E-commerce Wiki

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Need help understanding business jargon and concepts? Then look no further than Spreadshop's E-commerce wiki. Click on one of the relevant topics below and learn everything you need to know about e-commerce.

What is Dropshipping?

Definition and Meaning

What is dropshipping? Well, unsurprisingly, there’s a lot that goes into this marketing tactic. Dropshipping essentially revolves around a customer buying a product from a merchant. However, the merchant isn’t the one responsible for providing the customer with the product. Instead, the merchant subsequently relies on a third-party to produce and ship the order. Ultimately, the process involves three parties: the customer, the merchant, and the middle man.

In other words, the merchant never actually sees or handles any inventory. Rather, they’ll “purchase” their products from a third party/middle man, who will then fulfill the order. It’s a relatively easy concept that ends up benefiting all three participating parties.

What Are the Benefits of Dropshipping?

Now that we’ve established what is dropshipping, you’re probably wondering about the various benefits. For the merchant, there are a variety of reasons why they’d opt for dropshipping instead of the traditional retail selling method:

  • Less or no capital: when starting a traditional business, you’ll need thousands of dollars of capital in order to purchase inventory. With dropshipping, you won’t be purchasing anything from the third party until the customer has already paid you. Therefore, it doesn’t require any money out of pocket, and it also eliminates any risk.
  • No overhead: when you run a traditional business, it’s unlikely that you’ll be able to move all of your inventory in a timely fashion. Therefore, you may find that you’re sitting on boxes and boxes of inventory. This clearly isn’t ideal, as you may have to pay extra to store these products and you may end up selling the products for less than their worth. With dropshipping, you won’t be dealing with any inventory, meaning there’s never the risk of having too much overhead.
  • Easy to manage: with any business, you’ll be required to manage some traditional aspects of your company (including marketing). However, by opting for dropshipping, you’ll be avoiding many of the headaches that accompany traditional businesses, including shipping, warehouse maintenance, tracking inventory, and handling returns.
  • Flexibility: by opting for dropshipping, you can run your business from anywhere! Assuming you’re running an e-commerce company, your “office” may end up being your own couch. Plus, by opting for dropshipping, you’ll have the opportunity to offer customers a wider array of products than you would be had you opted for the brick and mortar route.

Who is Involved in Dropshipping?

Instead of asking “what is dropshipping,” you may have wanted to ask “who is involved in dropshipping?” We mentioned that there are generally three major players in the dropshipping game, but that’s focusing on only the most basic process. In reality, there will be a number of parties participating in a single transaction:

  • Manufacturer: this is who creates the product. They generally don’t deal with any standard customers, and they’ll sell their products (in bulk) to wholesalers and retailers.
  • Wholesalers: these companies buy from manufacturers, slightly boost the price, and then sell them to retailers. In our previous example, the wholesaler would be the middle man.
  • Retailers: this is anyone who sells directly to the public. Therefore, if you’re relying on dropshipping to fulfill your orders, you’d be considered the retailer.
  • Customer: this is who is purchasing the product or service. They generally deal directly with the retailer, who will then deal with any of the other relevant parties.

What’s Required for Dropshipping?

We may have answered the question of ‘what is dropshipping,’ but we still haven’t focused on what’s required to run this type of business. By relying on dropshipping, you’ll be avoiding many of the inconveniences and headaches that accompany a traditional brick and mortar retailer. However, you can’t simply set up an e-commerce business and do nothing. If you want to actually make money off your new venture, it will require a whole lot of time and effort.

Time: eventually, you may have the ability to maintain and nurse your business. However, when you first get started, you’ll need to devote a whole lot of time to your new endeavor. Specifically, you’ll be investing time into:

  • Research: you’ll need to understand how your customers operate
  • Marketing: if you want consumers to know about your business, you’ll need to spend time marketing your brand, products, and services

Now, it’s unlikely that you’re going to be able to immediately quit your full-time gig and dive head first into your new e-commerce business. Instead, you’ll need to devote at least an hour or two each evening to monitoring your inventory, handling any orders, and planning your marketing strategies.

Money: as we previously mentioned, dropshipping prevents you from wasting money on excess inventory. In fact, you won’t have to purchase any inventory, as you’ll only be spending money after a customer has finalized a purchase.

However, when operating your new business, you’ll still be required to invest a bit of money in several areas, including:

  • Web host: if you’re operating your own website, it’s unlikely you have the know-how to build your own site. Therefore, it may require a bit of money to get everything up and rolling.
  • Marketing: there are plenty of marketing strategies that don’t require you to spend a penny. However, paid marketing has proven to be plenty effective, and you should end up seeing returns on this investment down the line.

How Can I Guarantee Success?

Similar to any business, there’s no definitive way to assure that your new e-commerce company will see financial success. Plus, when you consider how many individuals are taking advantage of dropshipping, you’ll soon find that it’s difficult to distinguish yourself from the pack.

However, with that said, there are still several ways that you can increase the chance that you end up with a successful, lucrative business:

  • Marketing: as we previously mentioned, marketing is key if you want to drive customers to your website. Traditional and modern techniques can both be effective, but you’ll want to pay particularly close attention to search engine optimization.
  • Find a niche: regardless of what you’re going to be selling, you’ll want to specialize and appeal to a niche market. Sure, appealing to every customer is ideal, but you’ll have a better chance of success if you appeal to a specific grouping of customers.
  • Focus on customer service: you’re going to need something to separate yourself from the pack. By being responsive to all of your customers’ inquiries, there will be an increased chance that they’ll return to your business.

How Does Dropshipping Apply to My Spreadshop?

While it’s a bit unconventional, Spreadshop essentially serves as a dropshipping business. Ultimately, it’s your responsibility to come up with the designs, create your Spreadshop (and/or website), and then handle the marketing. Then, when customers make their purchase, Spreadshop will handle production and shipping, thus completing the transaction.

Of course, Spreadshop differs from traditional dropshipping companies. After all, your ability to create your own online “Shop” will relieve any of the stress that accompanies having to create your own website. Plus, thanks to Spreadshop’s years of success (via Spreadshirt), you can trust that we’ll always get those orders done right!

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