How Big of an Opportunity is Dropshipping?

“It’s not like it’s growing 10% or 15% a year, we’re talking about doubling, tripling, sometimes quadrupling year-over-year growth, which is a tremendous amount of business. All of our orders go out really smoothly, because of the really high service levels, turn around time, and quality control.”  

Josh Auerbach Chief Operating Officer of Aura Frames

If you look at the numbers, ecommerce sales have been increasing at a rapid rate. It’s estimated that consumers spent $861.12 billion online with US sellers in 2020. This is a staggering 44% increase since the year prior. Forrester tracked a 30% growth rate of ecommerce sales in 2020, the fastest growth since 2002 (that’s two years after PayPal and Zappos launched, but before Amazon Prime or Shopify were around). 

“We estimate that more than 75% of all ecommerce sales will go through a drop-shipment or marketplace. If we continue to see ecommerce grow this rapidly, we predict the same number of ecommerce sales from last year will be done through dropshipping in a couple of years. It’s going to be a massive amount.”  

Jorrit Steinz CEO of Channel Engine

There are two big trends in ecommerce where sellers are seeing huge opportunities for growth: dropshipping and marketplace selling. At a basic level, both are models for distribution, but each have distinctions that are right for some products and not for others. Because they are relatively new within the ecommerce industry, many sellers are struggling to determine if dropshipping or marketplace selling are right for their brand… or perhaps both.

What’s the Difference Between Dropshipping and Marketplace Selling?

As relatively new distribution models, dropshipping is when a retailer purchases products from a seller but does not keep the inventory in stock. Instead goods are moved directly from the manufacturer or fulfillment center to the retailer after orders have been placed. One of the biggest reasons sellers are gravitating toward dropshipping is the speed they can take a product to market. Dropshipping makes it incredibly easy for sellers to launch ecommerce stores because it relieves them from many hassles of a traditional distribution model.  

On the flip side, marketplace sellers own their inventory and list their products on ecommerce marketplaces, like Target.com and Walmart.com. In exchange for allowing sellers to list and promote their products within their marketplace, they take a percent of the sales transaction.

Dropshipping can sometimes be confused with marketplace selling because the two overlap under traditional retailers. Many big box stores have turned their online shops into marketplaces as well. On top of that they are most often asking their suppliers to dropship. Some of the larger platforms which used to buy multiple types of products now are just buying the top ten products and then let the rest dropship.

Increase Your Sales Volume Quickly

Read how dropshipping helped triple Aura Frame's year-over-year growth, lower their freight costs, and provided a more flexible inventory planning method.

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Is Dropshipping a Good Opportunity?

The biggest benefit of dropshipping is that it’s a market-based model. It smoothes out the ability to have a large number of products available at any given time. 

“It gives us more flexibility on inventory management. We can get 1,000 units in and they are eligible to be dropshipped for any of the retailers we work with (of which there are many). We know that DCL will take them off the shelf and when they go out they will look like a package from retailer A or B or C.”  

Josh Auerbach Chief Operating Officer of Aura Frames

Every ecommerce seller knows, the hardest thing to do is forecast correctly. It’s hard to predict how many products you need in stock. Especially if you have a range of sizes, or need to be close to the trends. All of that is easy with a dropshipment model. It’s a logical move for sellers who have items that are more consumable, disposable, or purchased often. 

Traditionally, there was a more centralized model of distribution where sellers would ask their manufacturer to produce a batch based on what consumers pre-order. Then the products would go to a distributor in a specific region to then get sent off to local stores, or maybe a warehouse for a few online shops. Sellers would end up sending different stock levels to so many places. Inevitably the stock they sent was always too many or too few.  

Dropshipping is a more efficient way of doing distribution. And due to automation, it can be done quickly, easily. 

What Makes a Great Dropshipping Strategy?

In order to be successful from the start there are a few logistics needed to be in place. The speed and accuracy of dropshipping can’t be messed with, otherwise the model doesn’t work. And that means your products aren’t on shelves anymore. 

Steady Stock Levels

Once you’re selling on a few sales channels, inventory management gets a lot more complicated. Even if you sell on two channels, from a single stock location, then you have a challenge. The stock levels need to be updated in all places simultaneously to reflect accurate inventory. For example, if you have four items in stock, and two are within a product bundle, you want to ensure your backend system will account for that. It’s important to work with your logistics provider to sort this out, but it’s also important financially. You want insights on both inventory levels and also sales performance so that you can put your effort into the products, or bundles, or channels that are performing best. 

Integration Platform

Once you’ve put your products on one marketplace, you’ll likely want to add others soon after. Manually it’s very time consuming to update more than one retail site, but with the right integration partner it can be really simple to add your products to multiple marketplaces. 

With a good integration platform, sellers can easily manage their product information on multiple platforms via one single dashboard.

A Simplified Cart 

The decisions made within the checkout process can make-or-break a sale. Complications or unexpected costs are two of the top four reasons for cart abandonment. 

Having your shipping strategy all sorted is key. There are many options when it comes to choosing your shipping costs, some costs can get offloaded to the customer, but you’ll need to absorb some. Two common customer-friendly options include expedited shipping (which costs more for a shorter transit time), and free shipping (which is possible with very calculated free shipping strategies). 

Your check out process should also include a smooth currency exchange if you plan to sell in any international markets.

Pro Tip ?

The products that work best for dropshipping also usually work well for small parcel shipping. See our comparison of domestic small parcel shipping options

What Products are Best for Dropshipping? 

The optimal dropshipping products are always high value, low volume. Smaller, lighter items do well within this distribution model as well because unlike large or heavy items which cost more to ship. The best items are consumables, products that people order again and again. CPG products (consumer packaged goods) are the best and most verticals under the CPG umbrella (like food and beverage, for example) are trending toward using a dropshipping model for many retailers. 

How to Get Started Dropshipping?

The best way to start dropshipping is to partner with a reputable fulfillment provider. Choose a 3PL who has the technology to help sync your inventory, who can work with carriers to get your product in and out of the fulfillment process quickly (meet SLAs), and who has established relationships with retailers (hello routing guide!) so you won’t have any surprises come your way. 

 

If you’re looking to grow your business by dropshipping to retailers, reach out to hear more about our services at DCL Logistics. We love supporting high-growth brands and have many companies who are currently dropshipping.