Dropshipping is an eCommerce business model where you don’t have to outright purchase a product before selling it. Instead, you manage the business, customer acquisition and retention strategies, and once you get an order, it’s passed directly to your supplier or manufacturer to fulfill.
It’s a popular business model, because it enables you to start and grow your eCommerce business with relatively little budget, space, and time. You don’t have to invest money in stock, storage space, or fulfillment infrastructure.
But is dropshipping a good long-term strategy, and how can your fulfillment model evolve as your business grows?
What is dropshipping?
Dropshipping is an eCommerce fulfillment practice where you sell products without buying, inbounding, and stocking the products first.
It means you don’t have the burden of buying, storing, or shipping products, making dropshipping extremely cost-effective, low risk, and profitable. In fact, dropshippers could potentially earn more than 50% profit than traditional e-retailers.
When is dropshipping a good idea?
For some, the idea of selling products you never actually own sounds a little risky. We’ll address that later in this article. However, dropshipping is ideal for many eCommerce business owners who are just starting out, don’t have much time, or have limited funds.
1. When you’re just starting out
When you first start an eCommerce business, knowing how much inventory to order, what variations to stock, and the specific product types that will perform well is a guess and a gamble.
Dropshipping allows you to establish product-market fit and demand for different products, variations, and trends, without investing money upfront.
For example, if you sell armchairs, you can test the popularity of different colors and designs with no financial risk. You can then use this data to forecast future sales and stock chairs according to proven popularity.
2. When you have little time
If you’re starting an eCommerce business as a side gig, you have minimal time to invest in your business.
Dropshipping products means you don’t spend time receiving stock, organizing your warehouse, fulfilling orders, or completing stock checks — someone else is doing all of that for you.
Instead, you focus your time and attention on growing your business and marketing your products, so you become big enough to one day buy your stock and handle your fulfillment.
3. When you have limited funds
Not everyone starts their business with funding. Most entrepreneurs have a limited budget to spread between business set-up, website development, products, marketing, advertising, shipping, and customer service.
Dropshipping means you don’t spend money purchasing SKUs or shipping products. Instead, you invest funds into growing your business and generating more profit to work with.
When to shift away from dropshipping
There are plenty of reasons to dropship, but as you grow, your fulfillment methods need to evolve. Dropshipping isn’t always the best option for eCommerce sellers when you expand, sell high priority items, or expand to multiple channels.
1. When you sell high priority products
When you dropship, you have no control over product availability or shipping speeds. This isn’t ideal when selling high priority items such as emergency kits, perishable items, or trending products.
If your competitors can supply products quicker than you can, it’s time to bring your products in-house.
2. As your eCommerce business grows
Once your eCommerce business grows and you establish a lovable brand, you should invest in faster fulfillment and offer customers 2-day and next-day delivery.
The dropshipping model makes it difficult to fulfill orders quickly, making it impossible for your store to stand out from your competitors and deliver customers an experience to which they want to return.
3. When you expand your product lines
When you extend your product lines beyond your current dropshipper, things can get a little messy.
Different dropshippers have different service levels, making it challenging to provide customers with a standardized service they can rely on. And when your customers can’t rely on your services, they certainly can’t recommend them to family and friends.
4. When you expand to multiple sales channels
As you grow, you want to expand to multi-channel selling to get multiple revenue streams and make your business more resilient. When this happens, you also become responsible for different marketplace SLAs for supply and fulfillment. This means supplying products of a certain quality, conducting quality control, and meeting certain shipping deadlines.
The nature of dropshipping leaves you at the mercy of an external provider for meeting these differing SLAs, which is risky, especially when trying to qualify for fast shipping programs.
How to shift away from dropshipping
Most eCommerce business owners who start out dropshipping eventually shift away from the model to buying, storing, and shipping products themselves.
However, shifting away from dropshipping to in-house fulfillment is a huge and overwhelming step. You go from never touching your stock to being responsible for its delivery in 24-48 hours, which is challenging for even the most experienced seller.
The best way to ease the move away from dropshipping is using an outsourced fulfillment partner. You can dropship your inventory to their network of warehouses, allowing them to use the necessary staff, processes, and shipping carriers to deliver orders fast.
Even better, when using a multi-channel fulfillment service, you provide customers with equal services and speeds across all your channels and product lines — creating that certainty that persuades shoppers to return
Tip: Deliverr can fulfill for multiple sales channels and deliver items within 2-days, nationwide.
Dropshipping is a successful business model for eCommerce sellers who are just starting out or short on time and money.
As soon as your eCommerce business starts growing and expanding, you should shift away from dropshipping and begin taking control over your product availability, shipping speeds, and customer satisfaction.
If moving from dropshipping to in-house fulfillment sounds too much for you to handle, an outsourced fulfillment service is the perfect solution for gaining control over your stock without losing the benefits of hands-off fulfillment.