While you can certainly develop an e-commerce website without dropshipping, it’s more than likely that you will be spending more money than you need to if you don’t use dropshipping. This chapter is going to discuss exactly what dropshipping is, so that you have a firm grasp on how dropshipping is defined and what it’s all about. We will also get into some of the finer points of dropshipping, so that you can have an edge on your competition when it comes to delivering products to your customers efficiently and without error.
The Dropshipping Supply Chain
It’s important for you to understand how a dropshipping supply chain works in its entirety, especially when you’re interested in starting a business based around this concept.
Dropshipping Supply Chain Component 1: The Manufacturer The manufacturer can be best described as the product’s point of origin. When the manufacturer agrees to sell their product, they will normally do so only when the retailer or seller agrees to buy a certain quantity of the manufacturer’s product. For someone like you who is probably going to be expensing this e-commerce business yourself, purchasing product in bulk from a manufacturer may not be realistic.
Dropshipping Supply Chain Component 2: The Wholesaler
If you do end up purchasing product from a manufacturer, you would be considered a wholesaler. These are the people who buy the product from the manufacturer in bulk quantities, increase the price of the good so that they can make a small profit from it, and then sell it to retailers. Generally speaking, a wholesaler is not going to sell their product to an individual. They are still looking to sell the manufactured product to a retail store.
Dropshipping Supply Chain Component 3: The Retailer
The last aspect of the dropshipping supply chain consists of the retailer. The retailer is the supply chain component who ends up selling the product to
an individual consumer. They too are going to increase the price of the good so that a profit can be made. As you can see, the price of the product has been increased at least twice before it makes its way into your life when you decide to purchase something at a store. From an entrepreneurial perspective, this is why dropshipping can matter. If you can insert your business into the dropshipping supply chain, you have the potential to make money off of the profit margins that can be seen between the wholesaler and the retailer.