Dropshipping fulfillment allows ecommerce businesses to meet order demands without the cost and risk of inventory carry.
How does dropshipping fulfillment work? And how can you start with it? This guide covers exactly that.
What is dropshipping fulfillment?
Dropshipping fulfillment refers to when a business doesn’t keep the products it sells in stock. When a dropshipping business makes sales, they outsource packaging and shipping to a third party fulfillment service, which then ships to the customer. As a result, the seller doesn’t have to handle the product directly or manage any supply chain.
In most cases there are three players that make up the dropshipping supply chain: manufacturers, wholesalers, and retailers.
Manufacturers
Manufacturers create the product, and most do not sell directly to the public. Instead, they sell in bulk to wholesalers and retailers. Buying directly from the manufacturer is the cheapest way to purchase products for resale, but most have minimum purchase requirements you’ll need to meet. You’ll also need to stock and then re-ship the products when selling them to customers. For these reasons, it’s often easier to buy directly from a wholesaler.
Wholesalers
Wholsalers buy products in bulk from manufacturers, mark them up slightly, and then sell them to retailers for resale to the public. If they do have purchasing minimums, they’re generally much lower than those required by a manufacturer. Wholesalers will usually stock products from dozens—if not hundreds—of manufacturers and tend to operate in a specific industry or niche. Most are strictly wholesaler operators, meaning they sell only to retailers and not directly to the general public.
Retailers
A retailer is anyone who sells products directly to the public at a markup. If you run a business that fulfills your orders via dropshipping companies, you’re a retailer.
Dropshipping fulfillment benefits
Dropshipping fulfillment allows you to offer different products in your store without any supply chain. Once you partner with a fulfillment company, like DSers, an AliExpress dropshipping partner, one click and you’ll have products live in your store, at no extra cost.
Low capital requirements
You don’t have to purchase products ahead of time when using dropshipping fulfillment. This makes it cost-effective to start an ecommerce store or expand your product offering without investing thousands of dollars in inventory up front.
Easy to start
You also don’t have to deal with physical products. Dropshipping suppliers have their own fulfillment centers where they pack and ship your customers’ orders. You never have to worry about inventory management or managing stock levels. All you need is a laptop to start.
Low overheads
Because you don’t have to invest much money upfront, your overhead expenses are low. Many dropshipping stores start as a home-based business idea that turns into something bigger.
More scalable
If you are a traditional retailer, every time you receive an order, you must receive, fulfill, pack, and send the order manually. That’s a lot of work for a small team. With dropshipping order fulfillment, suppliers do all of that for you. So you can sell as much as you want, on any marketplace or channel you want, without falling behind.
Wide variety of products to sell
You’re not limited to the items you can sell as a dropshipping retailer. If your supplier stocks a new product in their fulfillment center, you can list it for sale in your store at no extra cost.
Common dropshipping challenges
Dropshipping businesses face a variety of challenges. Although they all share similar goals, some get stuck on finding good suppliers, while others have trouble with shipping. Whatever the case may be, there’s always one area you can improve to turn your dropshipping business into a revenue generator.
Low profit margins
Low profit margins are a top challenge for many dropshippers operating in competitive dropshipping niches. Because it’s easy to start, competitors can sell items at low prices to grow revenue through sales volume, rather than quality. Since they don’t invest much to start a dropshipping business, they can afford to operate on small margins.
Supplier challenges
Even the best dropshipping suppliers will make mistakes fulfilling customer orders—mistakes you’ll need to take responsibility for and apologize on behalf of. A low-quality fulfillment partner can cause havoc with missing items, mishandled shipments, and poor packaging. If you work with multiple fulfillment centers, which many dropshippers do, it makes order fulfillment more challenging.
It’s important to find reliable dropshippers to fulfill your orders. Vet your options. Check reviews on supplier sites like DSers. Top things to look out for when choosing a good supplier include:
- Fair fees
- Low order minimums
- Expert knowledge
- Customer support
- Responsiveness
If you can find a supplier that checks the boxes above, you’re more likely to have good dropshipping fulfillment experiences.
Poor unboxing experience
For online businesses, shipping and fulfillment is the most direct touchpoint and connection with a customer. Customers can’t touch or feel products before purchasing them. The unboxing experience is where you can create a memorable experience and differentiate yourself amongst competitors. It’s also a common challenge for many dropshippers.
Shipping issues
Shipping times and delays are common in dropshipping fulfillment. Depending on the country you’re shipping to, shipping times can take up to 60 days.
Shipping from your home country is one option to bring down shipping costs and complexities. Some dropshippers also solve this shipping problem by buying products wholesale, then hiring a fulfillment center in the country they ship to. This lets them deliver orders in a few days versus a few months.
Dropshipping fulfillment in action
Here's how a dropshipped order gets processed at theoretical store Phone Outlet, an online merchant that specializes in accessories for smartphones. Phone Outlet dropships all of its products directly from a wholesaler fulfillment center called Wholesale Accessories.
1. Customer places order with Phone Outlet
Mr. Allen needs a case for his new smartphone and places an order via Phone Outlet’s online store. Once the order is approved, a few things happen:
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Phone Outlet and Mr. Allen will get an email confirmation (likely identical) of the new order, which is automatically generated by the store software.
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Mr. Allen’s payment is captured during the checkout process and will be automatically deposited into Phone Outlet’s bank account.
2. Phone Outlet places the order with its supplier
This step is usually as simple as Phone Outlet forwarding the email order confirmation to a sales representative at Wholesale Accessories. Wholesale Accessories has Phone Outlet's credit card on file and will bill it for the wholesale price of the goods, including any shipping or processing fees.
Note: Some sophisticated fulfillment centers will support automatic XML (a common format for inventory files) order uploading or the ability to place the order manually online, but email is the most common way to place orders with dropshipping suppliers because it’s universal and easy to use.
3. Wholesale Accessories ships the order
Assuming the item is in stock and the wholesaler was able to successfully charge Phone Outlet’s card, Wholesale Accessories will box up the order and ship it directly to the customer. Though the shipment comes from Wholesale Accessories, Phone Outlet’s name and address will appear on the return address label and its logo will appear on the invoice and packing slip.
Once the shipment has been finalized, Wholesale Accessories will email an invoice and a tracking number to Phone Outlet.
Note: The turnaround time on dropshipped orders is often faster than you’d think. Most quality suppliers will be able to get an order out the door in a few hours, allowing merchants to advertise same-day shipping even when they are using a dropshipping supplier.
4. Phone Outlet alerts the customer of shipment
Once the tracking number is received, Phone Outlet will send the tracking information to the customer, likely using an email interface that’s built into the online store interface. With the order shipped, the payment collected and the customer notified, the order fulfillment process is complete.
Phone Outlet’s profit (or loss) is the difference between what it charged Mr. Allen and what it paid Wholesale Accessories.
Processing returns as a dropshipper
Returns get more complex with a dropshipping supplier involved. Every supplier will have different policies for returns. Some won’t allow returns at all, some will charge you a high restocking fee. You may have to pay postage to return defective items. It varies. Regardless, the customer is coming to you for returns. And you need to make sure it’s an easy experience for them.
Fulfillment services aside, the returns process for dropshippers looks like this:
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The customer requests a return.
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You request an RMA (return merchandise authorization) number from the supplier.
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The customer mails back the merchandise to your supplier, noting the RMA number on the address.
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The supplier refunds your account for the wholesale price of the merchandise.
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You refund the customer for the full price of the merchandise.
There is no right or wrong way to process returns as a dropshipper. Some ecommerce businesses will even offer “returnless refunds,” or a full refund that’s granted to a customer without having them return the merchandise.
Write out a return policy and place it on your website for customers to see. It can build trust with shoppers and encourage them to buy. If you’re stuck, use Shopify’s Return Policy Generator to create one quickly and easily.
Fulfillment companies are invaluable
Despite its critical role in the ordering and fulfillment process, the dropshipper is completely invisible to the end customer. In the example above, when the package is received, only Phone Outlet’s return address and logo will be on the shipment. If Mr. Allen receives the wrong case, he would contact Phone Outlet, which would then coordinate behind the scenes with Wholesale Accessories' fulfillment service to get the right item sent out.
With dropshipping fulfillment, the process of stocking products and shipping orders is managed by fulfillment services from start to finish. With third party fulfillment on your side, you can stop worrying about your inventory management and concentrate on the things that help grow your online business: marketing, website development, and customer experience.
Read more
- The Ultimate Guide To Dropshipping (2024)
- How To Source Products To Sell Online
- The 9 Best Dropshipping Websites for Your Online Store
- 10 Dropshipping Tips To Boost Your Business
- 6 Tips for How To Be a Successful Dropshipper (Full Playbook)
- The 12 Best Ecommerce Platforms for 2024
- Product Ideas: 17 Places To Find Profitable Products
- 25+ Ideas for Online Businesses To Start Now (2024)
- 8 Dropshipping Software for New Dropshippers
- Is Dropshipping Worth It in 2024?
Dropshipping fulfillment FAQ
What’s the difference between a dropship order and a regular order?
What are the benefits of dropshipping fulfillment?
- Low risk
- Low capital requirements
- Low overhead
- Easy to start
- Wide variety of products to sell
How do I process a dropship order?
- Your customer places an order from your online store.
- Your store automatically sends the order to a dropshipping supplier.
- Your dropshipping supplier prepares the customer’s order.
- The dropshipping supplier ships the order to your customer.