What is Dropshipping?



Jul 25th, 2017

Whether you want to launch a multi-vendor marketplace, dropship from larger wholesales or build an additional revenue stream in your business, here are a few things to consider.

What is drop shipping?

Drop shipping is a type of fulfilment model whereby a seller lists a wide range of items for sale in their online store, without having a huge warehouse full of stock waiting to be sold. When a customer purchases from a drop shipping store, their order is forwarded to the supplier, who ships the item straight to the customer. So, as the owner of the dropshipping store, you’re charged only for the item which has been shipped. You don’t have to worry about the cost of unsold inventory sitting in your warehouse.

Where can I find vendors who drop ship?

A successful drop shipping store is reliant on strong partnerships with their vendors. There are a huge range of vendors who already drop ship; you could partner with big wholesalers (but be aware, you may have to play by their rules!) or you could approach smaller, lesser-known independent vendors who haven’t tried drop shipping before.

Working with smaller vendors brings great advantages. Firstly, your products are likely to be more unusual, helping you to attract new customers. Secondly, working with smaller vendors puts you in a stronger position, meaning you’ll be able to negotiate more favourable commission deals. Take a look at our tips for onboarding smaller vendors.

The benefits of drop shipping

Investment and risk

With a drop shipping store, you won’t need to invest money purchasing a massive product inventory before you can launch. In fact, you don’t need to hold a single item of your inventory yourself, so you’re far less open to risk than a traditional store would be. If your products don’t sell, it’s not a problem. You’ll never find yourself having to offload stock at a loss, or face paying expensive storage bills. So, it’s far quicker and easier to set up a drop shipping business than a traditional online store.

Work remotely

Drop shipping businesses can be run using nothing but a laptop. With no stock to worry about, you’re free to work from anywhere you please. If you want to travel the world and grow a drop shipping business while you do it - you can. This flexibility makes drop shipping a great option for those looking to fit a business around other commitments. As your business grows, you can even hire a whole team who all work remotely.

Huge opportunities for growth

Drop shipping is immensely scalable. As the popularity of your site increases you’ll build stronger partnerships with a wider range of suppliers, meaning you can list more and more products to fit your customer niche. There’s absolutely no risk involved, and with no physical stock to worry about, your drop shipping business is easy to grow.

If you take advantage of automation software like Jetti, your drop shipping business can even grow while you sleep. Check out our blog on how automation can help you maximise the potential of your multi-vendor marketplace to learn more.

The disadvantages of drop shipping

Competition is fierce

As we mentioned earlier, setting up a drop shipping business is easy. So, there are a lot of people doing it! Inevitably this means that competition in the marketplace is fierce. You need to do a lot to stand out. If you’re serious about setting your drop shipping store apart from the crowd, we strongly recommend focussing on quality rather than quantity. The best drop shipping stores are those that target a particular market and offer products only for that market. The more unusual or unique your products, the better. Approaching smaller vendors and spending time thinking about the best products for your target audience will help you succeed in creating a unique store with a loyal fanbase.

Lower margins

It goes without saying that in a marketplace with as much competition as drop shipping, margins are low. It doesn’t require much capital investment to set up a drop shipping business, so many merchants are prepared to operate stores running on eye-wateringly low margins. When deciding which products to list in your store it’s worth researching the profit margins on different types of stock. Some goods, such as accessories, offer greater opportunities for profit than others, like electronics.

If you’re operating a multi-vendor marketplace, we typically see commission rates between 10% and 30%. So for every $100 of items you sell, the vendor keeps $70, whilst you net $30 of profit.

Managing your inventory

When you’re not physically managing a warehouse full of stock yourself, it’s easy to see how you might lose control of your inventory. Managing your inventory can be one of the biggest pain points in running a drop shipping business. It’s hugely important to make sure you always know which of your vendors’ products are in stock, you don’t want to risk having customers place orders that you’re unable to fulfil.

Many drop shipping stores begin by managing inventories manually, but that can prove a huge headache, especially as your business grows. With Jetti, you can link your store’s inventory directly to those of your vendors, so you’ll always know what’s in stock and what isn’t. Your product listings will update automatically, and you won’t need to worry about a thing. Get in touch to find out more about setting up automated inventory listings with Jetti.

Shipping complexities

One of the greatest benefits of a drop shipping store is that it enables a customer to purchase products from a selection of different vendors, in a single order. But what does that mean for shipping costs?

There are two options here, either you charge your customer a single shipping rate and swallow the loss yourself, or you charge shipping costs per item and risk cart abandonment.

We recommend a single shipping rate, but it’s imperative that you monitor your profit margins on such orders and ensure you’re not making a loss on orders comprising items from a wide range of vendors. To do this, you need to understand how Jetti can help you with blended shipping rates.


Work on your business plan

As with any new business, planning is key. You’ll need a clear, concise business plan, and a marketing plan that sets out your goals for growth. Your customer experience should be key from the very start - if no one finds your store, or if you offer customers a bad service which stops them coming back, you’ll never get anywhere in the world of drop shipping.

Focus on automation

It can be tempting for those new to drop shipping to try to manage everything manually, but as the store grows this becomes more and more difficult. If you focus on automation from the start, you’ll never have to worry about shipping rates, inventory problems or accounting. So, you’ll have plenty more time to focus on your store itself, ensuring your images, product descriptions and website are at the top of their game. And if everything is automated from the start, scaling your business will be simple. Speak to our team about Jetti’s automation software to get started.

Quality is king

When setting up a new drop shipping store, it can be tempting to list vast selections of different products and ‘cover all bases’. But do this and you’re guaranteed to alienate any customers who do come across your store. Consumers don’t have the time or the inclination to browse massive product inventories. When faced with too many products to choose from, they’ll most likely forget all about your store and move on to the next one! If your products are carefully curated, and all focus on one particular target market who’ll love all of them, your customers will have a far better experience. Focus on high-quality, hand-picked products, chosen with your customers in mind. Build a store they’ll come back to time and time again.

Blend drop shipping with in-house fulfillment Many of the most successful drop shipping businesses offer both drop shipped products and products which are fulfilled in-house. Do this and you’ll have the edge over the competition. With Jetti, you can easily blend in-house fulfillment and drop shipping. Give us a call to find out more.

How can I get started?

Is it time to get started on your drop shipping business? Our talented team is here to help you make a success of your store. Check out our packages and get in touch today to learn more about how Jetti’s drop shipping automation could help you.