Dropshipping: if you aren’t already doing it, you’ve definitely heard about the business owners who are.
But what exactly is dropshipping? And why is it suddenly so popular?
This handy guide is here to help you understand what all the fuss is about – and work out whether dropshipping is something your business could benefit from.
If you run an ecommerce business and you’re curious about how dropshipping could help you grow, or if you’ve heard about dropshipping and you want to get in on the trend, this guide is for you.
- What dropshipping is (and why it’s suddenly so popular)
- The pros and cons of dropshipping
- How Brightpearl helps businesses that dropship
- Profit-boosting dropshipping tips
- The winning combo dropshipping businesses should know about
Dropshipping: what is it?
Dropshipping is a retail fulfillment method – and one of the most popular and profitable e-commerce models around. It’s used by e-commerce stores who don’t want to, or aren’t able to, directly handle the products they sell.
When a customer hits ‘buy’ on a product from a business that uses dropshipping, a request is immediately forwarded to a wholesaler, supplier or manufacturer. This ‘invisible’ third party then supplies and ships the item to the customer on the seller’s behalf – and sends the seller a bill for the service.
Dropshipped items can still be fully branded and customers are typically unaware that a dropshipping service has even been used.
Why’s it suddenly so popular?
Dropshipping has technically been around for decades – starting back in the 1960s and 1970s when mail order catalogs became popular.
However, it’s become a real buzzword over the last couple of years – and with good reason.
Research from the IMRG reveals online retail sales grew by 36% after the pandemic hit in 2020, the highest annual growth since 2007. Brightpearl’s own research shows that two thirds (65%) of shoppers are planning to increase their online shopping spend in 2021 compared to 2020.
And that’s not all… Online retailers have been seeing year-on-year sales increases of upwards of 600% in the first half of 2021.
In other words, online retail is where it’s at – and many entrepreneurs and traditional businesses have been keen to grab a bigger-than-ever slice of the e-commerce pie. Enter dropshipping.
The dropshipping model makes it easier than ever for anybody to start, grow and build a profitable e-commerce store. Businesses that use a dropshipping model don’t need to invest heavily in stock or staffing – which lowers the barrier to e-commerce entry, something that’s especially enticing during a time of wider economic uncertainty.
Despite a surge in popularity, dropshipping isn’t just a fad. It’s a business model that has moved with the times and proven to be a safe, cost-effective way for entrepreneurs to get off the ground and for established ecommerce stores to grow.
5 pros of dropshipping
- No inventory necessary
The beauty of dropshipping is that businesses don’t directly touch the products they sell. That means they don’t have to fork out on inventory when getting set up – and they don’t have to pay for storing it, either. It’s for this reason that dropshipping is so popular with entrepreneurs who have great ideas, but don’t have large sums to invest upfront. It also provides established e-commerce businesses with a simple way to add new product lines, even if its own warehouses are full.
- Reduced risk
Because dropshipping requires less investment than other retail models, it reduces the risk for entrepreneurs. But that’s not all. Once a dropshipping business is up and running, introducing new products to market is much less risky. Business owners can easily test new products – and if it doesn’t work out, they don’t have huge piles of stock going to waste.
- Low overhead costs
Without inventory to buy or a warehouse to manage, overhead costs are typically low for dropshipping businesses. As a dropshipping business grows, costs can increase – but will still be very low in comparison with a more traditional bricks and mortar or online store.
- Flexible working
A dropshipping business can be managed from anywhere in the world, which offers business leaders flexibility in where they work – or where their teams are based (this could be overseas, if it is cheaper). With a robust retail operations platform in place, it’s also easy to communicate remotely with customers and drop-shipping providers.
- Easier growth
In traditional businesses, if sales double it means double the work. But in a dropshipping business, it’s the suppliers that take on the additional workload. This removes one of the major barriers to growth – and explains why so many companies that use dropshipping are able to scale very quickly.
5 cons of dropshipping
- Profit margins can be low
Suppliers will charge a premium to kit out their packages with specific branding. This can mean that, unless customers are willing to pay a premium price, profit margins can be lower than they would be if a traditional fulfilment method was used.
- Quality issues can occur
The downside of a business not having direct contact with the product it sells is that it’s difficult to guarantee the quality of the product and tricky to manage issues with delivery. If a business uses multiple suppliers or wholesalers, managing issues can be a headache.
- Customer service isn’t straightforward
Because dropshipping businesses have less control over getting goods to their customers, providing good customer service can be tricky. When issues occur, it is not always easy to see what’s gone wrong and how to fix it. Having a robust retail operations system in place that acts as a centralized hub that connects the various stages of the dropshipping cycle can make a huge difference.
- Stock management can be challenging
For traditional businesses, managing stock is relatively straightforward. For dropshipping business, it’s more challenging. An integrated retail management platform plays an important role in helping companies keep an eye on stock and shipping from multiple suppliers. This makes it easier to update customers and keep things ticking over.
- Competition is high
The current e-commerce environment combined with the low barrier to entry means dropshipping is more popular than ever – which has resulted in increased competition. Quite often, multiple businesses will sell the same products from the same third-party manufacturers. To succeed, dropshipping businesses must find innovative ways to stand out from the crowd.
How Brightpearl can help
Brightpearl makes running a dropshipping model even easier. Almost every element of the dropshipping sales process can be automated, thanks to the platform’s powerful Automation Engine which makes it easy to automate time-consuming, manual tasks.
Brightpearl offers businesses that have a 100% dropship model, as well as those which combine dropshipping with internally fulfilled sales, a centralized hub that provides real time insight across channels. It’s even possible to track stock that belongs to external suppliers by creating a virtual warehouse on the platform.
Here are a few examples of how Brightpearl can help with dropshipping:
- Sales can be turned into purchase orders and automatically sent to suppliers
- Products can be added in just a couple of clicks
- Invoices from suppliers can be automatically processed
- Customers can be automatically informed that their order has shipped
- Dropship orders can be managed on the system at a glance, thanks to a handy parachute symbol
3 profit-boosting dropshipping tips
- Automate! Automation is the secret to growing a dropshipping businesses successfully – and quickly. By utilizing the power of Brightpearl’s Automation Engine, a dropshipping business can provide a valuable passive income stream.
- Find your niche. Don’t choose to sell products simply because everyone else is doing the same. A niche product will command a higher price point and be more successful in the long run. If you aren’t sure what your niche should be, start with a store that sells various items until you work out what sells well and stands out from the crowd.
- Seek out the best suppliers. Good suppliers are the foundation on which a successful dropshipping business is built. Do your research to find suppliers that have high quality control and a strong reputation for shipping goods quickly (and in suitable packaging). Bad suppliers can negatively impact your brand, so it’s worth putting the effort in to ensure any suppliers you work with can be relied on to do a good job.
Brightpearl + Shopify: The perfect dropshipping combo
Shopify plus Brightpearl is the ultimate tech combo for businesses that want to start dropshipping, or those that already do it (but want to do it better).
Shopify offers merchants a fast, reliable, responsive ecommerce platform for reaching customers. Brightpearl connects out of the box to Shopify to provide a centralized overview of sales and live stock tracking.
For merchants that use dropshipping, it’s essential that orders are processed quickly and efficiently. Brightpearl is packed with features, including a powerful Automation Engine, to make it happen.
Want to discover more about how Brightpearl can help your dropshipping business Grow Fearlessly? Book a live demo today.