If you’ve been dabbling in the world of e-commerce for any amount of time, you might have heard the term ‘dropshipping’.

Some people are able to make a comfortable living by running businesses based around the dropshipping model, but what is it exactly, and should you consider getting into it yourself?

The basics

In the internet age, the idea of bricks and mortar stores being the norm has disappeared. Dropshipping takes this concept to the next level; if you don’t need a physical premise to sell products to customers, why bother handling the products you stock at all?

The simplest explanation is that dropshipping companies act as an intermediary, connecting suppliers with customers while never having to deal with inventory themselves.

When an order is placed via your e-commerce site, this is then passed onto the third-party supplier, who then ships it on to the customer. And thanks to services like SparkShipping, much of this process can be automated.

This essentially means that dropshipping businesses require very little investment upfront, as well as minimal staffing overheads once they are up and running. Well executed dropshipping product research is essential to maximize your profits. There are a lot of tools available to help you find the right products for your site.

The benefits

We have already touched on a couple of the selling points of setting up a drop shipping business, but aside from the affordability and the automation involved, there are other perks to think about.

Flexibility and global reach go hand in hand in this context, for example. Even if you are based in one part of the world, you can target audiences in any other region, since your operations are entirely digital and not beholden to a given geographic location.

Variety is another advantage because there is virtually no limit to the diversity of the product line-up you can offer. If you want to focus on just one niche, or instead go with the flow and sell the latest and greatest products that are trending, you can do so.

Another reason that dropshipping businesses have become so widespread is that you can essentially harness it as a proving ground for product categories that you are unsure about. So rather than committing to stocking them yourself, you could leverage a dropshipping site to see whether there is demand for certain items, then make decisions according to the outcome of your testing.

Scalability is the last and arguably the most important aspect of dropshipping, since if you are a small start-up then it is unlikely that you would have the capacity to accommodate a sudden spike in online orders if you were dealing with all of the storage and shipping of products yourself.

Conversely by essentially outsourcing this to a larger supplier, you can rapidly expand your customer base without any of the costs or complexities involved.

The caveats

The principle benefits of dropshipping make it sound tempting, but it is not a business type without its own troubles.

For example, while the costs of getting started in dropshipping are small, the profit margins are perilously slim. Also, you will be competing with much larger, more established rivals, which means that getting your site noticed is not always easy until you have built up your brand.

Another downside is that since you will not be in charge of inventory management, you could end up overselling if an item is particularly popular. The good news is that this eventuality is rare these days, thanks to improved automation and synchronization.

Finally, there’s the complex matter of shipping. If your products come from multiple suppliers and are being sold to customers overseas, calculating costs and organizing this can get complicated.

However, if all of the advantages are enough to outweigh your reservations about dropshipping, then this could be a good business to get into.