Dropshipping is a way for businesses and companies to sell products without having their own warehouses or inventory. This might sound confusing to someone unfamiliar with this process, but it can be profitable for small online businesses.
So, what does someone need to know to understand dropshipping in Canada and the United States? We are going to go over five essential things one needs to know about it!
What is Dropshipping?
Dropshipping is when a company does not keep a specific inventory or has a warehouse, where the business keeps its products. The company uses a larger company, a direct manufacturer, or wholesaler to buy the products their customer wants.
The company usually has an agreement with the wholesaler, so the company gets it at a lower price but sells it at a higher price to make a profit. The wholesaler then ships the item directly to the customer, but in the company’s name.
How Profitable is Dropshipping?
The profit for dropshipping is high for companies. Usually, it ranges anywhere from 20%-45% profit for companies if they have products that sell and have good relations and prices with the wholesalers.
With some higher-priced items, like electronics or jewelery, a company can make a 100% profit or more.
Who Can Use Dropshipping?
It is perfect for smaller online businesses or new online business. It is suitable for these types of companies because the company will not have to invest a lot in products to have in a warehouse with many items. The company can use larger warehouses and wholesales to hold inventory.
Also, dropshipping is very low risk because the company does not have to invest in products that might never be sold.
Which Products Should Be Used for Dropshipping?
For this to work to make money, a company has to know which products are better to sell using this business model.
A company should look at the item’s retail value, based on the wholesale amount to see how much of a margin there is. Also, one should consider the size and weight of the products because that will play a role in how much shipping will cost.
Also, a company should look at the quality and durability of the items. It is a good idea to sell a higher price and higher quality items to minimize returns and refunds.
What are the Pros and Cons of Dropshipping?
Some pros are that it is easy to set up, low risk, and highly profitable if done correctly. A few cons is that if something goes wrong with the product, the company has full responsibility to replace it on their own.
The Bottom Line
Dropshipping is a great system to use if one has a new online company or a smaller online business to make a good profit on selling products.