The main concept of dropshipping is selling products you don’t actually own. Working with cheap wholesale dropshippers is not only a product acquisition model, but also includes product fulfillment. The process works by taking orders from your online business and forwarding them to supplier/ cheap wholesale dropshippers . They in return, ship the product to your customer on behalf of your company. The key to making money with drop shipping is making a profit on the price difference between what you charge and what your cheap wholesale dropshippers charge you.

The biggest benefit to dropshipping is the ability to offer a large selection of product without purchasing inventory upfront and managing that inventory. Dropshipping can also be a great tool to help diversify your inventory and test products since it's just a matter of adding the new product to your store.

When going with a dropshipping business model, you can either work directly with manufacturers (who offer dropshipping) by contacting them directly or you can work with a dropship aggregator like WorldWide Brands. An aggregator works with hundreds of manufacturers and makes it easy to sell thousands of types of products without the need yourself to maintain relationships with each individual manufacturer.

Keep in mind, that although these aggregators make it easier to sell a variety of products, they take a cut of your already slim dropshipping margins. Additionally, many will make you pay a yearly “membership” or “sign up” fee of a few hundred dollars. You usually can’t even see the products or margins on the products they have to offer until you pay that fee.

Who's It For?

Dropshipping is by nature, the cheapest option to get started. Therefore, dropshipping is for people that are would prefer to keep startup costs as low as possible and are less concerned about margins. Dropshipping is also a great option for someone that doesn’t want to hold and manage inventory.

Pros

Low Startup Costs - The biggest advantage of dropshipping is the low startup costs. Because you're never carrying inventory you have no inventory costs which generally are the most substantial cost for a new ecommerce business.

Low Risk - Since you don’t actually purchase your inventory upfront you aren’t taking the risk of having items you can’t sell.

Streamline Sales - cheap wholesale dropshippers will take on the tasks of picking, packing and shipping your product for you. The dropship option provide convenience and efficiency, so you can manage your business from anywhere in the world.

Cons

High Competition - Because dropshipping has such low barriers to entry, you can bet that a lot of people are doing it. This makes competition stiff and harder to set yourself apart from the crowd.

Low Margins - Maybe one of the biggest disadvantages of dropshipping are the very low margins. This makes it extremely difficult to compete in the paid advertising space and means you’ll have to rely more on building content, service etc.

Low magins also means you have to sell at significant volume to make decent profit.

Inventory Syncing (Out of Stock) - One of the other major disadvantages of dropshipping is backordering. Because you’re relying on someone else’s inventory, the occasion may arise where you place a shipment request to the wholesaler, but the product is sold out. The effect of this is longer-than-normal delivery times and maybe reflect badly on the retailer.

Margins

Your profit is the difference between what you charged the customer and the price the dropshipper charges you. Typically with dropshipping your profit margins are slim, around 20%.

Risks

Dropshipping is pretty low risk in terms of potential financial loss because you never buy inventory up front nor do you have to worry about shipping product. However, risk comes in the form of very slim margins and high levels of competition. Slim margins means you have to move a lot of units to make decent profit. Compounding that, the slim margins diminishes your ability to profitably carry out certain marketing activities like pay-per-click to acquire new customers.

Example

Andrew Youderian from Trolling Motors started his dropshipping business three years ago, focusing on high-end boat motors. Because of the high cost of the products he was selling, dropshipping was a natural route to take. Instead of holding hundreds of thousands of dollars in inventory he could instead just list all the products he wanted to carry and have his dropshipping partners carry the inventory. In three years, Andrew built Trolling Motors to a $600,000 yearly revenue business.