Dropshipping Business Model – Explained With Benefits


The introduction of dropshipping has led to a change in the way people shop. With the help of e-commerce platforms, people can now purchase goods without having to visit physical stores.

When it becomes easy for the customers to buy so….. Wouldn’t it be easy to make a lucrative business model with Dropshipping, especially for startup entrepreneurs with low investment..?

Of course yes!!!

A lot of entrepreneurs use dropshipping as an opportunity to make money on their terms and build passive income streams.

This means that you never going to buy products, store them, and wait for sales. You’ll always just act as a middleman selling fresh items to the customer while you simply purchase from the wholesale supplier.

Let’s discuss in detail what is dropshipping and how it works? in this article.

What is Dropshipping business model?

Dropshipping business model is a type of business where the retailer does not keep any inventory. Instead, the retailer relies on the manufacturer to produce the goods and ship items directly to customers.

The retailer can offer a wider range of products without worrying about stocking issues or having to invest in physical locations. The customer will only pay for the product when it’s delivered.

It has become the most popular business model for e-commerce. It’s not only easy to set up but also cheaper than traditional retail stores. But it comes with its own set of challenges, including the risk of being unable to deliver products on time and customer service issues.

Check Here: Drop servicing Business Model

How Does dropshipping business model Work?

Drop shipping is a business model where the retailer does not keep goods in stock but sells the product directly to the customers by placing the orders to the wholesaler or manufacturer.

Here the retailer acts as a middleman, who transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler. After then the goods will be directly delivered to the customer’s address.

The retailer makes money by collecting a small fee for each item sold or by receiving a commission for each sale. The margin profit would be in the range of 15-20% for the retailer.

4 Key Factors of Dropshipping

1) Manufacturers

The manufacturer is the first person who makes the product and sells them to the market. Not directly, but it does via wholesalers or retailers.

2) Wholesalers

A wholesaler who holds the stocks in the warehouse, supplies or ships the product to the customers when it receives orders with customer details from the merchant.

The wholesaler will not deal with the customers directly nor its duty to acquire customers. Instead, its business dealings are with the merchants and retailers.

3) Merchant/Seller

Merchants are the person who actually creates the dropshipping business at a low cost. Rather than having any physical stores, it builds a website and attracts customers according to the niche market it sets in.

The whole stuff of gaining customers, driving traffic to the website, marketing, branding, receiving orders, and placing them to the wholesaler is managed by retailers. They gain a return on investment with a good margin of profit. Also, as a seller, they are responsible for products and their timely delivery.

4) Customer

The customer just places an order on the merchant’s website and doesn’t know where the product is manufactured or shipped from. Customers look for the entities they purchase products and services from that are well-known and trustworthy companies. This is important because these entities hold accountability for the quality of their merchandise.

Benefits of the Drop Shipping Business Model

As Drop shipping is a business model that does not involve any inventory control it has more benefits for the business owners in the long run and sustains for a long time.

The benefits are

  • Low capital investment: Dropshipping business does not require huge money to invest in. As there is no need to have inventory, it cuts down the major portion of the investment for the business. The digital setup for creating and running a website is sufficient, which needs less money.
  • Ease of doing: In this model, you could make money by charging a small fee as commission for each sale, or for each order fulfilled. No physical movement is required to maintain the stocks or to deliver them. Just the entire business process happens in a single office setup, even some people run as a home-based business.
  • Operational flexibility: Dropshipping gives the benefit of operating your business at a flexible location. Sitting in the office with an internet connection helps to control and shipment of the products directly from the manufacturer to the customer’s door.
  • Access to a wide market range: It has the ability to provide customers with a wide variety of products that they may not have been able to find locally. Your target customers may be looking for relevant products, meaning that you can expand your business by serving them what they want additionally.
  • Scalable: This model is scalable if you acquire a large number of customers, who may possibly look for other products to buy. If you work hard on marketing with a good business strategy and better support system you can gain a competitive advantage over other companies.

How to Start a New Drop Shipping Business from Scratch?

This section will provide information on how to start a new drop shipping business from scratch.

There are many ways to make money with your own drop shipping business. You can sell physical products, digital products, or both.

The good thing about this business model is that you don’t need any upfront investment to start it. All you need is a list of products that you want to sell and a website where you can display them.

So you can also make money with your own drop shipping business by selling digital products only. All you need to do is promote it on social media and receive commissions for each sale made through your website.

Another way to start a drop shipping business is to use services like Shopify, Etsy, and Oberlo that are specifically designed for people who want to start a drop shipping business.

Let’s see some quick steps to start a dropshipping business

  1. Brainstorm to choose the best business idea.
  2. Get some initial investment to start a dropshipping business.
  3. Choose a business structure and register your company.
  4. Do competitive research and market analysis in the selected niche market.
  5. Search for the wholesale supplier at a low cost.
  6. Create your own e-commerce store or go for the best dropshippers in the world.
  7. Customize your dropshipping store for multiple products.
  8. Do marketing activities and promote your business to the target audience
  9. Track, monitor, and scale your business.

Factors for Choosing The Right Product for Drop Shipping business

Particular attention should be paid to identifying the best products. When making a choice about the kind of goods you want to sell, there are four criteria that you need to evaluate.

  • Sourcing
  • Pricing
  • Demand and
  • Profit margin.

What Marketplaces are Best for Starting a Drop Shipping Business?

Various marketplaces provide drop shipping as a service. They differ in terms of the number of products available, their prices, and the ease with which you can find what you’re looking for.

Any buddy entrepreneur who wants to start a Dropshipping business with no experience ever can go for well-reputed companies.

Three marketplaces are best for starting a drop shipping business effortlessly. They are

  • Amazon
  • Shopify and
  • eBay.

Besides these giant companies, there are many other dropshipping websites available that are good to consider as well. They are categorized according to different industries, target audiences, and niche markets.

List of Dropshipping websites

This list of dropshipping websites has been compiled to help you find the best sites to start your own online business.

  1. AliExpress
  2. Walmart
  3. Spocket
  4. SaleHoo
  5. Wholesale2B
  6. Modalyst
  7. Doba
  8. Dropified
  9. Wholesale Central
  10. Worldwide Brands

These are some of the most popular online shopping platforms in the world. They have millions of customers who purchase goods from these platforms every day.

Pros of Drop Ship Business Model 

  • The drop shipping business model is advantageous because it allows retailers to offer products without having to invest in inventory.
  • This means that there is no upfront cost for purchasing or storing products.
  • Additionally, this model provides retailers with more control over their inventory and allows them to offer products from multiple suppliers without worrying about stocking out of popular items.

Cons Drop Ship Business Model 

The major cons of drop shipping are

  • You will be responsible for marketing and branding efforts which is not going to be easy.
  • Low marginal profit.
  • Highly competitive business.

Reader’s Insight

Let us know if we missed out on anything in this article Dropshipping Business Model and share your thoughts in the comment section.


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