What is Dropshipping? Myths and truths of how it works

This online sales model generates quite a bit of controversy in the world of digital business. It has points for, but also against. Find out if it’s for you!

In this post, we are going to tell you all about this method that has great fans but also dropouts. And above all, if the is a viable business.

The business models of online sales

When deciding, there are different business models to make sales.

Own production: a first option where brands are responsible for the development and production of their products. They offer them in their store and once the purchase is made, they send it to the customers to the chosen destination.
Wholesale purchase: in this second option, brands buy, that is, in large quantities to get better prices. They thus generate their own with the possibility of adding value in the process. Depending on their availability, they are selling in their online store and dispatching the shipments.
Dropshipping: unlike the previous ones, this third model works without its own stock since it buys only what it sells in its online store from its suppliers.

Let’s go into more detail on this last method.

Dropshipping: what is it and how does it work?

So, dropshipping is a business model where, unlike a traditional supply chain, the seller does not have their own stock.

This is responsible, in the first place, for making sales and then placing orders with your supplier. Since the shipment is made directly from the manufacturing site to the final customer, the dropshipper does not even see the products.

That is, it is the supplier who sends the product directly to the buyer.

Dropshipping works as a direct shipping method for online retail stores. In other words, the merchant does not intervene in said shipment, but manages the customer’s order and it is the supplier who makes the final delivery of the product that he purchased.

In addition, to understand how to do dropshipping, it is important to mention that, in this online sales model, the merchant focuses his functions on the area of marketing, online advertising and the administration of his e-commerce, for example, implementing strategies to your sales website.

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Step by step: how to do dropshipping for beginners?

If you already have a presence in the market with an online store or are thinking of joining this world, we invite you to .

Once you complete this step, you will be able to incorporate the dropshipping model into your business as a beginner by following these simple tips:

Investigate what types of products best fit your business, strategy and audience.
Analyze what the action plan of your competitors is: evaluate the prices and promotions that they handle according to the products.
Make a list to select the best product supplier or manufacturer.
Depending on the sales management software you use, devise a checkout process that is beneficial for both you and the customer.
Promote your products by the different ones and clearly describe their characteristics as well as the delivery time or the shipping locations that you handle.

How is the profit in dropshipping

The dropshipping method positions the seller as an intermediary between the manufacturer or supplier and the final consumer. The dropshipper selects the products at a low cost and adds them to publish them in their store.

Let’s look at an example of dropshipping:

Let’s imagine that after a market investigation there is an opportunity for pet accessories (leashes, collars, food dishes, etc).

Next, we find a supplier of those products with low costs (for example, Aliexpress) and make sure they have the option of dropshipping.

On the other hand, posting the pet accessory products I selected from the supplier. I can use your images, adjust the description and put the final price (with my margin included).

It is time to promote the store to generate traffic and thus sales. The will be a key element in this step.

With each purchase received, the same order is made to the supplier. In the data of the receiver of the package, the information of the client is included. In this way, the producer will do the packaging and shipping process.

Customers will receive their orders directly to their doors. The dropshipping store keeps a margin between what the buyers paid and what they negotiated with their supplier.

There are online stores that work only with this methodology. On paper it sounds very attractive, with promises of low risk and the impossibility of keeping unsold inventory.

But let’s go together on a deeper tour of this world of dropshipping and see in more detail what the advantages and disadvantages are.

Dropshipping: why and why not

The advantages of dropshipping

The advantages of the dropshipping model are:

Low cost of entry: a large investment is not needed to start selling, since there is no stock of merchandise. Simply by setting up the online store and generating traffic to it, the business is working.

Quick start-up: This low cost of entry will also make the time it takes to start the business really fast. Once you have decided what you want to sell, in a short time you will have everything working.
Minimum risk: the fact of only buying what is sold brings a certain peace of mind. There is no possibility of producing or buying something that is not successful and being left with high value products sitting in a warehouse.

Sounds ideal, right? Who would not want to have a fast business, with low costs and minimal risks?

This is where I want us to investigate a little more… Because it is the disadvantages of dropshipping that are not entirely clear until one begins to analyze this business model in more depth.

The disadvantages of dropshipping

Today there are innumerable tutorials on the internet to apply dropshipping: for example, youtubers who offer courses promising immediate and hassle-free millionaire profits.

We are going to analyze what things can play against this type of online sales model.

Lack of value for the consumer: in the dropshipping model, the seller becomes a simple intermediary. As I mentioned before, he doesn’t even see the product that the vendor is shipping to his customer.

The dropshipper is not really adding to the sales process, and even opportunities to generate value for the customer are lost. For example, with an appeal of the brand.

High competition: just as one would get easy access, with a low cost of entry, many others will be able to do so. This is going to translate, basically, into a lot of competition.

The products you decide to sell in your store can be in the same way in the store “next door”. In this sense, it is necessary to offer a differential, for example, an excellent , to make a difference and retain your customers.

Little control in customer service: as we saw, it is the supplier who is in charge of direct shipping to your customers. So you will not have control over that process. But if there are mistakes in the products or defective merchandise, you will be responsible.

Whether for exchanges or returns, you have to be ready to respond. It is key, then, to work with reliable providers to whom you can turn in the event of inconveniences and offer a good customer service to generate trust in your customers.

Difficulty in building a brand: the points mentioned above can complicate the process of building your own brand that adds value, in which customers trust, relate and buy again.
Low profit margins: When buying the finished products, there are fewer opportunities to play with the margins. You need to sell a considerable amount to overcome the between income and expenses, and to be able to see a real return.

Does dropshipping work in Argentina?

If you have already evaluated the advantages and risks of this sales method, you are probably wondering if dropshipping works in Argentina.

The reality is that, beyond the disadvantages mentioned above, this method works very well in many countries around the world.

In general, the suppliers are from Asian countries (such as China) that produce large quantities of products at very low cost. And hence the possibility of adding a profit margin that closes the business equation.

In our country there are certain particularities regarding products from abroad that it is important that you take into account:

The changing regulations to bring products into the country: it is important to comply with customs rules to bring products into the country. Therefore, it is necessary to be up to date with the regulations on the products that you are going to sell.

Thus, you will avoid certification problems with the Ministry of Commerce.

Unclear delivery times: Even if your supplier is transparent and adheres to the terms they agreed to, there is little visibility into what customs times are. So it would be advisable that you take this factor into account when promising a delivery date to your customers.

The unpredictability of the mail: problems of missing products or deliveries that arrive incomplete can occur. In this sense, the responsibility for redeeming the consumer will be yours.

Secondly, there are occasions when the post office requests that the recipient of the shipment pick it up at a branch, making delivery impossible. For this reason, it is important to warn the customer that this possibility exists when the product arrives.

Is the dropshipping model profitable in 2022?

The reality is that there is no correct answer. Dropshipping has its risks but also great benefits if one has the ability to find the right products and the right suppliers.

It’s also a way to test the market before diving into a particular industry or product line.

The important thing is to define what type of business you want to build and from that, understand if the dropshipping methodology suits it.

Examples of products to sell by dropshipping

Success in a dropshipping business lies in knowing how to select products that are relevant and useful to your customers. For example, there are niche products and trending products that will increase your sales.

However, the ideal is that you do not focus on a single item, but include both in your online store.

look at these dropshipping business ideas to sell in Argentina:

Niche products:

Technology.
Electronics.
Wellness and lifestyle.
Beauty and health.
Clothing and accessories.