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Dropshipping is a business model that allows entrepreneurs to start an online business and sell products to their buyers without ever actually stocking the items themselves. Instead, when a dropshipping store sells a product, it purchases the item from a third party and has it shipped directly to the customer. At Shopify, what we really like about dropshipping is that it provides a lower-risk approach for independent businesses to test out new product ideas (and product lines) without having to own and pay for the product up front. It's a business model that allows many more people to participate in entrepreneurship. Often, because entrepreneurs have to spend a significant sum of their money on inventory before they can start selling, these costs feel really restrictive. While we're also building services like Shopify Capital to help businesses get the money they need when they need it, dropshipping remains a highly accessible way for enerprising founders to connect customers with products on-demenad without the need to stockpile inventory. It's like retail's version of cloud computing.
There will always be overly optimistic entrepreneurs who focus solely on the "low overhead" part, ignoring the clear evidence above. Because very little capital is required to start a dropshipping business, that low barrier to entry means a lot of competition, with the most popular markets suffering more than others. Basically, the bigger a company is, the more they can reduce their markups to offer the lowest prices. To make matters worse, chances are you don't have an exclusive deal with your suppliers. That means any number of competitors could be selling your exact same products. And if you're just starting out, your rivals with years of experience have the resources you don't to undercut your prices. That means customers can buy the exact same thing from someone else for cheaper - why would they buy from you? In standard ecommerce, if customers complain about product quality, fulfillment speed, or return policies, you can address the problems yourself. In dropshipping, you're more or less at the mercy of your supplier - but you're the one who still has to talk to your customers directly. Dropshippers are esentially trapped, doing little more than hoping the supplier addresses the problems while simultaneously reassuring the customer about something that's out of their control. On top of that, there's also a delay in communication as the dropshipper goes back-and-forth between the customer and the supplier. If one answers slowly, all communication grinds to a halt and the problems take longer to fix. Although this isn't a common problem for dropshippers, its worth mentioning. Some suppliers aren't as legitimate as they claim, and you don't always know where the merchandise comes from. even more deceptive is when suppliers illegally use a trademarked logo or another company's intellectual property, which happens more than average. This potentional problem can be rectified with a solid Dropshipping Agreement Contract, but not every dropshipping upstart knows that. It's something you'll want to keep in mind when choosing supplier.
Like ghostwriters or behind-the-scenes songwriters, dropshippers must understand that the credit for their work goes to someone else. If whatever product you're selling is so amazing, your customers are going to focus mostly on the product's brand and forget about the shopping experience entirely. After all, it's not your logo on the box. Again, that's just another reason why dropshipping makes more sense for already-established brands than new ones. Dropshipping makes a better sideshow than the main event. While its faults make it hard to support a business on its own, it still offers enough benefits to help ecommerce companies improve their business substantially. Dropshipping works better as a means to an end, not the end itself. Use dropshipping to mitigate the risk in trying out new products and used for market research. Rather tahn raising your inventory costs by packing your warehouse with an unpredictable product, test it out with a trial period. More than just discovering if it sells or not, you'll also have a better estimate of how much it sells for, giving you a more accurate number of what quantity to buy for your initial stock. This is doubly important trying out new product types, which always carry inherent risk. For example, maybe you've been quite successful at selling dog products. Would that translate well for cat products too? That could be hit-or-miss, but you can always test the water by dropshipping a few products and see how it goes. Experienced ecommerce brands know that market fluctuations aren't always predictable. Rather than raising inventory costs by overstocking to meet unlikely maximums, having a dropshipping supplier as a backup saves you money without losing those sales. This is especially useful for seasonal overflow.
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