Dropshipping Fulfillment: How Does It Work?

Dropshipping is a method of retail where the seller does not keep the products being sold in their own inventory. When an order is placed, they pass on the information to a third party, who then collects and ships the products directly to the buyer. The dropshipper never physically handles the product. Essentially, they act as a middleman between the manufacturer and the end consumer of the product.

In this business scheme, three parties are involved simultaneously:

• Dropshipper – a seller who lists products on their online platforms and attracts buyers. They take on the roles of marketing, sales, and customer service without having physical access to the products.
• Supplier – a manufacturer or wholesaler who has direct access to the products. They prepare and ship the order to the buyer placed with the dropshipper. They do not directly interact with the customer.
• Buyer – the end consumer who places an order for a product on the dropshipper’s website. They are not aware that the product is being shipped by a third party. For them, the quality of the product, delivery terms, and customer service provided by the dropshipper are important.

For a better understanding of the dropship model, let’s compare it to the classic order fulfillment scheme.

As we can see, in the traditional retail model, the seller independently manages their inventory and is responsible for storing, packaging, and delivering goods to customers. With dropshipping, the retailer does not physically hold any inventory. Instead, they collaborate with a supplier who stores and directly delivers the products to customers. This eliminates the need for the retailer to purchase goods and maintain their own warehouse.

Moreover, when launching or expanding an existing business, the dropshipper does not bear any financial risks. They can easily broaden their product range without worrying about storage or warehouse management.

Another difference between dropshipping fulfillment and the standard model is the level of delivery control. In the traditional model, retailers have more control over the timing and method of product delivery. They can choose preferred carriers, packaging materials, and delivery methods. With dropshipping, retailers rely entirely on the supplier for delivery matters. Consequently, they have less control over delivery times and limited options when it comes to packaging and carrier selection.

In dropshipping, it may seem illogical that the manufacturer does not directly approach the consumer. Such a decision is often due to the fact that not all manufacturers have the capability or desire to market and offer their products to customers. As a result, many of them prefer to entrust the sales process to an intermediary who will attract customers for their products. Let’s take a look at how the dropshipping fulfillment process works in practice.

• The buyer places an order on the dropshipper’s online store.
• The retailer confirms the order and sends payment details to the customer.
• After successful payment, the dropshipper forwards the order to the supplier and transfers the cost of the item to them minus any commission fees. The seller can use various methods of communication with the supplier, including email or an integrated order management system.
• Upon receiving payment and order details, the supplier prepares the items for shipment. This involves retrieving the ordered items from their inventory and securely packaging them for transportation.
• After preparing the shipment, the supplier arranges for its delivery. Depending on the supplier’s location and the customer’s delivery address, various shipping methods may be utilized.
• Shipping information is relayed to the retail seller, who can then inform the buyer about tracking details.

After the shipment of the product, it’s important for both the retailer and the supplier to remain vigilant. Keeping track of shipping updates and notifying the customer about any changes or delays is crucial. In case of any issues, both parties involved in dropshipping need to address them collaboratively to ensure a positive buying experience for the customer.

In recent years, dropshipping has gained significant popularity. It is expected that in 2024, the global dropshipping market will reach $201 billion. What is the reason for such popularity? Dropshipping fulfillment offers certain benefits to the retail seller:

Since you don’t need to purchase inventory in advance or rent a warehouse for storage, you can start a dropshipping business with minimal investment. This makes it an attractive option for novice entrepreneurs who are often resource-constrained. A minimal startup capital allows you to reduce risks and test your business ideas without significant financial commitments.

Dropshipping fulfillment does not require much time and effort. You won’t need to deal with inventory management, packaging, and order fulfillment. These tasks will be handled by the supplier. Your role will involve finding a reliable supplier, actively promoting their products, and communicating with customers. Additionally, you won’t be tied to the location of a warehouse or manufacturing facility. You’ll be able to manage your business from anywhere with an internet connection.

Another advantage of dropshipping fulfillment is the ability to offer a wide range of products without needing to invest money in each product. Since dropshipping does not involve purchasing inventory, you can easily add new products to your online store without any financial risk. This flexibility allows you to quickly adapt to market trends and provide your customers with a diverse selection of products.

Working with the dropshipping model, you don’t need to purchase or store goods in a warehouse. Consequently, you save on renting or buying a warehouse, its maintenance, as well as on expenses for packaging and storing goods.

With the dropshipping model, you can sell a variety of products without being tied to a specific niche. This allows you to adapt and experiment with different products until you find what suits your business. And since dropshipping doesn’t involve inventory management, you’ll have the opportunity to easily scale your business. You can add new products or enter new markets without additional costs and logistical issues.

Only about 20% of dropshippers have managed to bring their online businesses to success. This indicates that it’s not just about quickly and easily launching a business; it’s also about sustaining it. These are the pitfalls we mentioned at the very beginning. To join the 20% of successful dropshippers, it’s important to understand all the challenges of dropshipping that you’ll encounter during order fulfillment.

The minimal initial capital is both the main advantage and the main disadvantage of dropshipping. Due to its accessibility, this business scheme attracts a wide range of entrepreneurs. With the emergence of numerous players in the market, competition for customers and market share has increased, leading to price and profit margin reductions. According to statistics, dropshippers receive no more than 20% profit from the cost of the product. This hinders business growth, especially for newcomers to the dropshipping sphere.

Quality control is another serious challenge that can arise during dropshipping fulfillment. Since the seller does not have direct control over the products being shipped, there is a risk of receiving low-quality or defective items. This can significantly impact the reputation of your sales channel. It’s important to carefully vet the reputation of your suppliers and test their products to ensure that customers receive high-quality merchandise.

Since in dropshipping the seller does not physically own the products, there can be difficulties in tracking and managing inventory levels. This can lead to situations where a customer places an order for a product that is out of stock. This will cause dissatisfaction with the customer and damage your reputation. It is important to establish reliable communication channels with your suppliers and regularly update inventory information to ensure accurate product availability for customers.

In dropshipping fulfillment, supplier errors become your problem. Although you don’t have direct control over the order fulfillment process, you still bear responsibility to your customers for the quality and timeliness of product delivery. Any errors in picking or packaging by the supplier can significantly impact the customer experience and your reputation as a seller. It will be up to you to resolve the issue to the customer’s satisfaction.

Therefore, it’s important to carefully choose suppliers, verify their reliability and quality of service, and establish clear procedures for addressing delivery issues. This will help minimize risks and ensure a more positive experience for your customers.

Since in dropshipping the seller relies on the supplier during the delivery process, they have little control over its speed and efficiency. This can be particularly problematic when working with international suppliers or during peak seasons when delivery times may increase. Customers experiencing delays in receiving their orders may become upset and even demand refunds or leave negative reviews.

It’s important to establish clear expectations with the supplier regarding delivery times and methods. Additionally, sellers should promptly inform their customers about the status of their orders to meet expectations and maintain customer satisfaction.

When operating under the dropshipping model, you don’t own the products being sold; they belong to the suppliers. This means that handling returns requires compliance with the supplier’s return policy. Given the variety of policies and restrictions among different suppliers, this can be challenging. Additionally, some suppliers may have limited or nonexistent return policies, which can lead to customer dissatisfaction and impact the brand’s reputation.

When it comes to dropshipping, choosing the right product and a reliable source for that product are crucial. Your supplier will determine the quality of the products, delivery times, and overall customer satisfaction. To successfully grow your business, carefully research and evaluate all potential candidates in your chosen niche. When assessing, consider the following questions:

• Where is the supplier located?
• How quickly does the supplier process orders after they are placed?
• How quickly does the supplier deliver products to the customer?
• What are the terms of delivery offered by the supplier?
• Does the supplier have a clear and understandable returns process?

Look for suppliers that specialize in dropshipping and have a good reputation in the industry. Reviews and feedback from other dropshippers can provide valuable insights into their reliability and customer service. However, it’s best not to rely solely on reviews. Before making a decision, evaluate the supplier’s performance based on your own experience. Request a sample of the supplier’s products or place an order for their items through a competitor. This way, you can ensure the quality of their products and determine the level of service they provide.

Another important aspect of dropshipping is communication with the supplier. Choose candidates who are responsive and easy to communicate with. This will allow you to quickly and effectively address any questions and issues. Established communication with suppliers will also help you build strong working relationships and potentially negotiate better dropshipping terms or discounts.

Choose suppliers that align with the goals and values of your business. This way, you can ensure the successful development of your dropshipping enterprise.

Dropshipping is a great opportunity to start a business from scratch. This business model is more suitable for startups with limited resources and infrastructure. However, it is worth understanding that dropshipping fulfillment means a lack of control over the supply chain. This can be an obstacle to the growth and expansion of your business.

And since in the case of dropshipping, the supplier applies their own packaging and shipping standards, the buyer may not associate the product with your brand. In such conditions, it is difficult to develop a unique brand style. This can hinder efforts to build customer loyalty and create a strong market presence.
Furthermore, if your goal is to quickly turn your business profitable, dropshipping may not be the right choice. Although it eliminates the need for upfront investments in inventory, the prices of products are set by the supplier. Consequently, opportunities for markup may be limited, making it difficult to achieve substantial profits.

However, there is a good alternative – third-party logistics (3PL) services. Order fulfillment through 3PL offers a solution that combines the convenience of dropshipping fulfillment with greater control and branding opportunities.

Like dropshipping, a 3PL operator will spare you from the need to invest in maintaining your own warehouses and personnel for order fulfillment. Instead, you will only pay for the actual warehouse space and services you use. This flexibility allows your company to start earning quickly without the financial burden associated with managing your own inventory.

If we’re talking about 3PL services for dropshipping from Fulfillment-Box, you will receive:

• Ability to work with suppliers from China;
• Quality control of products;
• Consolidation of items from multiple suppliers into one shipment;
• Option to remove supplier information from the order;
• Ability to use branded packaging and add marketing materials to the order;
• Easy integration with popular online platforms;
• Full automation of order processing;
• Hassle-free returns processing;
• Detailed reporting.

The benefits of 3PL for efficient order fulfillment and long-term profit maximization are evident here. However, this doesn’t mean that dropshipping isn’t suitable for your business at all. If you’re starting a business from scratch and selling at a local level, the dropshipping model can be an excellent option for you.

You can also combine both order fulfillment models. Dropshipping provides the opportunity to quickly test a product and gather valuable insights into market preferences and trends. You can store the most popular items in the warehouse of a 3PL provider, while ordering less demanded ones from dropshipping suppliers as needed.

Ultimately, the choice of order fulfillment model will depend on the specific goals and circumstances of your business.

1. Who is dropshipping suitable for?

Dropshipping is more suitable for startups with limited initial capital. For experienced entrepreneurs, it’s an opportunity to quickly test a new product with minimal financial risks.

2. How do you make money with dropshipping?

When working with dropshipping, sellers earn money from the difference between the wholesale and retail prices of the product.

3. How to choose a product for dropshipping?

When selecting products for dropshipping, consider market demand, profitability, competition, and your own expertise. Avoid products with high competition and choose items with growing demand.

4. How to solve the problem with the quality of goods when fulfilling dropshipping orders?

To minimize the risks of sending low-quality products to customers, it is important to choose reliable dropshipping suppliers and test their products beforehand.

5. Can I use dropshipping for international orders?

Yes, many dropshippers successfully fulfill international orders. However, it’s important to choose a supplier who is willing to collaborate on dropshipping at an international level.

6. Who pays for shipping in dropshipping?

In dropshipping, shipping is typically paid for by you, the owner of the online store, or by your customers.

7. Can I use dropshipping for selling on Amazon?

Yes, Amazon allows dropshipping on its platform. However, you must strictly adhere to its policy on direct shipping.

8. Where to find dropshipping suppliers?

To find a dropshipping supplier, you can:
✔ contact the manufacturer of the product and request a list of their collaborating suppliers;
✔ use Google search;
✔ purchase products from competing dropshippers and identify the supplier from the return address.

9. How does dropship order fulfillment differ from the 3PL model?

In the case of the 3PL model, the seller purchases goods in bulk and transfers them to a third-party logistics provider for storage. In dropshipping, the seller does not own the goods. They sell products that are stored and managed directly by the supplier or manufacturer.

10. What benefits does 3PL fulfillment offer compared to dropshipping order fulfillment?

Unlike dropshipping, 3PL services offer more control over the supply chain and opportunities for developing one’s own brand.