DROPSHIPPING has seen exponential growth in recent years, particularly during lockdown as searches for the term rose 319 per cent globally on gig economy platform Fiverr. But just what is dropshipping and how do you do it?
The term refers to a commercial model where a business takes orders but does not hold any stock.
Instead the orders are sent to the manufacturer, who then ships the goods direct to the customer.
E-commerce platforms such as Shopify and supplier directories such as Alibaba have made the process quicker and easier, allowing businesses to pivot to this model with limited investment and time.
As customers’ buying habits change, dropshipping can be an effective way to quickly set up a new business to meet growing demand.
‘As people have been confined to their homes for long periods of time, they are looking for new ways to spend money. Within this, longer delivery times have become more understood, due to the effects of the pandemic,’ says Liron Smadja, VP of international expansion marketing at Fiverr.
There is a lower entry barrier in comparison to traditional sales because a business does not need to invest in stock or have to hire space to store it. In dropshipping, a business is not required to handle the product, manage inventory, or build a storefront.
‘It has become so popular this year because you can do it from home with next to no initial investment.
With little or no experience you can get it off the ground. You also don’t have to worry about packaging and posting, which is very time consuming,’ says Rupert Brown, of online dog accessory store Dogs, Dogs, Dogs.
The company, which operates the dropshipping model, has been running for two years but revenue has surged 100 per cent in the past six months due to the rise in online shopping.
‘There are so many apps you can add onto your website, like live chat and returns, which makes everything so easy,’ adds Rupert. Of course, the margins are much smaller when dropshipping, so success is dependent on shifting a large quantity of goods.
‘If you hold stock, your margins are 40-50 per cent, but on dropshipping it is 10-20 per cent. But with stock you have warehouse and posting and packaging costs,’ explains Rupert.
In the initial stages, a business is likely to pay the standard price for products because they have no relationship with suppliers and are buying singularly rather than in bulk.
‘Many would consider the higher supplier costs and competition as notable disadvantages.
‘However, the cost of the products can be negotiated as you build up your relationships with suppliers and the nature of competition means you are forced to find your niche and experiment with new ways of separating yourself from the pack,’ says e-commerce entrepreneur Gregory Cooke.
Another disadvantage can be the lack of quality control. ‘Whether it’s product testing ahead of offering the product or adding in an additional stop so as to check the products, this is a problem that can be overcome with perseverance,’ says Gregory.
Case study: It Won't Cost The Earth
DROPSHIPPING was the perfect eco-friendly model for Andrea Pugh (pictured) when she launched her sustainable shopping website It Won’t Cost the Earth earlier this year. Being able to send out products directly from her 92 suppliers meant she was able to reduce the company’s carbon footprint.
‘The environmental reason was key for using dropshipping but financially it was easier to set up. It’s less risky because you don’t have to buy stock when you don’t know if you are going to sell it all,’ says Andrea, inset, who lives in Shellingford, Oxfordshire. But on the downside she has to sell twice as much stock to make the same margins and can be undercut by her own suppliers if they sell directly to customers.
‘It is a great model if you can get it to work but it is about finding your unique selling point. There is also a lot of admin and it can be a headache to integrate software into your own systems. But it is worth getting it right and I like that there is no limit to it. With holding stock you are limited by your own funding and what you can hold but with dropshipping it’s scalable.’