WHAT IS DROPSHIPPING
What is dropshipping and how does it work in Poland?
You will learn how dropshipping works, what parties we distinguish in this process, and how to assess the potential pros and cons of using dropshipping as a delivery method for e-commerce companies.
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Dropshipping: Introduction
The development of the e-commerce industry has led to the creation of many companies supporting this sales process. One such business solution is dropshipping. It is a model in which order fulfilment, storage, packaging, shipping, and delivering products to end customers, is outsourced to a third party, called a “dropshipper”.
At the time of placing an order by the customer, the seller orders the product directly from the supplier, and the seller sends the completed order to the final customer. As a result, dropshipping allows sellers to create product offerings without having to purchase them in the first place, which consequently relieves them of the duties of warehousing and inventory management. This ultimately ensures the appropriate form of delivery to the customer.
Such a solution requires minimal investment and does not involve the cost of storing goods.
This is an attractive form of starting a business with low start-up capital and low overheads.
No need to invest in warehouse spaces and staff to handle order fulfilment. In addition, without the need to import and store the offered products, sellers gain the opportunity to include a wider range of products in the assortment. This enables customers to shop comfortably with a choice of attractive product offerings that potentially may not be readily available in their local market.
Globally, many retailers have decided to start a business or incorporate dropshipping into already existing e-commerce businesses. Understanding how this model works will help you make an informed decision about whether it is the right solution for your needs.
At the time of placing an order by the customer, the seller orders the product directly from the supplier, and the seller sends the completed order to the final customer. As a result, dropshipping allows sellers to create product offerings without having to purchase them in the first place, which consequently relieves them of the duties of warehousing and inventory management. This ultimately ensures the appropriate form of delivery to the customer.
Such a solution requires minimal investment and does not involve the cost of storing goods.
This is an attractive form of starting a business with low start-up capital and low overheads.
No need to invest in warehouse spaces and staff to handle order fulfilment. In addition, without the need to import and store the offered products, sellers gain the opportunity to include a wider range of products in the assortment. This enables customers to shop comfortably with a choice of attractive product offerings that potentially may not be readily available in their local market.
Globally, many retailers have decided to start a business or incorporate dropshipping into already existing e-commerce businesses. Understanding how this model works will help you make an informed decision about whether it is the right solution for your needs.
What is Dropshipping?
Dropshipping is one of the many solutions available for retailers that allows you to focus on selling products online — either on your own e-commerce website or on an external website — while outsourcing the order processing to a third party.
The seller transfers customers' orders and shipping information to the manufacturer or wholesaler, who then sends the products directly to the customer. The retailer essentially acts as an intermediary between the customer and the supplier.
Dropshipping has recently gained popularity as a solution used in e-commerce due to ease of starting a business, absence of entry barriers, and low costs of conducting such sales.
However, Dropshipping has its drawbacks. If end customers place their orders at a retailer, part of the control over order fulfilment, quality of products and delivery, as well as delivery times is lost.
It is more difficult to manage customers’ satisfaction and their tendency to repeat purchases by outsourcing this important part of the sales process.
The seller transfers customers' orders and shipping information to the manufacturer or wholesaler, who then sends the products directly to the customer. The retailer essentially acts as an intermediary between the customer and the supplier.
Dropshipping has recently gained popularity as a solution used in e-commerce due to ease of starting a business, absence of entry barriers, and low costs of conducting such sales.
However, Dropshipping has its drawbacks. If end customers place their orders at a retailer, part of the control over order fulfilment, quality of products and delivery, as well as delivery times is lost.
It is more difficult to manage customers’ satisfaction and their tendency to repeat purchases by outsourcing this important part of the sales process.
How Does Dropshipping Work?
Sales in the form of dropshipping is based on a detailed agreement between the seller and the third party, who executes the sale on their behalf. Dropshipping is nothing more than a business model that allows you to sell goods without having a warehouse or your own logistics back office. Within this model, the seller/owner of the online store, offers products that are stored and shipped directly by the manufacturer or wholesaler. Thanks to this, the seller does not have to involve large financial expenditures in the purchase of goods, storage, and payment of logistics costs.
How does dropshipping work? Here are five steps to help you understand this concept:
How does dropshipping work? Here are five steps to help you understand this concept:
- Selection of products: The seller chooses the products he wants to offer in his online store.
The seller can use catalogues available in dropshipping services or establish direct contact with wholesalers and manufacturers. - Creation of an online store: The seller creates an online store that will offer products of his choice.
He can use ready-made e-commerce solutions or commission the creation of a website to specialists. - Presentation of the offer: The seller adds offered products to his online store, sets their prices and descriptions. He also deals with store promotion, customer acquisition and order stream management.
- Orders and Payments: Customers place orders and make payments through the store's website.
Payments go to the account of the seller, who then transfers the orders to the wholesaler or manufacturer of the products ordered by the customer. - Shipping and Customer Service: The wholesaler or manufacturer sends the ordered products directly to the end customer. The Seller is responsible for contact and customer service, as well as solves possible problems and provides information about the status of the order.
The seller must carefully analyse the market, select products according to customers' preferences and create an effective marketing strategy. Note that it is usually the seller's side, who informs the ordering party about the status of the order. It is possible to set up automated notifications informing the buyer about completing particular steps in the execution of his order — confirmation of order receipt, information on completion, preparation for shipment, and shipping status — even if these steps take place outside the actual control of the retailer.
Remember that this is just a description of a sample solution. Your cooperation with third parties in the sales process depends on both the arrangements you mutually agree to and the agreements you sign.
Remember that this is just a description of a sample solution. Your cooperation with third parties in the sales process depends on both the arrangements you mutually agree to and the agreements you sign.
Understanding the role of the seller, manufacturer and wholesaler.
Within the dropshipping model, three main sides of order fulfilment are indicated - sellers, manufacturers and wholesalers.
In fact, when it comes to online commerce, practically anyone can become a seller — a private person, a small or medium-sized business, as well as large enterprises.All of these entities can sell online. However, when we talk about dropshipping as a seller, we specify the page that sells the selected product to the end customer.
A seller, also called a retailer, offers and sells products on his website or online store. It is he who decides on the assortment of the online store and the prices of products. He is also the one who receives payment from the end customer and agrees to cover locally applicable taxes and fees. Even if the seller does not formally deal with the storage, packaging, and shipping of the goods he trades, he is responsible for them in this form of checkout.
The manufacturer is the party that produces goods and ensures their quality. This could be an individual or an enterprise. Manufacturers typically sell their products wholesale to downstream wholesalers or sellers rather than as individual pieces to individual consumers. As a seller, you have the opportunity to buy directly from the manufacturer, but remember that manufacturers are often reluctant to sell smaller batches of products. They prefer to sell certain volumes, often setting the minimum required number of pieces of merchandise. Entrepreneurs who take their first steps in trade often have difficulty ordering more products; this is associated with the need to store them and the high costs of entering the market.
A wholesaler is an intermediary between the seller and the manufacturer. They are engaged in the warehousing and shipping of products to the customer.
Together, these players form an important triangle in the dropshipping model, allowing the online retailer to offer products without inventory and storage costs.
To summarize:
In fact, when it comes to online commerce, practically anyone can become a seller — a private person, a small or medium-sized business, as well as large enterprises.All of these entities can sell online. However, when we talk about dropshipping as a seller, we specify the page that sells the selected product to the end customer.
A seller, also called a retailer, offers and sells products on his website or online store. It is he who decides on the assortment of the online store and the prices of products. He is also the one who receives payment from the end customer and agrees to cover locally applicable taxes and fees. Even if the seller does not formally deal with the storage, packaging, and shipping of the goods he trades, he is responsible for them in this form of checkout.
The manufacturer is the party that produces goods and ensures their quality. This could be an individual or an enterprise. Manufacturers typically sell their products wholesale to downstream wholesalers or sellers rather than as individual pieces to individual consumers. As a seller, you have the opportunity to buy directly from the manufacturer, but remember that manufacturers are often reluctant to sell smaller batches of products. They prefer to sell certain volumes, often setting the minimum required number of pieces of merchandise. Entrepreneurs who take their first steps in trade often have difficulty ordering more products; this is associated with the need to store them and the high costs of entering the market.
A wholesaler is an intermediary between the seller and the manufacturer. They are engaged in the warehousing and shipping of products to the customer.
Together, these players form an important triangle in the dropshipping model, allowing the online retailer to offer products without inventory and storage costs.
To summarize:
- The seller in the dropshipping model is a retailer that offers and sells products on their website or online store. Their main task is to build an attractive website and acquire or serve customers. The seller is responsible for ensuring that the products he offers are reliable and of high quality. They must also ensure that products are always available in the supplier's warehouse and delivered to the customer on time. The seller also bears a risk in the event of problems with delivery or products. The key to success is close cooperation between the retailer, wholesaler, and manufacturer.
- The manufacturer is the party responsible for creating the products offered later on. Their role is to create high-quality goods. The manufacturer should be a specialist in their area. They are responsible for the production process, the quality of the goods, and their compliance with applicable legal requirements. The indispensable role of manufacturers is to implement innovations and constantly improve the goods as well as the diversity of their offer.Since in the dropshipping model, the manufacturer will not have direct contact with the end customer, close cooperation between the manufacturer and the seller is very important. The seller will be able to communicate to the manufacturer information about the level of customer satisfaction with the quality and functionality of the products. Constructive criticism and listening to customers' needs will enable the manufacturer to better respond to market demand.
- The wholesaler is the intermediary between the seller and the manufacturer. They are engaged in the warehousing and shipping of products to the customer.The wholesaler is responsible for replenishing stock and delivering orders to customers within a specified lead time. The wholesaler is also responsible for packing, preparing for shipment, and sending parcels. The wholesaler is an important partner for the seller and manufacturer, his mediation ensures the smooth operation of the dropshipping model. If the seller can offer to sell more pieces, the wholesaler often guarantees discounts on purchases.
How do I find the right dropshipping partner?
Finding the right partner in a dropshipping relationship is crucial to the success of your entire endeavour. The reliability of the implementation of sales stages will be branded by your store. Business partners must be trustworthy, proven, and responsible.
When you try to look for contractors, it is very important to determine the niche within which you want to conduct your business and draw up a list of products that you want to include in the store's offer. This is the first step to finding the right business partners.
Then you can use online platforms to find suppliers — dropshippers who deliver products to retailers within the product niche you are interested in.
It is important to check the reputation of suppliers. You can check reviews on their websites and social media to see what other sellers are saying about them. Check the reviews of the reliability of the supplier and whether they provide good customer service. In addition, consider contacting suppliers directly and talking about their products, shipping and return policies, and terms of cooperation.
Completing these steps will help you find a reliable and suitable dropshipping partner that suits your needs and business goals.
When you try to look for contractors, it is very important to determine the niche within which you want to conduct your business and draw up a list of products that you want to include in the store's offer. This is the first step to finding the right business partners.
Then you can use online platforms to find suppliers — dropshippers who deliver products to retailers within the product niche you are interested in.
It is important to check the reputation of suppliers. You can check reviews on their websites and social media to see what other sellers are saying about them. Check the reviews of the reliability of the supplier and whether they provide good customer service. In addition, consider contacting suppliers directly and talking about their products, shipping and return policies, and terms of cooperation.
Completing these steps will help you find a reliable and suitable dropshipping partner that suits your needs and business goals.
Dropshipping products from different suppliers.
Using multi-vendor services in a dropshipping model allows the retailer to offer a wider range of products supplied by many different manufacturers without the risk of being left with unsold goods. A possible solution is to cooperate with one wholesaler/“dropshipper” sourcing from different manufacturers, or using the services of many different sales providers. It all depends on the agreement we have with our business partners.Regardless of the form, it is important to ensure that all suppliers are reliable and that the quality of products and delivery times meet customers' expectations.
Using the services of many different providers has several potential advantages and competitive advantages:
Using the services of many different providers has several potential advantages and competitive advantages:
- You can offer customers a wider range of products.
When choosing multiple suppliers for your business, you are not limited to the assortment of only one source. As a result, your customers will be able to choose from an extensive range of merchandise. - You can expand the reach of your business network and build more business relationships.
Using multiple vendors to source products allows you to establish extensive business relationships. This can potentially be a big advantage when your business is growing.
When considering these undoubted advantages and facilitation, we must not forget that, as with any other business relationship, cooperation with many other entities is demanding and engaging. Before you decide on this step, think carefully about all the pros and cons that you anticipate for your business.
Is dropshipping suitable for my business model?
Dropshipping is not a one-size-fits-all solution; ultimately, it is up to you to decide whether its advantages will outweigh any inconvenience in the industry in which you operate. When making this decision, it is worth considering, among other things, the following issues.
- Brand Identity
Do you want to sell products under your own brand? Creating and developing a brand can give you higher recognition among customers by building a deeper relationship with them based on trust and brand loyalty. Brand attachment lowers price pressure on your products. By recognizing brands and distinguishing them among other generic substitutes, customers can justify the price of products by setting their internal search filter at the lowest price. However, in order for your brand to inspire trust and have a good reputation, you must especially take care of a positive shopping experience in your store.Good associations with the brand should accompany your customer from the moment they visit the online store until the delivery to their door.Using the dropshipping solution, we outsource part of the sales process to partners, thereby losing control over product quality, packaging, shipping, and delivery to customers.Using the dropshipping solution, we outsource part of the sales process to partners, thereby losing control over product quality, packaging, shipping, and delivery to customers. If quality is affected, customers will leave our brand and choose competitive products.Outsourcing adjusting products, packaging, and delivery to the brand to the dropshipper can be an additional difficulty. Our uniqueness in the eyes of the customer can be put to the test. - Quality control.
The quality of the products you offer translates into the functioning of your company. High quality confirmed by customers with positive ratings will support the positive recognition. However, if the declared quality does not correspond to the real one, a high number of returns can be expected. You risk negative customer reviews and loss of customers. Think about how important it is for you to ensure consistently high quality products.
In the case of dropshipping, constant quality control is possible only on the basis of an agreement with reliable suppliers — dropshippers. That is why the process of selecting trusted business partners is so important. - Delivery of Orders
What order delivery times will meet your customers' expectations? When buying online, we usually expect fast shipping, it is a very important part of the online shopping experience. Too long delivery times create a negative image of your website and your brand. When choosing a dropshipping provider, pay attention to the terms, delivery times, and associated costs. Check if your supplier allows you to track orders. This is an additional benefit for your customers.
What are the pros and cons of dropshipping?
The benefits of dropshipping include low initial costs, no need to store and ship goods, and a wide range of products to choose from. The disadvantages include lower sales margins, limited control over product quality, and possible delays in deliveries or wholesale sales.
Advantages of dropshipping
- Low initial costs.
Dropshipping does not require you to create inventory, which means that you do not need to invest money in purchasing products or renting warehouse space. - You don't need physical storage space.
Since you don't have to store inventory yourself, you don't need physical storage space, so you don't incur additional rental, insurance, or maintenance costs. - Flexibility of your work.
With dropshipping, you can work from anywhere, as long as you have an internet connection. This gives you the flexibility to work from home, cafes, co-working spaces or wherever you want. - Offered selection of products.
You are not restricted by stocking up a store or keeping inventory, you can easily offer new products without incurring financial risks. - Scaling business.
Dropshipping enables rapid growth without worrying about expanding your physical infrastructure. You can easily test new products and markets and scale your business as demand grows.
Disadvantages of dropshipping
- Limited quality control of products.
When you use dropshipping, you rely on the supplier to complete your order. This limits your control over the process. If the dropshipper service falls below the declared quality, you risk customer dissatisfaction. - A lot of entrepreneursare using a similar model
Dropshipping is a popular solution. Finding a profitable niche and standing out can be difficult. - Problematic dispatch of orders.
Using the services of many different dropshippers/product suppliers, the order will be shipped from multiple locations, which can create logistical problems such as delays, lost parcels and customer complaints. - Lower margins.
Companies that sell in the form of dropshipping tend to have lower margins than traditional companies. Having no control over the cost of order fulfilment, they must rely on the prices offered by their suppliers and fight against competition with low product prices. - Unreliable suppliers.
Sellers depend on the credibility of their suppliers.If they fail, it will have consequences for your company's reputation in the market.
A summary of disadvantages and disadvantages in the case offor your company may indicate the unprofitability of the dropshipping model. Remember, however, that this is not the only way to facilitate internet sales activities on the Internet. Alternatives will be, for example, affiliate marketing or Fulfillment by Amazon (FBA) - Fulfillment by Amazon (FBA) model
Is dropshipping the right choice for you?
When you better understand the dropshipping model and alternative fulfilment options, carefully analyse and compare the sales parameters for these solutions. Consider the following aspects.
- Brand Identity - When selling a product, everything that builds the brand identity, that is, the appearance, style and design of your products, can be the decisive choice factors for customer. Dropshipping gives you only partial control over these parameters. If you can't find a dropshipper is able to customise your products the way you expect, you're potentially putting your company's reputation at risk.
- Control over product quality — due to the lack of real insight into the goods purchased and stored by your dropshipper partner, you have limited control over the quality of these products. If the quality of products deviates from the declared one, you can lose your customers.
- Delivery time: Since the delivery and execution processes are the responsibility of your suppliers/partners, make sure they have a good history of timely deliveries. Using Amazon's fulfillment (FBA) can speed up the delivery of purchased goods. Some products even qualify for free, guaranteed two-day delivery under Amazon Prime, but only under certain conditions.
- Financing: If you are at the beginning of your career as an online retailer, you probably have less capital. Dropshipping and some other alternatives allow you to reduce your spending on sourcing, purchasing, and storing products before they are sold.
Conclusions.
Dropshipping is a method of retail sales in which a store does not store the products sold in stock. Instead, at the time of receipt of the order, the seller makes an automatic (or not) purchase from a third party — a dropshipper who takes the relevant products from stock, packs them, prepares them for shipment and sends them directly to the end customer. The role of a third party may be performed by the manufacturer, wholesaler or other retailer himself.
The main advantage of dropshipping is that it requires a small initial investment. The lack of need to fill up the store, rent warehouse space, handle inventory, warehouse handling, order picking, and handle shipments significantly reduces the amount of financial expenditure necessary to start a business. Without having to sell unsold inventory, you gain more flexibility to tailor your offering to the current market needs. You can easily change the range of assortment and take care of its attractiveness by adding new products to the offer, for which the demand is not certain. Potential bestsellers will conquer the popularity of your online store and make it stand out from others. Moreover, you do not have to worry about unsold stocks of unpopular products. The risk associated with holding inventory is minimized.
However, Dropshipping has its drawbacks. The imperfections of this model that you have to take into account involve the level of your margin. It is usually quite low due to high competition in the market and very limited impact on the management of fulfilment costs. Secondly, you have little control over the quality of the products, the shipping time, and the packaging in which the end customer will receive their order. Potential disappointments and bad customer experiences from the shopping path will fall on you and your business, not the dropshipper invisible to the customer. Moreover, reliance on third-party delivery of products can involve problems with product availability and a lack of control over the supply chain, which makes it difficult to scale the business.
All in all, dropshipping can be a great option for entrepreneurs who want to start an online business with little initial investment. However, it is important to carefully weigh all the pros and cons of such a solution before deciding.
The main advantage of dropshipping is that it requires a small initial investment. The lack of need to fill up the store, rent warehouse space, handle inventory, warehouse handling, order picking, and handle shipments significantly reduces the amount of financial expenditure necessary to start a business. Without having to sell unsold inventory, you gain more flexibility to tailor your offering to the current market needs. You can easily change the range of assortment and take care of its attractiveness by adding new products to the offer, for which the demand is not certain. Potential bestsellers will conquer the popularity of your online store and make it stand out from others. Moreover, you do not have to worry about unsold stocks of unpopular products. The risk associated with holding inventory is minimized.
However, Dropshipping has its drawbacks. The imperfections of this model that you have to take into account involve the level of your margin. It is usually quite low due to high competition in the market and very limited impact on the management of fulfilment costs. Secondly, you have little control over the quality of the products, the shipping time, and the packaging in which the end customer will receive their order. Potential disappointments and bad customer experiences from the shopping path will fall on you and your business, not the dropshipper invisible to the customer. Moreover, reliance on third-party delivery of products can involve problems with product availability and a lack of control over the supply chain, which makes it difficult to scale the business.
All in all, dropshipping can be a great option for entrepreneurs who want to start an online business with little initial investment. However, it is important to carefully weigh all the pros and cons of such a solution before deciding.
Frequently Asked Questions
What is dropshipping?
Dropshipping is one way a retailer can outsource the process of storing, packing, and delivering products to a third party.
Do I need to use dropshipping to deliver my products?
No, the use of dropshipping is not mandatory.
Is dropshipping allowed on Amazon?
You must follow Amazon's dropshipping rules, if you intend to fulfil Amazon orders with a dropshipper.
Can I send a package via Amazon?
No, Amazon is not a dropshipping service, but Fulfilment by Amazon (FBA) is an alternative to dropshipping. In this case, it is Amazon that stores, downloads from the warehouse, packs and ships your product.
What is the difference between manufacturer, wholesaler and retailer?
Manufacturer is the party responsible for the manufacture and production of goods. Wholesalers buy manufactured goods, usually whole lots of them, from manufacturers as part of wholesale purchases and then resell them to retailers; in most cases, they don't sell directly to end users. Retailers can operate small stores or outlets from which they sell directly to the consumer. Manufacturers, wholesalers and retailers can also work together as part of a dropshipping model. Which changes their role in the sales process.
Can I deliver products worldwide using dropshipping?
This should be checked with the supplier - the dropshipper. Some suppliers offer shipping abroad, however, this is not the rule.
What is the difference between manufacturers, wholesalers and retailers in the dropshipping model?
When you use a dropshipping solution, the roles of manufacturer, wholesaler, and retailer differ from the traditional layout. The manufacturer will still produce products, the wholesaler purchases their lots, while the retailer purchases these products (from the manufacturer or through the wholesaler) only at the moment of receiving the order from the final customer. When signing a contract for dropshipping, the burden of storing and shipping the ordered goods falls on the wholesaler or in some cases directly on the manufacturer.
Do I need to register my company to use the services of a dropshipping provider?
Conducting online sales without registered business activity is regulated by legal status. In Poland, the possibility of undeclared activity is provided, which gives individuals the opportunity to provide services and sell goods without the need for traditional company registration. When conducting undeclared business, it is not required to have NIP, REGON or company bank account numbers. There is also no obligation to keep accounting. Undeclared activities can be carried out properly in any industry except those that require permits, concessions or licenses. However, remember that the income from this activity must not exceed 50% of the amount of the minimum wage in any month.
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