more inspired and generic. However, brands like Prodigi change that narrative by allowing businesses to start selling custom on-demand products without stocking any inventory.

Prodigi’s online store contains over half a million print-on-demand products, including canvases, clothing, mugs, phone cases, and stationery. The platform allows businesses to choose from these products and upload their own designs, such as artwork and prints.

Image source: Prodigi

Then, the entrepreneur can sell these prints and products in their shop. When a customer places an order, Prodigi will create the custom end product you sell and ship it directly to the customer.

This effectively allows businesses to create branded products and unique garments without all of the upfront inventory costs. Prodigi also sets itself apart by promising quality, sustainability, and excellent customer service — three common concerns of the tentative drop shipper. 

Most businesses think that a dropshipping model implies a need for more personality and brand identity. But the truth is that it’s entirely possible to create custom products and merchandise without stocking them in your own warehouse. 

Key considerations for Choosing a dropshipping partner

If you’re seriously considering getting started with dropshipping to launch and scale your eCommerce operation, thoroughly vet your partners. Some of the areas to consider and explore include:

Flexibility

Many dropshipping websites have been developed with maximum efficiency in mind. That could mean there are limitations on how your products can be handled regarding packaging or other aspects of eCommerce fulfilment. As a result, you may want to think harder about how you’ll differentiate your brand in different areas.

Visibility

Even though you’re outsourcing as part of a dropshipping arrangement, your customers will consider you accountable for every process step. Talk to your dropshipping partner about the extent to which you’ll be able to see inventory levels for products to sell and ensure customers don’t order out-of-stock items.

Integration

Sharing data about customer orders should be seamless and allow you to continue optimising other aspects of the customer experience. Make sure you can connect your CRM to whatever the dropshipping service has in terms of a tech stack.

Promotions

Though no one wants to compete solely on price, eCommerce customers tend to respond well to special discounts and other offers. Before you can do that, though, make sure your dropshipping partners will allow you to extend free shipping for a limited time or to create themed product bundles.

Quality of Service (QoS)

If a product arrives broken or even with the package dented, it can detract from your brand’s experience and perception. Discuss the dropshipping partner’s controls and safeguards to ensure quality is prioritised throughout the fulfilment process.

Safety

In light of recent events, many customers will look for contactless options when products are delivered to their doors. Your dropshipping partner should be well-equipped with scanners or apps that remove the friction from signing off on a delivery.

Exchanges and returns

Whether you like it or not, customers who order via eCommerce platforms will need to return items. Ask about any costs you’ll incur as part of returns, how quickly exchanges can be handled, and how best to connect all the relevant data to your customer service applications.

Summing up

In some respects, dropshipping involves making trade-offs in the degree of control you have over areas like fulfilment and the speed at which you can grow your business.

If you have significant capital to work with, for instance, it may be better to create your own fulfilment operations so you can find ways to innovate in how customers receive their products.

You’ll also want to consider your goals in terms of profit margin. Products offered via dropshipping are often priced low to move larger volumes of orders. When you use a CRM well, this becomes easier because you can begin to forecast sales accurately.

At the same time, using dropshipping at the outset could mean you develop a brand with unique attributes that set you apart in the market. Once you reach a certain level of growth, you may be more prepared to deal with the complexity of supply chain management and inventory issues.

Remember that customers ultimately turn to eCommerce to enjoy a well-developed digital experience. You need to deliver, whether you opt for dropshipping or tackling fulfilment yourself.

Looking for a way to streamline your dropshipping operations? Salesforce Order Management helps you track orders, manage inventory, and automate fulfilment across multiple vendors for seamless eCommerce success.