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Dropshipping: what it is, how it works? A valid alternative to sell online

Dropshipping is the ideal solution for those who want to set up and open a new online business. It allows you to sell products on the Internet without worrying about managing warehouses, goods, and shipments.

What is dropshipping?

Dropshipping is a business model designed specifically for e-commerce based on collaboration between sellers and suppliers. It allows you to start a new online sales business without worrying about managing goods, orders, and shipments. Those who sell in dropshipping do not need any warehouse or physical store; they must find the ideal supplier. In other words, through this activity, anyone can start selling online by facing a single investment: creating a showcase e-commerce site.

How does dropshipping work? 

The online store owner does not physically own the products he sells: e-commerce is simply a showcase site where the customer can view the products and choose to buy them. Who owns the products for sale? The drop shipper or the supplier company with which the seller has entered into a contract. The drop shipper will manage the order and deliver the goods to the end customer.

Dropshipping is simply a team game: the supplier produces the goods and takes care of the delivery and warehouse management, while the seller advertises the products and sells them. This business model, also called “triangular trade”, is mainly composed of three figures:

  • Seller, or the one who decides to open the online store and sell the products without a warehouse;
  • Dropshipper, which is the company supplying the products that are responsible for producing the goods and managing customer orders;
  • End customer, or the consumer who buys a product online on the showcase e-commerce and receives it directly at home.

Let’s find out how dropshipping e-commerce works, how to start this business, and the possible advantages and disadvantages.

E-commerce dropshipping: how selling without stock works

Before starting to sell online without a warehouse, it is important to understand how dropshipping e-commerce business works in detail. As already stated, the real distinguishing feature of this business is that for the seller, there is no expense in addition to the one for creating the eCommerce site. No warehouse management, inventory, shipping, packaging, or delivery fees.

The site is simply a showcase: a physical place where users can view the products and decide to buy them. The order by the user, just as in any eCommerce, is made directly on the site and with online payment.

Once the order is received, the seller immediately forwards it to the supplying company: the drop shipper business will take care of the order management and the logistics service. The drop shipper takes care of the packaging and shipping of the product, delivering it directly to the final consumer. According to the pre-established contract between the supplier and the seller, the product will be delivered without the distinctive graphic signs of the e-commerce from which the customer made the purchase.

How do the earnings work? 

The seller receives a commission as a percentage of each sale made. In fact, from each product’s purchase price, the seller must deduct the percentage guaranteed to the drop shipper company for the supply and management of orders and deliveries. The earnings from the sale are therefore divided between eCommerce and supplier company.

Dropshipping: how to start a business and what are the costs

How to do dropshipping? Let’s find out together:

1. Make sure you have completed all the bureaucratic and commercial formalities to sell online.

As with any business, even to open a dropshipping eCommerce, it is essential to know the required bureaucratic steps to start the business. Let’s find out what it is:

  • Open VAT number as e-commerce or Retail Trade of Products via the Internet;
  • Register in the Business Register and the INPS Artisans and Traders section;
  • Submit the SCIA (Certified Start of Activity Report).

2. Create an eCommerce site

To start dropshipping, creating an online sales site or an eCommerce is essential to present products and receive customer orders. To do this, you can rely on programmers and developers, or, more simply, you can use an open-source eCommerce platform such as Shopify, Magento, or WordPress. Open-source CMSs represent a cheaper alternative than IT experts: many entrepreneurs prefer this solution. The creation of e-commerce is the only real initial expense for the seller.

3. Carry out a market analysis to choose what to sell

In parallel with the processing of the online site, it is important to select which products to sell. Choosing what to sell online is not a trivial or immediate activity: it requires in-depth market analysis to highlight the current needs of consumers and, therefore, the best products to satisfy them. A tool particularly used to decide what to sell online is Google Trends: a free and easy-to-use tool capable of showing at any time which are the most popular searches among users.

4. Choose the ideal drop shipper supplier.

One of the most important activities necessary to start a dropshipping eCommerce is the choice of the supplier company. In fact, after selecting the product or products to sell, it is time to identify the drop shipper business that will supply eCommerce. How to do? Here are an online European dropshipping suppliers list specially created to list most of the European supplier companies. Some sites also report user reviews to facilitate the choice of those looking for the perfect partner. There are generally two alternatives: opting for a wholesaler or choosing a small local producer. The choice certainly depends on the products you want to sell and on the size of the sector market. It is always recommended to meet the drop shipper company to discuss every partnership aspect in-depth and sign a collaboration agreement in person.

Promote your eCommerce with marketing and communication initiatives

The last step to start selling online is to make yourself known. Especially in the digital world, it is essential to be visible to users and be present on multiple channels: from search engines to Social Networks. How to do? Certainly, by investing in good communication and marketing initiatives and campaigns. Opening an Instagram profile of the site or a showcase page on Facebook where to advertise your products could be a good starting point.

Furthermore, it is important to take care of the site structure in depth: eCommerce must be simple, navigable, and intuitive. The product sheets must be created carefully and the images carefully selected. The real secret to getting visibility is, first and foremost, to create a site and content of value for users.

What about the costs? The seller’s only real initial investment capital is the eCommerce site creation. In fact, unlike what generally happens to open a new business, starting a dropshipping shop does not involve high initial costs. Certainly, following the site’s creation, it will be important to invest in advertising and communication strategies capable of enhancing your e-commerce in the broad digital landscape.

Drop shipment: 3 advantages for the seller

Here are the main advantages of using dropshipping for the seller:

1. No warehouse and logistics management problems

As already stated, the real advantage of the dropshipping system is the ability to start an online sales business without necessarily having a physical store. To open a business of this type, having a warehouse will not be necessary: an online site will suffice. Consequently, concerns regarding shipments, packaging, goods, and warehouses remain the supplier company’s responsibility.

2. Particularly low start-up costs

Creating the online site is the only real cost the seller bears in starting dropshipping e-commerce. There are no additional management or logistics costs: the drop shipper will take care of the whole company. This is a limited investment, which allows you to set up on your own. Certainly, the seller will have to repay the suppliers with an economic percentage on the purchase of each product made in their eCommerce.

3. Opening of a business without fixed capital

When you open a new business, you generally have to consider a lot of initial expenses. Among these, the greatest part results in fixed assets: think of the warehouse, structures, machinery, or tools necessary to produce goods and carry out the business. When it comes to dropshipping, all these fixed assets are non-existent. The entrepreneur will have to open an online store and invest in creating the site: no other amount of money will be required to start the business.

Drop shipment: 3 advantages for the supplier

Here are the main advantages of using dropshipping for the supplier company:

1. Increase the online visibility of your products

Dropshipping is, first and foremost, a team effort: if the drop shipper company is fully involved in the production, order management, shipping, and warehouse, the seller, through eCommerce, undertakes to sponsor and sell the supplier’s products. This way, the drop shipper will not have to worry about investing resources in advertising, as the products will already be visible to the seller.

2. Significant savings on product promotion strategies

The supplier company will not have to invest economic resources in communication and marketing strategies and campaigns. The part of online visibility will be handled and implemented exclusively by the seller. The positive consequence for the supplier is evident: a considerable saving of economic resources otherwise destined for investments in digital marketing and online advertising.

3. Ability to focus on the production activity

Just as the seller will be able to focus exclusively on creating and managing e-commerce and communication strategies, the supplier will have the opportunity to reserve their efforts for the production and management of logistics and warehouses. This way, teamwork will reward both the seller and the drop shipper company.

Dropshipping: are there possible disadvantages?

Dropshipping is a particularly inexpensive and easy-to-implement method for starting an online sales business. Precisely for this reason, the competitiveness within the sector is very high: the ordinary battle of retailers and suppliers is based on the constant reduction of prices to offer the final consumer the best alternative on the market.

Starting from this assumption, the earnings may be marginal, especially in the start-up period of the business. The real revenue for sellers and drop shippers comes from a small percentage of the final sale price. The winning way to increase your earnings is definitely to increase your sales. How to do? By investing in good marketing and communication strategies that improve the online visibility of eCommerce.

In addition, another potential problem arising from the use of dropshipping concerns procurement. Since there is no physical warehouse, the seller may find it difficult to understand how many actual stocks are in the warehouse. This is why it is essential to establish frequent and constant communication between sellers and drop shippers to avoid problems and increase the sales and earnings of both businesses.

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