What is Dropshipping? A Basic Guide to Online Dropshipping Business Models

Learn about the method of Dropshipping and why so many eCommerce businesses use it
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Dropshipping describes an eCommerce business model in which an online store doesn’t keep any inventory of the products it sells. Instead, when a customer places an order, the retailer buys the item from a third-party supplier at wholesale prices. Then, the supplier ships the product directly to the customer.

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Why Dropshipping Has Increased In Popularity

Dropshipping has grown popular with eCommerce businesses because it allows them to sell products without actually holding any inventory. Retailers simply fulfill orders by purchasing inventory from a third-party supplier on an as-needed basis. As a result, online retailers can offer a wide selection of products without the overhead associated with actually holding inventory. This means all one needs to operate a dropshipping business is a laptop and an internet connection!

A lot of people also build dropshipping businesses as a “side hustle,” or a way to earn a secondary source of income on top of their regular jobs. Since dropshipping is a business model that doesn’t require a lot of startup capital, it has become popular with would-be online entrepreneurs looking to earn some income on the side.

Who Pays the Shipping Cost?

When dropshipping, the RETAILER (aka yourself) must first cover the shipping cost. However, the customer is ultimately the one who ends up paying for shipping in the end with most dropshipping models. Some online retailers include the shipping cost during checkout when a customer places an order, but a lot of successful eCommerce businesses use more effective shipping strategies, such as offering free shipping or charging a simple flat rate on top of their product prices.

Remember, even if you offer free shipping, you still have to pay for the cost of your shipping label. The best way to get away with a free shipping model is to include the cost of shipping in your product prices, so your customers don’t feel like they’re paying for shipping on top of the cost of the item itself. For instance, if you want to sell a shirt for $12 but it costs $3 to ship it, then charge your customer a total of $15.

Learn more about why your online business should offer free shipping.

How to Use Shipping Software for a Dropshipping Business

It’s crucial for eCommerce businesses to minimize their shipping costs, and a popular method for doing so is to use shipping software to buy discounted shipping labels. You can use shipping software for a dropshipping business. However, since you’re not fulfilling your own orders, you won’t be printing out any labels yourself. After you buy your labels, you can then send

Most shipping software companies offer a feature to send labels in batches to anyone you like, including your supplier for your dropshipping business. If there isn’t an easy function to do this in your shipping software, you can always download the labels as PDFs and send them as an email.

Fulfilled by Amazon as a Dropshipping Model

While it’s not a dropshipping business model, per se, another popular way to run an online business without holding inventory is to make use of Fulfilled by Amazon, or “FBA,” for short. When you use FBA, Amazon holds your inventory in its own warehouses and fulfills all of your orders for you. This makes it easy to operate an online store on Amazon’s platform without keeping any inventory yourself!

Learn more about Fulfilled by Amazon and how to get started running an FBA business.

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