Is Ecommerce Dropshipping on the Rise? Benefits for Merchants

The ecommerce landscape supports a wide range of business models and channels to sell in—one of the great benefits of online selling is its adaptability to different techniques. Among these, ecommerce dropshipping continues to stand out as a popular sales method. The global dropshipping market was valued at an impressive $225 billion in 2022, with an incredible 23% annual growth rate forecast through the end of the decade. This blog will look at what makes the dropshipper model an enduring choice for merchants.

What is Ecommerce Dropshipping?

Ecommerce dropshipping is a fulfillment strategy where a business doesn't keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party—often a manufacturer or wholesaler—and has it shipped directly to the customer. This means that the merchant doesn't handle or store the product physically. It can also mean that the seller never has to hold inventory.

Why Merchants Prefer Ecommerce Dropshipping

1. Low Start-up Costs

One of the most appealing aspects of ecommerce dropshipping is the relative ease of starting a new business. As there is no inventory required at the outset, dropshipping requires less startup capital. Merchants can continue to save substantially as there’s no need to maintain a physical inventory. This advantage is one of the key reasons behind dropshipping’s popularity.

2. Reduced Risk

Ecommerce dropshipping significantly reduces financial risk for merchants as they only purchase the product from the supplier once the customer makes a payment. This insulates businesses from potential losses from amassing inventory ahead of time on spec.

3. Wide Product Offerings

With no inventory restraints, ecommerce dropshipping enables merchants to offer a much broader selection of products to their customers. They can collaborate with various suppliers to enhance their product catalog, without worrying about initial production costs.

Typical Workflow in Ecommerce Dropshipping

The standard dropshipping workflow is fairly straightforward. With this method, the merchant is acting as an intermediary between the customer and manufacturer. The merchant’s role is to present the product to customers, encourage a sale using ecommerce features and promotions, and manage the transaction and communications. The actual product fulfillment is handled directly by the manufacturer.

1. Product Listing: Merchants list the products available with their partner suppliers on their ecommerce website.

2. Order Placement: Customer places an order on the merchant’s website.

3. Order Notification: The merchant informs the supplier about the order and all important details.

4. Order Fulfillment: The supplier assumes responsibility for packaging and shipping the product directly to the customer.

5. Tracking and Delivery: The merchant receives the tracking information from the supplier and shares it with the customer.

For merchant and manufacturer, this method eliminates most risk of over-stocking and over-production. The buyer is the only party who experiences a “penalty," in the form of potential additional waiting time if the product has not been manufactured yet. To offset this downside, it’s important to be extremely transparent with shoppers about fulfillment schedules. Tight integration of the manufacturer’s fulfillment data with the merchants’ ecommerce site is also essential, so customers can stay informed at all times.

Integrating Dropshipping with Other Sales Modes

Ecommerce dropshipping can harmonize with other selling methods, creating a hybrid model that makes businesses more flexible, and able to reach different types of customers.

• Physical Stores: Retailers with brick-and-mortar stores can increase their potential revenue by introducing dropshipping, offering a wider range of products than they could physically stock in store.
• Wholesale: B2B businesses with a wholesale model are well-suited to dropshipping, as they often have tighter relationships with suppliers/manufacturers than their retail counterparts. For B2B businesses which manufacture their own products, dropshipping can be an inventory management technique which informs production schedules.
• Marketplaces: Merchants selling on marketplaces like Amazon or eBay can integrate dropshipping to expand their product catalog dramatically—even sourcing from other Amazon and eBay sellers—without substantial investment in inventory.

Dropshipping remains a viable ecommerce business model with minimal upfront investment.

By eliminating the necessity to hold inventory, ecommerce dropshipping significantly reduces barriers to entry and growth. While merchants may have to share profit margins with manufacturers and lose some control over inventory, dropshipping benefits such as wide product offerings and less logistical headaches can make it a desirable—and profitable— option for many businesses.