August 1, 2017

What is Dropshipping?

If you just started thinking to dive into dropshipping business, you may need to know at least in general what "dropshipping" is and how it works. We'll touch upon the following points in this post:

  1. Definition
  2. Dropshipping business models
  3. Participants
  4. Marketplace wins
  5. Optimal roadmap
  6. Time and cost optimization

Dropshipping Definition

What does "dropshipping" mean? Dropshipping, also known as "drop shipping", is a method of ecommerce sales when online shop owners order goods from manufacturers and manufacturers deliver these goods directly to end-consumers of online stores owners.

There are mainly two business drivers that make dropshipping a trend. First, it's known that consumers spend more online less in offline points of sale. Second, the third party (suppliers) manage inventory and shipping, so online stores save both time and money, so a person may start dropshipping business with minimum capital.

Dropshipping Business Models

There are 2 models of dropshipping business:
  1. Online shop owners use special directories for surfing and browsing for the purpose of finding each manufacturer for the exact product category, get to know them, request for actual inventory regarding items they are interested in for further sales.
  2. Online shop owners use trading platforms from where they import all the necessary products to their store WITHOUT contacting each manufacturer or more than that searching for each manufacturer and WITHOUT collecting data about products' description, inventory or anything like this.

how dropshipping works - Dropwow
There are the following participants in both cases:

  1. Vendors (also known as manufacturers or suppliers) produce and store goods. They are called "wholesalers" as well, as they sell the goods to online stores at wholesale prices.
  2. Online stores (also known as retailers or buyers) promote their stores and goods. They are also called "wholesalers" as they sell goods to end-consumers in a wholesale way.
  3. End-customers are users of the goods.
Dropshipping Marketplace Wins
Both models are good as in any case online stores are able to earn money. But the case with directories is less popular as it's much more time-consuming at least because of 4 reasons:
  • Reason #1: One needs to search for reliable wholesale dropshipping companies one by one. At the same time all of them are collected in one place (a marketplace) and the access to them is free.
  • Reason #2: Marketplaces are free for retailers, unlike directories (in most cases access to directories is charged)
  • Reason #3: One doesn't have to request and manage inventory, as available quantity is always updated on the marketplace by suppliers. In the case when a product is out of stock, a notification appears beforehand.
  • Reason #4: Why anyone needs to check anyhow the level of reliability and quality of each vendor when this information is also accessible on the marketplace (ratings, reviews).
Conclusion: retailers deal with B2B marketplaces (not directories) to optimize time consumed as best wholesale dropshipping companies are available there.

How to Do Dropshipping: Optimal Roadmap
As dropshipping with wholesalers on trading platforms is a mainstream, let's look at the companies which increase the productivity of online shops:

Please look at the table and see what functions are fulfilled by each service:
*AliExpress, Dropwow, Shopify, Dropified and Oberlo are not the only ones in their niche but the most popular among users. That's why you may find them as examples.

In the end, such services as AliExpress-Shopify-Dropified are popular as they are optimal for those who started a dropshipping business, as the following function should be done by a retailer to start a dropshipping business:
1. Niche selection
2. Competition research
3. Website building – on this very step AliExpress-Shopify-Dropified are helpful
  • Searching for reliable suppliers with high ratings
  • Searching for best-sellers
  • Placing products description
4. Promotion
Time and Cost Optimization: Does Marketplace Matter?
If we go deeper and pay attention to the other operations which are made by dropshipping online
stores, we'll learn more about wholesale vendors and operations that need automation to simplify
retailers' lives.
Let's check out pros and cons of two marketplaces from online stores' point of view:
  • Aliexpress is a known trading platform
  • Dropwow is a dropshipping-oriented marketplace
popular one
recently launched
Free entree fee
No inventory managing
A marketplace connects online stores with manufactures
Collects only highly-rated wholesalers
Collection only top dropshipping items
Automated end-customer orders forwarding to suppliers
Automated tracking details forwarding to end-customers
Preliminary known delivery cost (ePacket delivery option)
Refund or return risks are carried by suppliers
popular one
recently launched
No efforts for searching top dropshipping products
No unexpected charges for shipping after end-customers make orders
No manual order check out one-by-one
No manual inserting of tracking details for end-customers
No spending time to collect reliable manufacturers
No return and refunds - complexity in coordinating between online stores and suppliers
No wallet for prepayment* for automating payment
*Prepayment is necessary for auto end-customer orders forwarding to suppliers

According to the table given above dropshipping online stores have the ability to choose between 2 options:
  • Option #1: AliExpress-Shopify-Dropified - optimal
  • Option #2: Dropwow-Shopify-Dropified - streamlining
Dropshipping with a marketplace is convenient, as we already know. The absence of necessity to search for reliable suppliers in combination with such services as Shopify and Dropified/Oberlo make operations easy. However, the dropshipping-oriented B2B trading platform can be much advantageous.
  1. Dropshipping is a mainstream nowadays
  2. Running dropshipping business with a marketplace (not directories) is time-consuming and money saving
  3. AliExpress-Shopify-Dropified combination is popular and helpful
  4. Dropwow-Shopify-Dropified combination is even more helpful, as the marketplace offers a 100 percent automated processing for dropshipping retailers.
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Product Manager at Dropwow
Victor Ikonnikov
Product Manager at Dropwow