Dropshipping is a kind of retail based business where the customer orders are received, executed and delivered without keeping any inventory in hand. The seller rather than delivering the orders directly transfers all such details of orders and shipment either to the manufacturer, other retailers or fulfilment houses which respond to customers by transferring the products. Such Retailers are primarily responsible for selling and promoting a product but have less or no control over quality of product offered, storage and stock management activity, which helps in deducting the cost of maintaing a warehouse. This cost elimination would lead towards deduction of expenses like- purchasing and storing the stock of material and staff employment for coordinating the warehouse operations and functions. They directly purchase the products from the third-party and immediately deliver it the final customers without keeping a stock of it. The retail model of Dropshipping is much cost effective and requires less operational capital, which suits best to the entrepreneurs.

Dropshipper - a dropshipper is a person who act as a supplier and manages inventory without storing it by directly shipping it to the ultimate customers on the behalf of the retail merchant. Acting as a middleman, can ask for a share of profit or commission on the number of orders so delivered or sold. Many entrepreneurs look towards this as a business model to adapt due to the less barriers on the entry and exit and less amount of funds are required to launch and carry on the business with long term Sustainability.

How Dropshipping businesses gained popularity? Earlier in the period of 60s when people used to place order and get their things through mail catalogues. The procedure was the customer used to choose a desired product, make a call and gets delivered from the warehouse at your house. But due to internet coming into play the scenario had changed.

Amazon and eBay Both these e-commerce websites allowed Dropshipping and thus made easy for retailers to sell online, by charging the Dropshipping fees. Where Amazon gives a platform of customers to the wholesalers and retailers where they could sell their products, where Amazon charges 10 to 15% of the profit earned over the transactions as a fees.

Ali Express A platform which enables people to buy Chinese products directly from Chinese manufacturers , which made the process for the purchase and sale of the products easy and all language restrictions are wiped out. Thus the launch of this platform had a greater influence on the Dropshipping industry.

Similarly many other platforms came into being which lead to the growth of the Dropshipping businesses all over the world. In 2019, the global Dropshipping market was valued at $162.44 billion. It’s projected that the industry’s value will reach a whopping $591.77 billion by 2027.

Benefits offered by Dropshipping business model Dropshipping is a business model which greatly aspires entrepreneur to its easy accessibility. Benefits offered by it include: • Requires less capital – without making any investment in the up-front inventory, a person can earn good amount profit by sourcing and selling products. The only need is to launch an e-commerce store without any stock upfront cost. Purchasing a product isn’t needed to start a business model but there exist some risk just like traditional retail store had in its initial stages. • A business model which is easy to start with – It is easy to begin with due to no involvement of physical products management and maintenance. Cost gets reduced: a) Managing and buying or renting a warehouse b) Packaging and shipping the orders received c) Keeping track of inventories for accounting purposes. d) Handling the returns and shipment procedures. e) Continuous product ordering and management of stock levels . • Involvement of less overhead expenses – the overhead expenses related are less due to no inventory purchasing and management of warehouse. Many of the people run this business from their homes which involves just few recurring expenses to operate. With the time these expenses would tend to increase but would always stay below the traditional business model setup. • Option of wide range of products to sell – one can offer wide range of trending products as one need not to purchase any quantity of the products. As one just need to list the items on the store to sell at no additional cost. • Flexibility of location- there is complete flexibility with respect to location as one need to have an internet connection to manage your business and remain on touch with the suppliers and customers. • Easy to expand- the load of work increases when the traditional retail business wants to expand its operations but Dropshipping expansion would involve less growing pain and less load of incremental work. Increase in sales number would lead to additional load of work especially in terms of customer support but all these lessen down when operating as a e-commerce platform operator. The other reason which enables a business to easily scale up includes buying less amount of inventory.

Disadvantages of retail business model The benefits listed above made this model quite attractive for the entrepreneurs to begin with and looking to expand their existing products range. But every flexible business comes at some cost, some of the shortcomings related to the opening of online retail store includes: • Less margins associated- a) due to the less operating cost involved it encourages number of people to open up their retail stores and serve as a competition by setting a shop selling products at rock-bottom prices with an attempt to generate larger revenues. b) Due to very little amount of investment involved they can afford to operate on minuscule margins. c) The quality of website and customer services is poor which can be compared with the business and thus affecting profit margins in a niche market due to large competition. • Inventory issues faced – If all the products are kept in stock then it would be relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory can change on a daily basis. • Shipping complexities- the cost associated with the shipping gets complicated due to the working with different suppliers as the online store gets sourced through different dropshipper. • Mistakes committed by suppliers – sometimes suppliers make a mistake of which they have to be responsible and must be guilty. Mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which can damage your business’s reputation.

Conclusion Dropshipping is definitely a smart business model to operate with good amount of profits with less amount of operating cost and involvement of less risk. Without inclusion of inventory cost this business model is easy to run but is accompanied with few disadvantages as well which act as a cost which ever business person had to bear to be successful.