Have you ever wondered: how does dropshipping work, and what is it? I’ll tell you: Dropshipping is a way to source things to sell without having to actually pay for them first. The advantage in dropshipping is that it’s a lot less risky than traditional retail, because you only buy the stock once you’ve actually made the sale. If you can’t sell the product… you’re not out of pocket.
It also requires very little money upfront, so if you don’t have a lot to invest… dropshipping is the perfect way to get started making money selling things online.
How does dropshipping work?
It’s pretty simple really. A dropshipper lets you list THEIR products in YOUR online store as if you already had the stock in your hands. You don’t even need to have purchased the goods first:
Diagram answers question: how does dropshipping work?
When a customer buys the product from you and you’ve received their payment, you just go to the dropshipper, let them know you’ve made a sale, purchase the item (easy, because you’ve got money from your customer!) and let the dropshipper know your customer’s address. The dropshipper then sends the product directly to your customer.
You never even have to touch the product!
Still wondering how does dropshipping work? Here is an example to help you out. Let’s take Reynard. He wants to start a Shopify store selling novelty mugs. He’s going to be finding his dropshippers on Aliexpress.
- Reynard goes to Aliexpress and finds highly-rated suppliers selling fun novelty mugs.
- He identifies several mugs to list in his store that have fantastic reviews and strong sales history.
- He lists these mugs inside his Shopify store.
- He then advertises his different items for sale with small $5/day Facebook ads for 4 days. He runs ads for lots of products. Most ads don’t make any sales – but he finds 1 mug that makes him 2 sales!
- After dancing around her living room a little bit, Reynard goes onto Aliexpress and purchases the mug for each of his customers. He pays $5 for the mug, but the customers pay him $15.
- Reynard pockets that extra money ($20) and then continues to scale his Facebook ad spend up and up… making more and more money!
Good things about it:
- Low up-front costs: you only buy goods once you’ve already sold them. Brilliant if you’re just starting out.
- You can list a huge range of goods: Because you don’t need to buy them up front. Imagine having a store with a huge range of stock, and you don’t have to pay for ANY of it until you sell it. If you list an item and it doesn’t sell… no biggie!
- It’s much easier than traditional retail: You don’t have to worry about storage, packaging, shipping costs, endless trips to the post office. You don’t have to wait three weeks for your goods to arrive before you can even start selling them. You can have an item listed and sold and on its way to the customer within hours.
Dropshipping is definitely an exciting business model, and it has several advantages. But you’re probably wondering…
It sounds too good to be true — Is there a catch?
I’ve answered the question of how does dropshipping work, but here is a new one: is there a catch? There are definitely some downsides to dropshipping that you need to be aware of before you get started:
- Not all items will be big sellers. You need to be prepared to run lots of ads for lots of different products. It’s an investment though: just 1 winning item can be scaled to over $10,000/month. But if you give up too early (and most people do this) then you’ll miss out.
- Be careful with which dropshippers you work with: Imagine if Reynard bought and shipped these mugs to his customers… and they arrived with the handles broken off! The customers would be very angry and would ask for a refund. That is why it’s crucial to work with well-reviewed dropshippers.
Want to learn more about how dropshipping works? Then download our free ebook now, which teaches you the step-by-step methods of 6-figure dropshipping stores!