Projected to reach a market size of $557.9 billion by 2025, dropshipping is an eCommerce strategy taking the world by storm…and it isn’t slowing down anytime soon. Whether you actively run an eCommerce business or you’re just looking to get started, you may benefit from jumping on the dropshipping bandwagon.

Starting a dropshipping business is simple enough, but succeeding with this tactic requires careful consideration and planning.

In this dropshipping 101 introduction, we’ll uncover the key components of starting a dropshipping business to help you set yours up for success.

What is dropshipping?

Dropshipping is an eCommerce fulfillment strategy that lets retailers sell products without the need to manage, store, or ship inventory.

When you sell products via dropshipping, you’ll never need to hold any physical stock of the products you sell. Instead, your supplier will ship products directly to your customers for you.

The dropshipping process has five fundamental steps:

1. Your customer places an order through your online store
2. Your store processes the order and automatically sends it to your dropshipping supplier
3. Your dropshipping supplier prepares the order
4. Your dropshipping supplier ships the order directly to your customer
5. Your customer receives their order

This hands-off style of fulfillment means it only works for eCommerce businesses, not traditional brick-and-mortar stores.

Dropshipping is often seen as a get-rich-quick scheme. Yet, just like any other business model, it requires significant dedication and hard work to build a successful dropshipping store. In fact, dropshippers from around the world estimate less than 20% of dropshipping businesses succeed.

Familiarizing yourself with the benefits and risks of dropshipping will help your store thrive and prosper.

Benefits of dropshipping

Many retailers are understandably tempted to adopt a dropshipping platform. The idea of being able to sell products online without ever having to hold any stock is extremely appealing.

Let’s look more specifically at the key benefits of dropshipping.

1) Lower startup costs

One of the main advantages of dropshipping is its low startup costs compared to running a traditional eCommerce business.

When starting an eCommerce store, retailers typically need to save for and purchase inventory based on how many units they expect to sell. They then need to find a way to store this inventory, which often means renting storage space. Buy too much stock when you first launch your store and you may end up operating at a loss as you try to sell off the surplus.

Dropshippers don’t need to worry about renting storage space or paying for inventory up front — two major costs that can impede new retailers. Because you only need to pay for inventory as you sell it, you can forgo the costs of holding excess stock.

The lower startup costs of dropshipping make it far easier to get your business off the ground.

2) Scalable and flexible

A dropshipping business can allow you to scale or adapt your business more easily.

As a dropshipper, you aren’t tied to one physical location. You can sell from and to anywhere in the whole world if you want — as long as your supplier ships there. If your supplier doesn’t ship to a certain place, you can source local dropshipping suppliers in other countries to expand the global reach of your online store.

As your business grows, you can continue to feed orders to your network of suppliers, rather than having to expand your team or premises.

The scalability of dropshipping can also help you ride the waves of fluctuating sale periods, such as the winter holiday season, when online orders may drastically outweigh your average monthly sales.

As well as being scalable, dropshipping serves as a flexible eCommerce fulfillment strategy. Since you don’t hold stock, it’s easier to pivot your business and explore new niches. You can easily adapt your product offerings to keep up with changing market preferences.

3) No need to hold stock

Not having to hold stock is a top dropshipping benefit. As a dropshipper, your supplier handles every aspect of inventory management from storage to shipping.

Because your supplier manages the inventory, you’re free to focus on marketing your store and developing new product lines. You can double-down on expanding your store without ever having to touch any physical stock until you’re ready to expand beyond the capabilities of dropshipping.

The removal of inventory management also makes it easier for you to expand your product offerings through dropshipping. You can trial new product lines and increase the number of offerings without having to consider storage options. Not having to hold stock opens up new windows of opportunity for your dropshipping business.

Risks of dropshipping

We’re sure most eCommerce owners’ eyes light up at the idea of not having to manage their stock, hold inventory, or process customer orders. However, running a dropshipping business isn’t without its risks.

Before you start a dropshipping business, make sure you’re aware of the following potential risks and how to navigate these.

1) No control over quality

With a dropshipping business, you have no control over the quality of your products or customer orders. As a result, dropshippers need to have complete trust in their suppliers.

Although you are responsible for any issues, you’re unable to oversee the quality of goods received. You also won’t know if your supplier is adding self-promotional inserts into customer orders in an attempt to get buyers to shop with them directly next time. Products could be damaged during the packing process, or they may not look as described online.

You need to be certain your customers receive high-quality goods. One way is to ensure this is by ordering product samples from your supplier. You could also work with a trusted third-party fulfillment center that will inspect the items before they’re sent to the buyer.

2) Unpredictable shipping times

Unpredictable shipping times are one of the toughest challenges dropshippers will face. Although not having to hold or manage stock saves on startup costs, those savings can be eaten up if supply chain issues arise.

As a dropshipper, you rely on your suppliers and manufacturers. You could process a customer order only to find out some items are out of stock and have been put on back order for months. These product availability issues impact delivery estimates, delaying the time for customers to receive their orders. The only other alternative is to cancel your orders and lose revenue. In both instances, your brand reputation takes a hit.

If you sell products through a marketplace, such as Amazon, uncertain shipping times can also impact your seller performance. If your seller performance starts to slip, you may face fines or penalties for failing to meet customer satisfaction requirements.

To navigate unpredictable shipping times, you can work with local fulfillment centers near your supplier to reduce lead times. Alternatively, you could build a network of suppliers that offer the same product lines to ensure you always have a backup supplier on hand for times when your original is experiencing back-order issues.

3) Miscommunication

Communication is key for every business, and yet, miscommunication is a common occurrence in the dropshipping industry.

The beauty of dropshipping is that it presents a hands-off opportunity to build an eCommerce business. However, “hands-off” doesn’t mean you can be 100% removed from the logistics of your business.

Miscommunication between yourself and your supplier can easily lead to customer order errors. If you fail to provide suppliers with the correct order information, they may send customers the wrong items, or may not send their order at all. Similarly, supplier miscommunication could also result in you completely missing logistical issues that arise.

Your customer service team will need to maintain close contact with your supplier to make sure everything operates as expected. By doing this, your team proactively navigates any potential issues, which protects the integrity of your brand while minimizing customer complaints. A clear line of communication with your dropshipping partner will cause fewer headaches for your customer service team.

Working with a third-party logistics (3PL) and fulfillment provider can help you maintain customer satisfaction by tackling any potential logistics issues early on.

Top dropshipping strategies

Dropshipping is a great way to start out and test market fit with a minimum viable product. You can use dropshipping to establish your brand direction and see where the opportunities lie for further brand development.

Eventually, however, you need to go beyond basic dropshipping strategies if you want to scale your business.

As your business grows, you’ll want to have more control over your supply chain so you can control logistics and quality. You should also look to work with more than one manufacturer and have inventory in multiple places to improve scalability and competitiveness.

By carefully crafting a robust eCommerce model, you’ll build the resilience of your business.

1) Master your marketing strategy

A dropshipping business allows you to devote more time to marketing. Mastering your marketing strategy is critical for increasing your store traffic and converting visitors into customers. You can use a mix of marketing channels to widen your reach and get your brand in front of more potential customers.

According to data from Statista, 40% of online shoppers use search engines to search for products online, 38% of people use Amazon, and 35% use other marketplaces.

So, if you want your online store to be seen by the right people, you need to improve your store’s visibility across search engines and on any marketplaces you sell through. You can achieve boost exposure by investing in search engine optimization (SEO) and paid advertising.

When mastering your marketing strategy, take advantage of the power of social media and email marketing. These channels are powerful avenues to build consumer relationships and keep customers coming back to your store.

2) Know what to automate and what to control

Automating aspects of your dropshipping business makes it easier to grow and scale. Many tools are available to automate certain elements of your dropshipping business.

You could automate marketing tasks with the help of social media scheduling tools, email marketing platforms, and retargeting software. Marketing automation has been shown to increase business productivity by 20%, which, in turn, boosts revenue, secures faster conversions, and shortens the sales cycle.

Managing product pricing can be an arduous task as a dropshipper; you’ll need to monitor competitor prices and set your own prices accordingly.

If you run your dropshipping business through a marketplace channel, you can employ product repricing tools that automatically monitor and adjust your product prices for you.

MyFBAPrep helps online retailers streamline their operations by acting as their sole point of contact. We can manage multiple fulfillment networks, consolidate invoicing across partners, and help simplify your overheads. We can also assist you in adding new brands to your Amazon portfolio so you can scale your business with ease.

While automation is a key driver of success as a dropshipper, it’s critical to understand what to automate and what to maintain control over. Some areas require less of your time and attention, while others will need much more.

3) Find your niche

When starting out with dropshipping, it’s best to begin with a general store. By selling a wide range of products that aren’t constrained to one category, you can test multiple niches and discover the right fit for you.

Taking a generalist approach to dropshipping allows you to see what products your customers are most willing to pay for, which niches you enjoy the most, and what categories you excel in. As a beginner, general stores are easier to manage. However, as your skills and experience progress, you’ll soon find more opportunities in niches.

After a while, however, you should narrow your focus and build a more specialist product collection. A niche store allows you to serve an underrepresented market and build strong connections with a particular group of consumers. A single-track focus also means you can tailor your marketing efforts toward one niche so it’s easier to establish your brand as a leader within your chosen category.

While there are many arguments for and against niching as a dropshipper, the overall consensus is that you should niche down as you gain experience.

4) Build a network of suppliers

Overreliance on a single supplier could spell trouble for your dropshipping business. Instead, strengthen the resiliency of your online store by building a network of trusted suppliers.

Rather than relying on one partner, you should maintain a network of suppliers and manufacturers you can source products through at a lower cost or higher quality. Having multiple suppliers will also act as a safety net if your main supplier ever faces difficulties and can’t fill your orders.

Ideally, your store should also have a network of local suppliers and manufacturers near the locations where your shoppers are based. While local partners can be more costly, it pays to keep them in your network to offer support during times when your usual supplier may be unable to fulfill orders to the required standard or capacity.

Focus on building strong relationships with your suppliers and you’ll be able to better protect your business against potential bottlenecks or unexpected issues.

5) Incorporate an omnichannel sales strategy

Dropshipping can be a great way to get your eCommerce business off the ground. But if you want your store to reach its full potential, you need to combine dropshipping with other channels to create an omnichannel sales strategy.

Your omnichannel sales strategy should span multiple shopping fronts, including eCommerce, brick-and-mortar retail locations, marketplaces, and wholesale sources. Also, you can marry dropshipping with physical stock by maintaining stock in multiple locations. When you hold multi-location inventory, use logistics software to manage order fulfillment and inventory across all your locations.

Extending your brand through dropshipping and physical stock, as well as through various sales channels, will allow you to reach more people and protect its security to ensure longevity.

Wrapping up — Final thoughts on beginning a dropshipping business

Dropshipping can be a lucrative entry route to starting an eCommerce business. It also presents an opportunity to test market fit with minimal up-front risk.

However, if you want to grow your business significantly, you’ll eventually need to expand beyond operating only through dropshipping.

Ultimately, dropshipping isn’t the only method to rely on in eCommerce. You need to have alternative sales channels and stock sources if you want to build an eCommerce business that stands the test of time.