The Tyro Blog

24 August 2022 - 6 min read

Business Strategies

Everything you need to know about dropshipping

Dropshipping is a popular way of selling products that’s taken the eCommerce world by storm. But what exactly is dropshipping and what does it entail? Read on to find out!

What is dropshipping?

Dropshipping is an order fulfillment method where retail businesses don’t actually keep the products they sell in stock. Rather than having shelves filled up with inventory that they send out when an order comes through, they get a third party (think a manufacturer, wholesaler or another retailer) to package up the product and send it directly to the customer.

How does dropshipping work?

A business that dropships appears the same as any other traditional online store; it’s what lies behind the virtual counter that’s different. Instead of doing the picking and packing themselves at a store, warehouse or home studio, the retailer enlists a distributor (who could be located wherever) to handle all aspects of product delivery – making them the middleman and the meat in the customer-supplier sandwich.

Here’s how the dropshipping process works:

  • A customer orders from the retailer
  • The retailer charges the customer
  • The retailer alerts the supplier about the customer purchase
  • The supplier charges the retailer and sends the product off to the customer

Generally, the shorter the supply chain, the greater the profits, because fewer parties are getting a piece of the monetary pie.

Why is dropshipping effective?

Dropshipping offers a unique set of benefits that traditional online stores lack. Here’s what makes dropshipping so effective:

Lowers the costs of starting (and running) a business

One of the biggest benefits of dropshipping is how little you need to get started. Since you don’t have to splash any cash on building up an inventory, upfront costs are significantly slashed. The only things you really have to spend money on are building a swanky website and spreading the word about your business through strategic marketing and advertising.

Having zero inventory also means you don’t have to manage it (i.e. monitor how much you have, reorder it when it’s running out, and ship it off to customers), keeping overhead costs relatively low as you operate your business. Even as your business grows, and these costs increase, they’ll still be low compared to brick-and-mortar stores.

Reduced risk

This lack of inventory also means you don’t run the risk of purchasing products and having no one buy it, leaving you with dreaded dead stock (and money you can’t get back).

Flexibility is your friend

A dropshipping business can essentially be run from anywhere there’s an internet connection, as you don’t have any stock to keep track off. As long as you communicate with your suppliers and customers, you can manage your business no matter where you’re located.

You can offer customers a greater selection

Another benefit of dropshipping is that you have more room to chop and change your products and make the most of trends that are going around. Instead of ordering in new inventory, if a supplier stocks an item, you can simply list it for sale on your website at no extra cost – saving you both time and money.

Easier to test

Since you don’t have to invest a fortune into dropshipping, it’s a good way to test out customers’ appetite for certain products. Whether you’re launching a store for the first time, or have a bricks-and-mortar one but want to test the waters before committing to a new product, dropshipping is a great way to experiment with your offering.

Easier to scale

With traditional retail businesses, if your orders double, so does your work. With dropshipping, however, your workload doesn’t automatically increase. Since most of the work to process extra orders will be done by your suppliers, you’ll be able to expand your business with fewer growing pains and without being glued to your computer.

Risks of dropshipping

With these benefits also come risks. Here are the potential downfalls of dropshipping that you should know about:

  • Slim profit margins: When you put less money in, you get less money out. This means you’ll have to generate a large volume of sales to stay afloat, let alone turn a profit, especially considering most of the money goes into the supplier’s pockets.
  • You don’t have full control over customer service: Since you’re relying on suppliers to get products to customers, it can be tricky to manage issues relating to product quality, order fulfilment and returns, as you don’t have all the answers. You’ll have to take the blame if customers complain and, when attempting to resolve an issue, you’ll likely encounter a lot of back-and-forth between the customer and supplier – more than you would if you had a traditional online store.
  • Highly competitive: When you engage with a supplier, the chances are you aren’t the only one. You’ll have to put in the hard yards to sell products that other businesses are selling and stand out from the crowd.
  • It can be difficult to build a brand: The products you’re selling will have your supplier’s branding on them, not yours. This can make it difficult for them remember your brand. You also won’t be able to add anything extra to their package, such as a thank you note, to elevate the customer experience.

How to get started dropshipping

Now that you know what dropshipping is all about, let’s talk about how to get started. Here’s the steps you’ll need to take to get a dropshipping business off the ground:

1. Choose a dropshipping business idea

All businesses start with an idea. Think about what you want to sell and approach your research in the same way you would if you were opening up a bricks-and-mortar store.

2. Do competitive research

Once you’ve worked out what you want to sell, you can scour the web and look at the competitors you’ll be up against. Without copying what they do, they may hold clues to success and inspire the direction you take your store in.

3. Select a dropshipping supplier

Arguably one of the most important steps is choosing your drop shipping supplier. In Australia, there’s a great selection going – just a quick Google search will reveal your options. When looking for the ideal supplier, make sure they align with your business and offer the high-quality service you’re after.

4. Build your website

A website is the cornerstone of any dropshipping business, so make a beeline to a website-building platform to create one yourself or seek out a professional web designer to develop one for you. The key here is building a site with all the features you need to sell your products effectively.

5. Market your dropshipping store

The final step in starting a dropshipping business is letting people know about it. Create and implement a strategic marketing plan to give yourself the best chance at getting your store off the ground.

Want to learn about Tyro’s eCommerce solutions? Give us a shout!