Dropshipping is technically a ‘fulfilment model’. Fulfilment in a business term of course means delivery, so in this sense, drophipping is the manner in which orders are delivered to customers.
Normally, selling a physical product means that you need to buy numerous items and then sell them at an inflated price. The way you would normally do this is as a reseller. Here, you would buy wholesale items (inventory bought in bulk at a discounted price) and you would then sell it on at an inflated cost and keep the difference (your profit margin).
The problem with this model is that you need to make a big investment in the stock first of all and then that you have to deliver the products to your customers. This means you’re taking a financial risk by ordering the stock in advance (if you make zero sales, then you’ll have lost out on a lot of cash). At the same time, it means you need to not only pay for the shipping but also handle all the administrative tasks. You’ll need to constantly take stock of your inventory and you’ll need to refund customers for deliveries that don’t arrive.
In short, it’s a lot to take on for an individual hoping to run a business from home in their spare time.
Dropshipping changes this because now the wholesaler is handling delivery and they don’t require you to order in bulk.
So simple: you list the items for sale in your online store just like you normally would and then, when a customer orders them, you pass that sale on directly to the wholesaler. They then send out the product on your behalf and make sure it reaches the buyer and you get the money!
Dropshipping vs Affiliate Marketing
This might sound very similar to affiliate marketing but there are a few key differences. For starters, the amount of money you earn will tend to be higher than affiliate marketing. When you operate as a reseller, the usual pricing method is something called ‘keystone pricing’. Keystone pricing essentially means that the amount you’re selling the product for is 2x the amount you pay the manufacturers. This is one of the most common conventions for this type of business and to all extents and purposes, dropshipping businesses are resellers.
The other big benefit of dropshipping over affiliate marketing is that you don’t have mention the existence of the dropshipping business at all. In other words, the customer never knows that it’s not you who is selling the product. You’re not sending them to another website where they can checkout and sell the product – you’re just selling them the product as though it were your own and forgetting about it. This is fantastic because it means that your business looks much more professional and because you’re no longer sending visitors away from your brand in order to make the sales!
