What is Drop Shipping? Using It in Your eCommerce Business

What is drop shipping? Every business wants to see big demand for its services. But when you’re running a small eCommerce business, big demand can often spell disaster if you lack the capacity to fill and ship out orders. After all, it’s hard to secure enough capital to invest in a whole load of inventory you aren’t confident you can sell, and it takes a lot of time and energy packing and shipping orders all over the place.

That’s precisely why more and more small businesses are experimenting with drop shipping.

What is Drop Shipping?

what is drop shipping

Simply put, drop shipping is a retail fulfillment method in which a business does not keep the products it sells in stock. When a drop shipping arrangement is put in place, a store will sell a product online.

Then, the business will purchase the item it has sold from a third party, and have that item shipped directly to the customer.

Bearing that in mind, drop shipping means that the merchant never actually touches the product being sold.

How Can I Use Drop Shipping for My eCommerce Business?

First and foremost, you’ve got to do your homework. If you run an existing eCommerce business, it’s worth conducting some extensive market research in order to figure out what you stand to gain or lose from striking a drop shipping agreement with a third party.

If you feel that drop shipping is right for your business, there are plenty of options to explore. There are a wide range of drop shipping companies that specialize in imports, exports and every niche product you could possibly think of — and they all come with their own fee structures, terms, pros and cons.

If you manufacture your own products, or are trying to free up space you currently occupy in a warehouse, eCommerce platforms like Amazon offer their own fulfillment services in which you can use their space and resource to store, sell and ship your inventory.

Just remember: Rome wasn’t built in a day, and you might experience some trial and error in terms of finding the right drop shipping partners and a sustainable level of integration. But if you truly think drop shipping could bolster your eCommerce business, it’s definitely a possibility worth exploring.

Market ResearchBefore diving into drop shipping, understand your target market's needs and preferences.Use tools like Google Trends, surveys, and competitor analysis.
Specialized Drop ShippersPartner with companies that focus on niche products, imports, or exports.Research their reliability, fees, terms, pros, and cons.
Utilize Major eCommerce PlatformsUse platforms like Amazon to leverage their vast infrastructure and fulfillment services.Consider the fees involved and the platform's audience reach.
Manufacture & Drop ShipIf you manufacture your own products, consider drop shipping them rather than stocking them yourself.Ensure the drop shipper can maintain your product quality.
Free Up Warehouse SpaceConvert your inventory to be drop shipped, freeing up existing warehouse space for other needs.Ensure consistent product availability and delivery times.
Diverse Product OfferingUse drop shipping to test or add new products to your lineup without major upfront investment.Monitor sales trends to decide if you should stock certain items permanently.

what is drop shipping

Why Do Businesses Use Drop Shipping?

Drop shipping isn’t for everyone, but it does come with a clear set of advantages for certain businesses.

First and foremost, choosing to drop ship items means that you won’t need as much capital to get up and running. If you launch an eCommerce store using the drop shipping method, you don’t need to invest up front in any inventory whatsoever. In fact, you won’t need to purchase a single item until you’ve already sold it to a customer.

Likewise, small eCommerce businesses tend to drift towards the drop ship model because it has exceptionally few logistical constraints. By drop shipping, you won’t need to worry about managing a warehouse or renting space, shipping your orders or handling returns.

That means lower overhead, flexibility in terms of location and the ability to offer a huge selection of products of all shapes and sizes. This makes scaling up a whole lot easier, which can increase your bottom line substantially.

That being said, it’s worth pointing out that drop shipping does come with a few disadvantages, too. Margins are usually pretty low — and because you’re relying on the competency of suppliers and third parties to fulfill your orders, drop shipping takes a lot of business elements out of your control.

How to Get Started with Dropshipping

what is drop shipping

Expanding your eCommerce business with drop shipping can be an exciting venture. It allows you to offer a wide range of products to your customers without holding inventory, significantly reducing the overhead costs associated with traditional retail models.

To ensure a smooth start and sustained success, follow these detailed steps:

Research and Choose a Niche

Before taking the plunge into drop shipping, it’s imperative to conduct thorough market research to identify a profitable niche. Look for products that not only resonate with your brand’s vision but also have a demonstrated demand in the market.

Avoid highly saturated markets where competition might be too fierce for a new entrant. Utilizing tools like Google Trends, social media analysis, and competitor research can help in identifying trends and customer preferences.

Additionally, consider the logistics of shipping your chosen products, as items that are too large or fragile may present challenges.

Select Reliable Suppliers

The backbone of a successful drop shipping business is a network of dependable suppliers. Use platforms such as SaleHoo, Oberlo, or Doba to explore and connect with suppliers.

It’s essential to evaluate these suppliers carefully; request samples to assess quality, read through customer reviews for reliability insights, and conduct interviews to establish a good working relationship.

Remember, the supplier you choose will directly impact your product quality and customer satisfaction, so this step cannot be overstated in its importance.

Register Your Business

Securing the appropriate legal documentation is critical to establishing a legitimate and compliant business.

The requirements vary depending on your location but generally include obtaining a business license, a sales tax permit, and possibly an Employer Identification Number (EIN) if you’re in the United States. These registrations not only protect you legally but also build trust with your suppliers and customers.

Set Up an eCommerce Store

Choosing the right eCommerce platform is pivotal in the drop shipping business model. Opt for platforms like Shopify, WooCommerce, or BigCommerce, which are known for their ease of integration with drop shipping operations.

The platform should be user-friendly, supporting you in creating an engaging online store, and must offer essential features such as secure payment options, inventory tracking, and scalable solutions to grow with your business.

Design a Pricing Strategy

what is drop shipping

Developing a competitive yet profitable pricing strategy requires a delicate balance. Take into account the wholesale cost of products, shipping fees, competitor pricing, and your desired profit margin. Implementing a tiered pricing model or offering bundled products can also enhance value perception and encourage larger purchases.

Create a Customer Service Plan

Exceptional customer service is crucial in drop shipping, as it helps build customer loyalty and brand reputation.

Outline clear policies for returns and refunds, respond promptly to customer inquiries, and address any issues with orders efficiently. Remember, the customer’s experience with your store will influence their likelihood to return or recommend your business to others.

Develop Marketing and SEO Strategies

Visibility is key to attracting customers to your drop shipping store. Invest in a solid SEO strategy to improve your store’s ranking in search engine results, making it easier for potential customers to find you.

Additionally, leverage social media marketing, email marketing, and pay-per-click (PPC) advertising to drive traffic to your site and convert visitors into customers.

Stay Informed on Trends

The eCommerce and drop shipping landscape is constantly evolving, with new trends and technologies emerging regularly. Stay ahead of the curve by keeping up-to-date with industry news, attending relevant webinars and conferences, and networking with other eCommerce professionals.

This continuous learning will enable you to adapt your strategies and offerings to meet changing market demands and maintain a competitive edge.

what is drop shipping

Drop Shipping in Ecommerce: Conclusion

Starting a drop shipping business can open up numerous opportunities for your eCommerce venture. By meticulously researching your niche, selecting reliable suppliers, ensuring legal compliance, setting up an efficient online store, and implementing strategic marketing and customer service plans, you can build a successful business.

Remember, the key to success lies in continuous learning, adaptability, and a relentless focus on customer satisfaction. With dedication and the right approach, drop shipping can significantly enhance your eCommerce business’s profitability and growth.


Drop Shipping Photo via Shutterstock

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Nash Riggins Nash Riggins is a Staff Writer for Small Business Trends and an American journalist based in central Scotland. Nash covers industry studies, emerging trends and general business developments. His writing background includes The Huffington Post, World Finance and GuruFocus. His website is NashRiggins.com.