No inventory, no problem? Exploring dropshipping and the technologies to automate it

Dropshipping is not exactly a novelty but it is still nothing short of a buzzword. What makes it a lucrative business model and what doesn’t? In this blog post, we’ll be distilling the idea of dropshipping and what it requires in terms of inventory management so you can make up your mind if it’s a smart move for you.

What is dropshipping?

Dropshipping is a business model that entails companies selling products to customers while holding no inventory. You heard it right - these are inventory-free operations. The products are bought from the dropshipper but delivered to the customer by the supplier/manufacturer directly. In a nutshell, you're a dropshipper if:

• You don’t carry any inventory or just some (in case you’re a hybrid business)
• You forward customers’ orders directly to your suppliers/manufacturers stating your clients’ addresses as the delivery addresses 
• Your supplier stores the products and fulfills and ships the orders.
• You have an online (although not necessarily) storefront but in reality, you’re just an intermediary between the client and the supplier.

The benefits and downsides of dropshipping

Advantages:

• It doesn’t require upfront investment in inventory, warehousing, and logistics management.
• You eliminate safety stock calculations and replenishment decisions altogether
• Your capital isn’t tied up in inventory
• Picking, packing, and shipping is not your responsibility
• Dropshipping allows you to test products in the market without significant inventory investment. Once a product shows strong sales, you could start stocking it for distribution, which might give you better profit margins.
• It’s easier to expand - you can scale more easily without needing additional staff or storage space.
• It’s a location-independent business - you aren’t tied to a particular place and can operate as long as you have an internet connection. 

Disadvantages:

• Lower profit margins as dropshipping prices are, with some justification, higher. After all, suppliers shoulder more responsibilities and a major part of the work. 
• You’re responsible for the mistakes of your supplier/manufacturer since you’re the customer-facing part of the business
• A lot of competition on account of the low barrier to entry
• Refunds take a lot of time
• Reliance on suppliers for stock availability and shipping times
• Less control over quality

What does it take to become a drop-shipper?

To sell products as a dropshipper, you need to establish sales channels. It could be either one of these or a combination of several options:

1. Dedicated Online Stores. Many companies and individuals quickly jump-start a dropshipping business by using platforms like Shopify, WooCommerce, or BigCommerce to create branded online stores where they showcase products. This allows them to control the customer experience, set prices, and market directly to their audience.

2. Marketplaces. Some dropshippers sell through platforms like Amazon, eBay, or Etsy, where they list products but don't operate a store. The marketplace handles much of the customer interaction, and the dropshipper just facilitates the order fulfillment.

3. Social Media. A few dropshippers run their businesses primarily through social media platforms (Instagram, Facebook Marketplace, TikTok), or even direct messaging apps, without a formal online store. They promote products via posts or ads and handle sales through DMs, payment apps, or embedded links.‍

4. Affiliate or Referral-based Dropshipping. Some people run affiliate-style dropshipping, where they drive traffic to a supplier’s site, earn a commission on sales, and never maintain a store themselves.

Can I combine dropshipping with other business models?

Absolutely. You can go for a hybrid model, for instance, dropshipping and distribution. Combining the two models allows you to diversify risk. If a dropshipping supplier faces issues, you still have products in your distribution network, and vice versa.

Besides, managing a dual business model would require you to handle different logistic approaches. Here are a few more considerations, if you do:

• You’ll need good infrastructure and technology to manage dropshipping and other business models efficiently.
• You’ll need to balance diverse financial commitments.
• You’ll need careful planning to manage logistics, cash flow, and customer expectations.

Given there’s a software solution to track all the operations in one place, you’re good to go

Is dropshipping the right fit for you?

Dropshipping can be the right fit for you if:

• You're looking to start an e-commerce business with minimal upfront investment, limited risk, and no need to manage inventory.
• You prefer flexibility and low operational costs. Since you don’t need to buy products upfront or maintain a warehouse, you save on storage and reduce the risk of unsold stock.
• You're more focused on marketing, customer service, and scaling rather than logistics and manufacturing.
• You’d like to test different product niches without a significant financial commitment. You can quickly pivot and adapt your inventory based on demand, using customer feedback and market trends to optimize your offerings.
• You prefer to operate online and can leverage digital marketing tools like social media and SEO to drive traffic to your store.
• You are comfortable managing these low-profit margins while still focusing on growing your brand and customer base.

Managing dropshipping orders with HandiFox Online

HandiFox Online addresses dropshipping inventory management while letting you juggle and manage traditional business models and dropshipping from one platform.

If you decide to integrate dropshipping into your current operations, you can create an additional inventory site for it alongside the sites designated to your physical storage locations. 

Here is the workflow for managing dropshipping orders in HandiFox Online.

1. Create a Sales Order

2. Convert it into a PO or multiple POs (in case products have different vendors)

3. Leave the address from the SO and click Save

4. Send PO(s) to respective vendors by email. Go to Purchase Transactions, click on the said PO number, and click Send.

5. Receive those POs

You can speed up and skip barcode-scanning individual items by using the Receive all shortcut. During receipt, you can update the quantities on the order in case the supplier makes some changes.

6. Your Item Receipt is sent to QBO and becomes a Bill.

7. You can proceed by generating an Invoice based on the SO. The Invoice will be sent to QuickBooks Online as well.

If you’re in a rut and would like to diversify - give dropshipping a whirl. HandiFox Online takes care of automation so you can focus on your business.