How Does Dropshipping Work in 2021?

Although pundits say dropshipping is dead due to market saturation and increased competitiveness, dropshipping industry facts reveal that it’s actually flourishing and growing considerably. Estimated at a global market size of USD 102.2 billion in 2018, it’s expected to grow at a 28.8% compounded annual growth rate (CAGR) from 2019 to 2025, reaching USD 557.9 billion. This did not take into account the onset of the 2020 pandemic yet when lockdowns and social distancing fueled the explosion of e-commerce and dropshipping businesses, as people turned away from buying from physical stores.

What is Dropshipping?

Dropshipping is an order fulfillment business model that started in the 1960s with the popularity of mail-order companies but only exploded as an e-commerce business in 2006 with AliExpress’ launch of Chinese e-commerce stores in the United States. It basically involves four key steps:

A customer orders from your online store;

Your store automatically sends the customer’s order to your dropshipping supplier;

Your dropshipping supplier prepares and packs your customer’s order; and

Your dropshipping supplier ships the order directly to the customer.

You earn a profit from the price difference between your supplier’s wholesale price to you and your retail price offered to your customer, which should have covered all your business costs and profit margin. Your main task is to ensure that the order is correctly fulfilled. But, to successfully grow your dropshipping business, you have to be very good at satisfying your customers and executing successful marketing campaigns.

Dropshipping: The Good and The Bad

On the plus side, a dropshipping business requires less capital because you don’t have to have huge inventory and a physical store, so it’s easy to start, with low overhead, a flexible location, a variety of products to sell, easy to test, and easy to scale.

On the challenging side, a dropshipping business has low margins, faces inventory issues when you’re sourcing from multiple warehouses with daily changing inventories, involves shipping complexities and supplier errors, with very limited chances for you to customize and brand the products you sell.

It is estimated that around 90% of dropshippers fail during their first month, going into the business without much knowledge and preparation for what it entails, and just jumping on the bandwagon hype. So, even if many go into dropshipping and the market seems saturated, not all who go into dropshipping succeed.

The main reasons for failure are wrong niche, wrong platform, unattractive website store design, delayed shipping, bad customer service support, inconsistent business management, the dropshipper’s lack of knowledge and investment resources, as well as lack of persistence and perseverance.

Keys to Success in Dropshipping

Succeeding in dropshipping obviously involves avoiding the reasons for failure identified. An overarching factor, though, can be traced to fulfilling the key roles of a dropshipper: correct and satisfactory order fulfillment, customer care, and very good marketing – especially online marketing in the e-commerce space.

This factor, in turn, can be traced to how a beginner dropshipper approaches the business: as a hobby they can make quick money from, or as a real business. Expectedly, those who succeed are those who treat it like a real business, equipping themselves with the necessary knowledge and preparation. Shopify offers a free webinar on what it takes to start one’s dropshipping business right.

So, How Does Dropshipping Work in 2021?

It should still be founded on the fundamentals of business success: know your customers well to create and serve the right niche, know which are the right marketing and advertising platforms to reach them, add value to your service once they have responded to you, take very good care of them with excellent customer support, partner with good quality manufacturers/suppliers with the proven track record, and apply sound business management and financial principles in running your business professionally.

Additionally, in the e-commerce world, employ good website designers who know how to create an excellent website for your online store and do search engine optimization (SEO) right for your content.

In 2021, it is estimated that there will be 2.14 billion global digital buyers, or 27.2% of the world’s population shopping online. This figure has been rising fast over the years and is expected to continue to do so. This is a lot of potential customers, even for a supposedly saturated and competitive market.

The key question to ask is not how many dropshippers are already there, but how good a dropshipper can you be in fulfilling people’s needs and wants?

If you can rise up to this challenge, dropshipping will work for you in 2021, and beyond.