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The Dropshipping Business Model Explained

Blog, eCommerce Insights | May 26, 2021

If you’re interested in online business, you’ve probably heard the term “dropshipping.” But what is it exactly, and how does it work?

 

Dropshipping is a retail fulfillment method in which a store does not keep stock of the products it sells. Instead, the store sells a product through the dropshipping model, in which the item is purchased from a third party and shipped directly to the customer. As a result, the seller is no longer required to handle the product now.

 

The main difference between dropshipping and traditional retail is that the seller does not stock or own inventory. Instead, the seller obtains merchandise from a third party—usually a wholesaler or manufacturer—as needed to fulfill orders.

Explaining The Business Model Of Dropshipping

Dropshipping is a type of business in which you sell products made by another company without ever holding those products. You accept orders from interested customers, which you then forward to your wholesaler or manufacturer.

 

Once the order has been received and processed, you will be paid for referring the customer to the drop-shipper. Alternatively, you receive payment for the order first and then pay your supplier to ship the product to your customer.

 

This business model can be used with anything from t-shirts to mugs and more oversized items like electronic devices or even furniture. Anything you see manufactured by a specific type of company can be shipped directly to your customers, with you acting as a sort of middleman or referral agent.

 

Operating a business of this type requires very little initial investment and can be run from your kitchen table in your spare time.

 

Dropshipping is not the same as Amazon Fulfillment (FBA). You never have to pay for the products in advance with drop-shipping, so your financial risk is almost nullified.

 

The Logistics Behind Ecommerce

Managing logistics is the most challenging task for any eCommerce company, especially in countries with high populations. With the advancements in eCommerce, even the logistics industry sees innovation and implements new technologies to meet such high demands.

 

Online buyers can now track their shipments from when it leaves the factory or warehouse until it arrives at the consignee’s address. Delivering loads becomes even more difficult during weather disturbances such as the rainy season, heavy floods, as many bridges get damaged.

 

Back in the early days of the eCommerce industry, retailers managed to obtain goods from either manufacturers or distributors. And, now that there are many online shopping stores, the intermediaries no longer exist, resulting in deals being done directly between the supplier and end-user.

 

In this direct selling process, Clearing and forwarding agents, distributors, dealers, and retailers play no role. With these middlemen gone, eCommerce shipping has evolved into a highly specialized service, with most of it managed by eCommerce companies themselves.

 

Inventory management, warehousing, packaging, labeling, billing, shipping, payment collection, return, and exchange are processes that fall under logistics. All of this adds up to a demanding task that necessitates a surefire strategy to complete.

 

Aside from these, logistics entails a thorough understanding of territories, roads and road conditions, regulations governing the movement of goods, and transportation laws. The primary goal of establishing a logistics unit is to deliver consignments much more quickly, safely, and accurately.

Traffic Sources In Online Marketing

The Web Traffic Sources metric determines which traffic sources are directing visitors to your website and compares them.

 

Although your website may receive traffic from campaigns such as banner ads or paid search, the three primary traffic sources are direct, referral, and search. Consider analyzing the number of goal completions from each traffic source in addition to measuring the number of visitors from each traffic source.

 

Each source of traffic can be analyzed to provide more detailed information about your web traffic. Search traffic, for example, can be broken down into categories such as social referrals, blog mentions, and service listings; referral traffic can be broken down into categories such as social referrals, blog mentions, and service listings.

 

Furthermore, each source is a barometer of the health of your website. A high volume of referral traffic, for example, indicates that your brand or website is frequently discussed by third-party websites or on social media sites. Add the Web Traffic Sources metric to your SEO performance dashboard to gain a more in-depth understanding of your marketing efforts.

Key Terms

  • Direct traffic: It refers to visitors who arrive at your site by typing your URL into their browser or via an undefined channel.
  • Referral traffic: It is defined as visitors who arrive at your site after clicking on a link on another website.
  • Organic search traffic: It refers to visitors who find your website by typing a keyword into a search engine (Google, Bing, or Yahoo) and then clicking on your listing.
  • Campaign traffic: It refers to visitors who arrive at your website through the campaign or clicking on a link with specific tracking parameters.

Should You Get Into Dropshipping?

Dropshipping isn’t an ideal or a stress-free way to build a successful online business. As we all know, starting a business always requires a lot of hard work. The model has some distinct advantages, but it also has several inherent complexities that must be addressed.

 

The good news is that with careful planning and consideration, most of these obstacles can be overcome, and you will be able to build a thriving, lucrative dropshipping business.

 

Final Thought

That’s it for dropshipping. It is, without a doubt, an exciting business model. Dropshipping can be an excellent option for many people already in the online business world or looking to get started.

 

So, wherever you’re in your dropshipping journey, happy dropshipping!