How does Dropshipping Work?

The dropshipping business works through a supply chain model where the actual seller relies upon a third-party supplier for the fulfillment of the order and delivery of the product to the customer. However, the sequence of the working of the dropshipping model is:

Step 1: Setting Up an Online Store: To enter a drop shipping business, online stores are to be set up by getting registered with an e-commerce platform or online marketplace.

Step 2: Product and Supplier Selection: The dropshipper needs to select the products to deal in and establish a relationship with reliable suppliers. The supplier agrees with a dropshipper in this regard. The selection of supplier is made based on the quality of the product and shipping service offered by him.

Step 3: Product Listing: Once the supplier selection and agreement formalities are done, dropshipper list the products on their online store along with product descriptions, pictures, and price details. Products are marketed at online stores by drop shippers to attract potential customers.

Step 4: Receiving Orders: When a customer places an order at the drop shipper’s website and makes the payment, the dropshipper passes on the order to the supplier along with the shipping details of the customer.

Step 5: Shipping and Delivery: On receiving an order from the drop-shipper, the supplier makes the order ready and ships it directly to the customer’s address. The details of the supplier are not mentioned anywhere, so it seems to be shipped directly by the dropshipper.

Step 6: Customer Care Service: The dropshipper takes up the responsibility of providing customer services to the customers. Dropshipper handles customer inquiries, returns, and any other issues related to the purchase. It is important to take care of the customer’s grievances to build up a loyal customer base.

Dropshipping is a retail business model in which the seller sells the products to the customer without actually keeping physical stock in hand. It is an e-commerce business model where on receiving the order, the seller transfers the order to the third party (manufacturer, Wholesaler, distributor, or other retailer), who directly ships the product to the customer on behalf of the seller. This means the seller sells the product without actually seeing, handling, or storing the product. Therefore, the seller has very little control over the quality, shipment, inventory management, and storage of the product. Dropshippers play a role in the selling and marketing of the product.

The profit earned by the drop-shipper is the difference between the wholesale price and retail price of the product after adjusting all the selling and shipping expenses.

Profit of the Dropshipper = Retail Price – Wholesale Price – Selling Cost

In a modern time where no one has time to visit physical markets, e-commerce, and supply chain has gained popularity which in turn has made the dropshipping business popular as it requires minimum start-up investment and low working capital. Besides this dropshipping business model eliminates the cost of storing and managing the stocks and also lowers the risk of inventory management.