When you want to expand your business and reach new markets, dropshipping might be right for you. Whether you're a merchant wanting to reduce your risk or a supplier looking to add a new sales channel for your business, dropshipping can be an excellent choice. By understanding the dropshipping business model and the benefits of using it, you can decide if it's right for your organization.
What Is the Dropshipping Business Model?
Dropshipping refers to a retail fulfillment method where a business, otherwise known as a merchant, doesn't have the goods it's selling in stock. Instead of completing a sales order themselves, a merchant will give any sales orders to a third-party supplier. This supplier then ships the item directly to the buyer, resulting in the seller never having to handle or store their products.
In this business model, a merchant pays for products from a wholesaler or a manufacturer, with the price for the product coming at a discount. The merchant then earns a profit from selling the item at a higher cost than what they paid the supplier. The supplier makes a profit from selling these discounted products after accounting for costs related to manufacturing, storing and shipping the goods.
When manufacturers want to sell dropshipped products, they generally do it to complement their wholesale efforts, as dropshipping can be less consistent than a buyer purchasing in bulk. In the same way, many merchants tend to utilize dropshipping alongside their more traditional e-commerce activities.
Is Dropshipping Allowed?
While some people are suspicious of dropshipping, it's a legal way for merchants and suppliers to do business. The fact that merchants don't have to keep items in stock to sell goods can seem too good to be true. But dropshipping is a perfectly legitimate method of doing business. Of course, you'll still have to meet various legal requirements, accurately market your products and ensure any items you sell meet different standards as a supplier or merchant.
6 Advantages of Dropshipping for Suppliers
When you're a supplier thinking about starting dropshipping, you might want to know more about the benefits it can provide you. Many suppliers make dropshipping a part of their business, as it gives them additional sales channels to sell goods and allows them to focus on manufacturing. Other advantages include selling products for a higher price, not worrying about marketing to consumers, creating business relationships with merchants and increasing product movement.
If you're a supplier interested in offering dropshipping to customers, take a moment to review the six primary advantages of dropshipping for manufacturers and suppliers:
1. Additional Channels to Sell Goods
While many manufacturers prioritize selling their goods in bulk to a retailer, they can increase their revenue by using dropshipping to expand their sales channels. Some merchants don't have the resources or space to stock and ship their products. Manufacturers that only sell in bulk and ship products wholesale can miss out on these potential customers. By offering dropshipping services, a manufacturer opens up their ability to sell to more businesses, potentially increasing their profitability and revenue.
2. More Focus on Manufacturing
When a manufacturer chooses to offer dropshipping to merchants, they often enjoy the fact that they can focus on simply manufacturing their products. That gives suppliers the chance to reduce focus on setting up an e-commerce platform, paying for marketing materials and making other considerations that come with selling directly to consumers. Instead, they can focus on what they do best — creating and manufacturing high-quality products.
3. Minimal Marketing Costs
Since suppliers sell directly to merchants, they don't have to pour money into large marketing campaigns or advertising aimed at consumers. Instead, they only have to connect with various merchants and convince them to sell their products. This need to only speak to merchants directly can make it so the supplier doesn't have to spend much money — if any — marketing their products.
4. Higher Selling Price per Item
When manufacturers sell in bulk, they usually provide their buyers with a significant discount. When a buyer purchases products via a dropshipping agreement, they'll still often receive some discounts but not as high as if they were buying bulk. As a result, manufacturers can sell their products for a higher price per item than if they were selling the products wholesale to a company that could handle a large inventory.
5. Stronger Business Relationships
When new merchants are first starting, they often can't buy in bulk. As a result, they'll often turn to a dropshipper. A supplier that offers dropshipping can form strong business relationships with these new merchants and gain their trust early on. If a merchant expands and has the capital to handle a large inventory, they may buy in bulk from the supplier they already have a good relationship with, creating greater profitability for the supplier.
6. Greater Product Movement and Orders
Another advantage of dropshipping is that it raises the chances a merchant's products move out of the warehouse and into a buyer's hands quickly. Due to dropshipping's ability to allow suppliers to reach new merchants, manufacturers can increase the number of orders they receive for their products throughout the year. A supplier with consistent dropshipping orders from merchants can clear their warehouse shelves faster, allowing for new products to cycle in more quickly.
Advantages of Dropshipping for Merchants
Dropshipping has several advantages for merchants, as well, making it an attractive option for both parties. Merchants especially enjoy the lower startup costs and reduced risks that dropshipping provides them over a traditional e-commerce business model. Additionally, some of the other major pros of dropshipping for merchants include greater customer engagement, easier scalability and reduced storage and logistical expenses.
If you're a merchant that wants to add dropshipping to your online business, learn more about the top advantages of dropshipping for merchants below:
Low Startup Costs and Risks
Many merchants choose to offer dropshipping due to its low startup costs. Since merchants don't have to buy in bulk, they don't have to pay the initial high costs to purchase products wholesale. Merchants also don't have to worry about purchasing a warehouse, staffing it and developing shipping practices to sell their products, meaning they have much lower expenses. Additionally, merchants have less risk, as they don't have to put capital into shipping and storage.
Quicker Product Listings
In a traditional business model, a merchant will need to wait until their stock ships to them to begin advertising it. Since the manufacturer handles all of the shipping responsibilities and will likely have already manufactured the product, the merchant can immediately offer their goods on their site. Instead of waiting for items to arrive at their store or warehouse, a merchant can instantly list various products, reducing downtime and helping the merchant always keep their offerings fresh.
Simpler Expansion to New Markets
At times, merchants have difficulty getting their products into new countries and markets due to the costs, logistics and regulations required. When a merchant works with well-located dropshipping suppliers, they can often expand into markets more easily. Since a supplier will often already have the connections and expertise necessary to ship in various markets, merchants don't have to put in as much effort to expand. Many merchants enjoy offering dropshipped products in new markets, as it allows them to test the market first.
Greater Customer Engagement
When a merchant has a successful dropshipping relationship with a supplier, they can often improve customer engagement by continuously adding new items from the supplier to their product offerings. This variety can bring customers back to a merchant's website, as they'll want to know what great new products the merchant is offering. By providing more options to consumers, a company can build its reputation and increase the chances of repeat customers.
Reduced Storage and Logistics Costs
One of the most obvious benefits of dropshipping for e-commerce merchants is the reduced logistics and storage costs. The dropshipping supplier will handle all of the storage and logistics, meaning the seller won't have to worry or pay for them. The merchant won't have to factor in port operations, ocean freight services, warehouse employees or LTL and FTL services into their costs. They can keep their expenses lower and focus more on marketing their products to consumers.
Another major advantage of dropshipping for merchants is the ability to access an almost unlimited inventory of products from many different suppliers. Since merchants can find so many manufacturers and suppliers offering dropshipped products, they can easily increase their e-commerce inventory. With this access to such a large inventory, sellers can offer a wider selection of products to their customers, leading to greater customer engagement.
In the dropshipping model, merchants can more easily scale up and expand their operations. By working with a dropshipping supplier, merchants can quickly add new products to their inventory and test them. Since the merchant doesn't have to worry about purchasing in bulk when they expand their product offerings, it's much easier to scale up their business and test out new products without taking on much risk.
Potential Cons of Dropshipping
While dropshipping has many advantages, it can potentially have disadvantages if the supplier or merchant doesn't know how to make their dropshipping business strategy successful. Some aspects of dropshipping to consider include:
- Greater risk for supplier coordination issues: When a merchant sources their dropshipping products from multiple suppliers, they can run into issues related to coordinating with all of these suppliers for customer orders. The more suppliers a merchant has to coordinate with, the more complex their operations become, leading to a higher chance of errors. These errors can also make it difficult for a supplier to meet a merchant's needs since they may not receive accurate or timely information.
- Highly competitive markets: Since it's so easy for merchants to enter the dropshipping market and sell online due to low capital requirements, merchants face a great deal of competition from others using dropshipping. This competition can end up making a merchant's margins lower. Suppliers face competition from others who offer similar products, making it crucial for manufacturers to develop strong relationships with merchants for greater success.
- Reduced shipping visibility: At times, retailers may not have full visibility into the shipping process. Since the supplier handles shipping processes, the merchant may not have easy access to information, such as shipment tracking details, shipping dates and delivery timeframes.
- Complicated order processing: When a merchant works with multiple suppliers and wholesalers or a supplier has multiple clients, order processing can become complicated. Some dropshipping businesses don't have the infrastructure or software to efficiently handle orders and receive payment, leading to greater customer dissatisfaction and inefficiencies.
How ConnectPointz Can Help You Create a Successful Dropshipping Business
Whether you're a supplier or a merchant, ConnectPointz can help you develop a dropshipping model that works for your needs and addresses the potential disadvantages of dropshipping. We offer a high-quality platform designed to connect various e-commerce applications and systems into a massive ecosystem. Whether you're a supplier or merchant, you can use our platform to receive an omnichannel and automated experience, helping you sell products online and create a successful dropshipping business.
With such a robust platform at your disposal, you can use our software to improve your dropshipping efforts significantly. Our software increases connectivity between data points, allowing companies to transmit information faster for improved order processing. Our software can also help you automate tasks to speed up order processing and easily scale up when you want to expand your operations.
The ConnectPointz platform can also increase a supplier and merchant's visibility over the storage and shipping process. Our shipping and logistics integration solutions ensure every relevant party in the supply chain can access accurate and up-to-date data. Since this software can also simplify processes and remove manual data entry, businesses can simplify a potentially complicated order process.
Because our platform is customizable and connects various e-commerce systems into one ecosystem, you'll increase your business's overall efficiency and reduce costs. As a result, you can stay ahead in a competitive industry and develop a successful dropshipping business.
Learn More About Dropshipping Solutions From ConnectPointz
At ConnectPointz, we can provide you with a custom dropshipping solution designed for your business's unique needs. We know that one solution can't fit all, so we offer flexible pricing, giving our clients the option to only pay for what they need. Whether you're a supplier or a merchant, we're ready to work with you to craft a successful dropshipping solution.
If you have any questions about dropshipping and want to learn more about how we can help, please feel free to contact us. You can also request a free demo on our homepage or register for our dropshipping solutions.