10, Jul 2021
What is Dropshipping Business Model?
Dropshipping is a business model which is widely recognized in the online world. The term dropshipping refers to a business model wherein the merchant is not required to hold the inventory or the stock at his own place, rather, the merchant here known as a Dropshipper is primarily responsible for selling the products. A dropshipper acts as a mediator between a Buyer and a Seller. This concept is not new anymore in the online businesses however relatively new to those who never had any online or offline selling experience.
Generally, in any product or service based business model goods or services are sold to customers, the buyer and the seller come in contact with each other and sale happens. However, in the Dropshipping Business model the buyer doesn’t come in contact with the actual seller or the vice-versa. So, the point here is how the sale happens?
Let us quickly understand, Sales happen when the dropshipper collects the order from the customers and gives it to the seller and the seller fulfills the order by shipping the product at the buyer’s address. During this process, dropshipper collects the full payment from the customer and gives it to the seller after deducting his share of profit. Let us take an example and understand it well. For Example: there is a seller who usually sells his product at a cost of INR 100/- in which profit margin is already included. It could be 10% or may be higher. However, the dropshipper sells the same products at 20% to 30% higher than the seller’s price. So, the product is actually sold at a price of INR 120/- or 130/-
Here, the dropshipper earns a profit of INR 20 or 30 whereas the seller earns a profit margin of INR 10/- only.
So, this is how the model works. Now, let’s dig into this process and understand who the seller is and how the dropshipper establishes a relation first with the Seller and later with the Buyer.
Now, we understand the seller or the supplier is primarily responsible for sourcing the product, holding the stock in the warehouse and fulfilling the orders. We must also note, that these suppliers are actually dealing in wholesale trade called wholesaler and dealing already in wholesale trade business from many years and are not interested in retails business but there are many wholesale suppliers in the market which do honor retail requests, which a dropshipper wants for his own dropshipping business. So, once a dropshipper has found such a supplier, the next thing is to contact them to establish a buyer seller relationship, which includes price negotiation, shipping and delivery partners details, refund in case a product is returned due to any reason etc. Once all such communications are done, the next thing is selling the product to the customers. If you are thinking about where to find the customers, the answer here is very simple. Mostly dropshippers or almost all of them are running Facebook ads and Google ads, that is the only place where majority of the products are sold online.
All you have to do is set up an online store or a dropshipping store and set up payment gateways, upload the catalog of all the items which you are ready to sell online and then start running ads on Facebook, Instagram and Google. If you know how to run Facebook ads or Google ads then it is well and good as you don’t need to hire anyone to do the job and you can also save extra money however, if you don’t know, then better to hire one professional who is an expert in marketing and getting good number of orders.
Hope you find this information helpful, please do share or for any query or suggestions, please do comment below or write to me at [email protected]
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