What is dropshipping?
Dropshipping is a retail fulfillment method in which a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party—usually a wholesaler or manufacturer—and has it shipped directly to the customer.
If you're looking to sell a variety of products through your online store, the notion of dropshipping will help to build your brand or grow your business exponentially by eliminating the challenges of shipping and stock management. However, online businesses selling incredibly niche handmade products won’t benefit from dropshipping.
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Disclaimer: This content is provided for informational purposes only, and should not be construed as legal advice from GoDaddy on any subject matter.
Benefits and pros of dropshipping
Now that you’re better acquainted with dropshipping, here is a summary of the primary benefits of this ecommerce business model:
Lower starting cost
As you don’t have to buy your stock upfront, far less capital is required to set up and launch an operational business — you can get started almost immediately and start selling. With low-cost options like WooCommerce and a dropshipping plugin, you can create an online store quickly and inexpensively.
Lower overhead costs
With dropshipping, you won’t have to deal with purchasing an inventory or dealing with warehouse management challenges, which means your overheads will be minimal. All you need is a good home office, your dropshipping software or service, reliable web hosting, and a heaping helping of self-motivation.
Looking to get a headstart on your dropshipping venture? GoDaddy’s Managed WooCommerce platform is optimized for ecommerce sites — no server admin experience required.
Flexibility
When you dropship, you’re not necessarily bound to one physical location, so you can run your business on the move or relocate with ease. Moreover, by harnessing the potential of dropshipping suppliers rather than storing stacks of stock, scaling your business will be far easier than a traditional ecommerce model.
It’s clear that for the right small business owner, dropshipping has an enormous amount of potential.
At this point, it’s worth noting that dropshipping suppliers naturally take a cut of your profits for shipping, service, and logistics, so your profit margins will be lower than if you were selling independently. But if you get it right and keep your business flowing, you won’t lose anything in the long run.
Growth potential
As an online business owner, knowing that you can grow and thrive in the long term is essential. Fortunately, the global drop shipping market is currently valued at $351.8 billion and is expected to grow 23 percent by 2025. This means that there is enormous potential for dropshipping in the long term — and by standing out in your niche, you will benefit from the influx of shoppers heading online.
Wide range of products available
Whatever your niche, there’s likely a dropshipping provider out there to help fill that market gap. From custom stickers to hard-to-find car accessories and even personalized tea blends, dropshipping can connect your customers with the products they’ve been looking for.
Drawbacks and cons of dropshipping
We’ve covered the pros of dropshipping, but now let’s go over some of the cons of this ecommerce business model that you’ll need to be aware of.
Supplier issues
Supplier issues can cause major problems for dropshipping stores. Since the dropshipping model relies on third-party suppliers to fill orders, any problems on their end can directly impact your business. Common supplier issues can include:
- Stock availability, where suppliers may run out of stock, leading to delays and potential cancellations.
- Shipping delays, as suppliers often operate from different regions, causing longer delivery times.
- Communication problems, which can complicate order processing and issue resolution.
- Over-dependence on a single supplier, which is risky if they face operational difficulties or increase prices.
High competition
Another drawback to dropshipping is high seller competition. Since the barrier to entry is relatively low — requiring minimal upfront investment and inventory management — many entrepreneurs are attracted to this business model. This influx of sellers leads to a saturated market where many stores are offering the same or similar products.
As a result, it becomes challenging to differentiate your store and compete on price.
High competition also makes securing a loyal customer base harder, as shoppers can easily find alternative sellers offering the same products, sometimes at lower prices.
Quality control
One significant drawback to dropshipping is the challenge of maintaining quality control, as retailers do not handle the physical products directly. This can lead to inconsistent product quality, which then necessitates complicated returns and refunds; all of which can harm customer satisfaction and tarnish the seller’s reputation.
Without the ability to inspect products firsthand, dropshipping sellers heavily depend on their suppliers to maintain high standards. Any lapses can result in negative reviews and a damaged brand image.
Dropshipping tips
With that knowledge under your belt, let’s go over tips to help your dropshipping store be successful.
Find the right suppliers
Before you commit to a dropshipping platform or supplier, you should conduct an ample level of research to find a service, or services, that are right for you. Consider your business aims and objectives, think carefully about the products you want to sell as well as your brand message and the kind of service you’re looking to offer.
Conduct supplier comparisons, looking at pricing models, key features and benefits, and quickly, you’ll understand which service is the best for you.
Note: It’s worth checking into your existing suppliers frequently (bi-weekly or monthly) to ensure your entire inventory is covered. If you find out that certain items are in short supply, you should update your online store immediately and look for quality alternatives (either in the form of new products or new suppliers).
Find your niche
The great thing about dropshipping is that you can sell almost anything through your online store with ease. But, for sustainable dropshipping success, you should (as mentioned above) decide on your niche and core value proposition.
By offering a solid range of products in a particular niche, as opposed to being a general store, you will give yourself a great chance to stand out from the crowd and hone in on a specific target audience.
This approach will offer you true long-term value rather than a flash-in-the-pan sale or two.
Focus on marketing
In the digital age, the consumer is king and to reach out to your prospects on a personal level, you must have a solid marketing strategy — delivering personal, engaging, inspiring and value-driven content on a host of promotional channels and channels and touchpoints.
If you need a boost to get started on your marketing journey, check out our digital marketing guide.
Avoid underpricing
With dropshipping, your profit margins are often slightly lower than in a traditional ecommerce model, so to ensure you do make a healthy profit, you should work out the average order price and consider your overall margins as well as associated business costs such as marketing or outsourcing when coming up with those magic retail figures for your products.
You should always be competitive, but you should never undersell yourself.
If you know your customers and your products offer them personal value, they will pay the right price — always remember that.
Remain motivated
Although you don’t have to deal with inventory management and shipping, you’re still running an online business. As such, you must remain motivated, maintain a social media presence, nurture relationships with your suppliers, keep on top of customer service and admin, and develop the business for growth. Manage your time wisely, make sure you’re consistent, and enjoy being your own boss.
Dropshipping FAQs
How to dropship?
To start dropshipping, you'll want to choose a niche, find a reliable supplier, set up an online store, and list your products. Then, promote your store to attract customers. When orders come in, the purchase is forwarded to the supplier, who ships it directly to the customer.
How much does it cost to start dropshipping?
Starting a dropshipping business typically costs between $100 to $500. This includes expenses for setting up an ecommerce website, purchasing a domain, and initial marketing efforts. Additional costs may arise from subscription fees for ecommerce platforms and third-party apps. The overall investment can vary based on the scale and niche of the business.
Is dropshipping legal?
Yes, dropshipping is legal. It is a retail fulfillment method in which a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. However, to avoid legal issues, following all legal requirements, including proper business licensing, tax regulations, and consumer protection laws is essential.
Is dropshipping worth it in 2024?
Dropshipping can be worth it in 2024 if you focus on niche markets, offer excellent customer service, and effectively manage suppliers. The ecommerce landscape remains competitive, so success depends on strategic marketing and adapting to trends. Dropshipping can have challenges like thin profit margins and potential supply chain issues, so do your research before committing.
