What is Dropshipping? The Best Introductory Guide

Dropshipping business is the fulfillment business model that is widely followed by retailers across the world and is highly in demand because of the rise in e-commerce.

shopify drop shipping

Overview of dropshipping Industry.

What is Dropshipping? It is one of the fastest-growing industries in the world. The global market size of the dropshipping business in 2018 was valued at USD 102.2 billion and is expected to grow at a CAGR of 28.8%.

The dropshipping business global market size is expected to reach a whopping USD 557.9 billion by 2025.

The size of the market is expected to grow owing to the rise in e-commerce and online shopping. Also, the COVID-19 pandemic situation gave a much-needed push to the global e-commerce market.

Hence, the e-commerce boom is helping the dropshipping market to grow as well. This is why we are answering the numerous “what is dropshipping business” questions asked by our readers. This blog post is a signal stop answer to your “what is dropshipping business” question. Thus, there cannot be a better time than right now to start your dropshipping business in India.

What is Dropshipping?

Dropship business is not a trend or a fad that will fade away after a few years of saturation. Dropship business is a business model like any other model of business we see around us.

This is the sole reason why the dropshipping business will never fade away. However, the means of conducting a dropshipping business may change as per the trends.

For example, the dropshipping business has changed significantly with the acceptance of e-commerce. Earlier dropshipping would suffer because of the distance barrier. But now, the internet has diminished that distance barrier.

Because of developments in online commerce, the dropshipping business in India is on the rise. The Dropshipping model is best explained by the image shown below.

Dropship business model
Image Source: Oberlo

The Dropship model primarily has 3 elements. The manufacturer, the retailer, and the consumer. The process of drop shipment is fairly simple to understand.

A consumer places an order with a retailer. The retailer then forwards the consumer’s order details to the manufacturer. The manufacturer packs and ships the product directly to the consumer who had placed the order.

In a dropshipping business model, one does not need to hold any inventory, which is the biggest benefit of the dropshipping business model.

shopify drop shipping

The best part is, the consumer would receive the order with the branding of the retailer and not the manufacturer. The manufacturer would not use any branding of its own but of the retailer.

Hence, the consumer would only be interacting with the retailer and may not even know about the presence of the third party.

This fact is extremely beneficial for drop shipment retailers to build their own brand for their consumers.

This is the basic dropship business model.

what is dropshipping
Image Source: Shopify

This dropshipping business model got huge demand after the rise of e-commerce and improvements in the global supply chain.

Today, anyone can start a dropship business.

One can start with just a laptop and an internet connection from any corner of the world, catering to any market in the world.

Hence, Dropshipping business model is one of the best online business models available today.

Benefits of Drop Shipping Business.

The dropship business model has turned out to be beneficial with the rise in e-commerce. Some of the benefits of drop shipping are listed below.

1. Minimal Initial Investment

Drop shipment is the business model that we can start with just a few hundred dollars if not more.

It is also possible to conduct dropship business at literally no startup cost if one already has a huge audience in the form of social media followers or blog visitors.

Even if you have nothing in hand, you can still start the dropshipping business with hardly a few hundred dollars. I will provide the breakup of initial startup costs involved while starting with the dropshipping business at the end.

The basic essential costs involved are required for a domain name, web hosting, and advertisement of the dropshipping store.

There are no significant costs other than the ones mentioned above.

You can always spend more to get more quality to your drop shipping store.

2. No Inventory Management

Dropship business is very much lucrative because one does not need to hold any inventory of products as a dropshipper.

Thus, the risk of inventory, costs of inventory are nil.

Inventory is completely managed by the supplier and not the retailer. Thus, low overhead is a great benefit of the dropship business model.

3. No Distance Barrier in dropshipping

Drop shipping business can be developed from anywhere.

This is because the dropship business is completely online and one only needs an internet connection and a digital device to browse the web.

One can start the dropship business in the US and cater to the consumers in India.

The barriers of distance are potentially removed hence making the drop-shipping model flexible enough to start from any location.

shopify dropshipping

4. With the drop shipment, cater to any global market

One can potentially sell any product to any market in the world.

Dropshipper has to select the appropriate product she wishes to sell. Find out the market where the demand for the product is good and then sell the product to the shortlisted market.

Once the sell happens, the headache is not ours, but of the manufacturer to fulfill the order.

As a drop shipper, we only manage all the processes effectively, just what the MBAs do in real-world physical businesses.

5. Dropshipping is easy to set up

Dropshipping business is commonly operated through online stores. It is not required to conduct dropship business only through an online store, one can start dropshipping through social media as well.

However, it becomes difficult to track and monitor the progress if we conduct a dropship business through other channels than an online store. Also, with an online store, the scalability is easier as compared to dropshipping through social media.

The drop shipping stores are easy to setup. It requires little knowledge of the technical aspects of developing the store.

However, most of the store building can be done through drag and drop functionality.

Hence, little technical knowledge requirements and easy to set up a store makes it easy for anyone to start a dropship business, regardless of their technical prowess.

6. Low Business Overheads/Expenses

Unlike in physical world businesses, the overhead expenses are almost negligible in drop shipment.

The physical world businesses would have overheads such as facilities, buildings, office space. Such overhead expenses are absent in the dropship business.

One would have expenses such as hosting, domain name registration, and internet connection which are hardly worth more than USD 100. Clearly, overhead expenses in drop shipping businesses are very low.

7. Lucrative Industry

The drop shipping industry is growing at a CAGR of 28.8% growing up to USD 557.9billions by 2025. This information in itself is important enough to understand the lucrative global drop shipping market.

8. Easy to Scale

The dropship business is extremely easy to scale. Unlike in the physical business world, the expansion to foreign markets would not need huge capital but only added advertisement expenses.

Thus, the scalability of the dropship business is cheaper and easier.

Disadvantages of Dropshipping

Despite being such a lucrative and easy to set up a business model, drop shipping has a few drawbacks that every drop shipper must know. The drawbacks of the drop-shipping business model are,

1. Low Margins

Low margins are one of the drawbacks of drop shipping.

Most of the products sold are sold with low margins. So, the volume of orders matters in drop-shipping.

This is where the choice of product is very crucial for dropship business.

If you have low traffic then you may sell high margin products to get more margin and If you have higher traffic then the low margin products work as well.

It is extremely important for dropshippers to know about their margins when they select the product.

2. Shipping Issues

There are issues in shipping because of cross border commerce.

Shipping from one country to another may take longer shipping times. So, shipping complexities increase which the retailers have to resolve for their shipping operations.

Even though the shipping is the duty of the supplier, dropshippers have to keep track of shipping to ensure giving away tracking details to their customers and manage their queries.

3. Low Control Over Inventory

Since drop-shippers do not hold any inventory, the control over inventory is negligible for drop-shippers.

This makes the reliance on the supplier risky for the dropshipper.

This is exactly why one would need to choose appropriate and reputed suppliers to avoid inventory issues.

4. Supplier Errors

In the dropship business, the management of suppliers effectively is directly related to the success of your drop shipping business.

If the chosen supplier is not good in quality and service, then such a supplier would damage your drop shipping business value in the eyes of your customers.

The choice of appropriate supplier and having good relations with suppliers is required otherwise you may suffer supplier issues.

5. Limited Customisation of Products

Another drawback is the lower levels of customization in the product.

Because the products are manufactured and shipped by suppliers the dropshippers have little say in the customization of the products.

So, the quality of the products is determined by the supplier and dropshippers to have lower control over the quality of the products. This is why one must choose suppliers that already provide us with quality products.

There is a concept called white label drop shipping where one can build their own brand. In such cases, a few suppliers may offer customization in the products.

shopify online store business

Who Can Start Dropshipping?

Anyone can start dropship business. Literally anyone.

If one is well adept with the internet business models such as affiliate marketing or e-commerce then, the starting of dropship business would be easier.

Even if someone is extremely new to the internet, such individuals can take up a few beginner courses to get themselves acquainted with dropshipping basic principles.

Have a look at our step by step guide to build your dropship business, specially curated to help you kickstart your dropshipping store.

Some of the profiles I believe can start drop shipping on the go are,

  • Bloggers who wish to monetize their traffic by selling products.
  • People who already own their own e-commerce stores.
  • People who have a large following on social media.
  • Social media influencers.
  • And a complete newbie as well, it’s that simple to start this business.

Overview of Initial Investments to Start Dropship Business.

Though it’s hard to predict the exact costs for any individual business, there are a few items every drop shipping business will need to spend money on in order to get started. Here’s a quick summary of the essential costs.

Online Store

Estimated Investment: $29/month.

Online e-commerce Store Providers

Click on these online shop providers to read about their full review.

Online store providers are important for dropshipping because the e-commerce functionality provided by these online stores helps us in easily setting up the stores and start with selling the products. Many of these store providers have compatibilities with payment providers like PayPal, Stripe to help users accept payments easily. For dropshipping in India, Shopify offers COD features which will be highly useful. There are other features as well which helps in the marketing of products as well as stores easy for the users.

shopify drop shipping

Domain Name

Estimated Investment: $5-$30/year

Most Reliable Domain Name providers

  • Siteground
  • Bluehost
  • Hostgator
  • Namecheap
  • Hostinger
  • Google Domains

Getting a domain name registered is a fairly simple process. The cost of domain registration would depend on your domain name and the cost would range anywhere between $5 to $30. There are many domain name providers. You can choose from the ones that I have recommended above.

cheap web hosting in india


Estimated Investment: Varies according to budget

The advertisement investment would depend on the individual budget. With more budget, one can spend more. However, spending more does not mean more sales, and one needs to spend on advertisement very carefully otherwise you are at risk of losing out on your precious budget. Choose your advertisement platform carefully and invest in advertisements with focus.

Can I Register Dropshipping business as a Legal Entity?

Yes, Definitely! It is possible to register your dropshipping business in India as a legal entity. You can receive your unique business number after you register your business with the concerned department by furnishing the required documents and get your dropshipping business in India registered. You can have your own full-fledged business & start dropshipping in India. Start dropshipping in India today, don’t let this opportunity slip away. Dropshipping in India is still unsaturated and there is a huge market waiting for you!

Concluding, I hope to have answered the question “what is dropshipping business” in a much detailed manner. Learn how to build your dropshipping business step by step with this comprehensive dropshipping guide.

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