What is dropshipping? Everything you need to know [Updated 2023]

What’s dropshipping? This strategy is becoming more and more attractive for retailers all over the world. Find out more about how does it work and its advantages.

This distribution model, which frees the e-commerce owner from logistical burdens, is closely linked to online selling. So, before we delve deeper into what dropshipping is and how it can help an online store, let’s take a brief look at the history.

Dropshipping and e-commerce in Spain

For several years now, e-commerce in Spain has been growing in leaps and bounds. In fact, according to data from the latest annual e-commerce study launched by IAB Spain and Elogia, 76% of Internet users aged between 16 and 70 in this country buy online. That is to say, 3 out of 4 people! Obviously, this fact has not gone unnoticed by those looking for business opportunities, who have hurried to create online stores to meet the new needs of their potential customers. With greater or lesser success, thousands of e-commerce stores have been opened, which have found their place in the day-to-day lives of their users.

And although one of the main benefits of an online store is the huge reduction in fixed costs (as you don’t have to pay rent for premises, or water or electricity rates) there is one common problem for offline and online entrepreneurs: stock. If you want to sell, you need to store your products in order to prepare them for shipment and send them to your customers. This can impact on the costs of your online store and reduce its advantages relative to a physical store. But don’t worry: this is where dropshipping comes in.

Dropshipping: what it is and how it works

In essence, dropshipping consists of the following: the end consumer buys a product in an online store and the dropshipping supplier sends the customer their order without going through a retailer, with no requirement to have stock or a warehouse in order to sell. 

So that there can be no doubt about what dropshipping is and how it works, let’s look at an example. We have prepared a case study of what dropshipping would be like with a self-owned e-commerce (although it is also very common to do dropshipping via marketplaces – more information on that later). 

1. Jorge wants to buy a fragrance online and have it sent to his home address. He Googles “Armani men’s cologne”, finds an online store called “Perfumería Amélie” and decides to buy it from there. He makes the payment and gives his shipping information.
2. Marta, owner of Perfumería Amélie, receives Jorge’s order. She is a BigBuy client and has contracted a Wholesale Pack, so she does not have to manage the shipping of the perfume. If your e-commerce is synchronised with BigBuy, the order will be shipped automatically. She will thus acquire the product at a reduced wholesale price.
3. Upon receiving the order, BigBuy prepares it, packages it and sends it directly to Jorge anonymously.
4. Jorge gets his perfume on time. In the package, he will find a delivery note featuring the name and logo of Perfumería Amélie, but nothing that refers to BigBuy. He leaves a positive review for Perfumería Amélie and recommends it to his girlfriend and her family for buying future fragrances.
5. Marta has a satisfied new customer and her financial profit is the difference between BigBuy’s wholesale price and the RRP at which she sold Jorge the cologne.

A typical example of dropshipping with Bigbuy.

 

 

And voila! Marta can focus on attracting traffic and optimising her store to sell as much as possible. She doesn’t have to worry about storing, preparing, or shipping the product.

This is a good way to explain what dropshipping is and how it works in general terms. Still, we leave you with some of the most frequently asked questions raised by all novice dropshippers: 

Who pays for dropshipping shipping? 

The shipping costs will be charged to you by the supplier. To pass them on to your online store you can choose between different strategies: charge the shipping costs directly to your customer, increase the price of the products and offer free shipping (this is a very common option); subtract them from your profit margin, etc. 

What do you need in order to do dropshipping? 

To do dropshipping you only need two things:

1. A dropshipping supplier.
2. To choose the sales platforms through which you are going to sell: your own e-commerce, marketplaces, social selling, etc. Of course, these channels must be synchronised with your supplier.

Can you do dropshipping without being self-employed?

Although some grey areas do exist, in Spain, in general, you cannot do dropshipping without being registered as self-employed. If you are not registered, Social Security may fine you. 

What’s the difference between dropshipping and affiliates? 

Many people confuse dropshipping with affiliation, and while both are viable business models with some common ground, they have quite a few differences. While dropshipping depends 100% on you (even though you don’t need physical stock or a warehouse), affiliate marketing consists of promoting third-party products or services in exchange for a commission.

Why do dropshipping? The main advantages 

Now we have explained what dropshipping is, we will briefly explain the main advantages of using dropshipping.

• Of course, you save having to manage stock. But this was already made clear in the above paragraphs. In any case, this fact entails significant economic savings (reducing your risk of losses in case the business fails). By not having to manage stock, you won’t have to invest in storage or maintenance. This is the main attraction of dropshipping: it allows you to dedicate yourself to selling and generating maximum profit without worrying about logistical aspects.

• Starting your business is easier and faster than ever: it will only cost you what it costs to set up your online store. If, in addition, you outsource its creation, you can have your e-commerce ready in a much shorter time frame than you might expect. At BigBuy, for example, we develop your Dropshipping Store via a 360º turnkey solution, which is fully synchronised and offers a multitude of advanced tools to boost sales. Your supplier has to become your global logistics operator, along with everything that this involves. They must manage all the merchandise in stock, register the order, pick the products, prepare the package to be sent and coordinate with the respective courier companies for each area. At BigBuy, we also provide our distributors with detailed information regarding the status of their orders, via their control panel. They can follow the progress of each of them via their tracking number, and receive after-sales support in case they have any queries about delivery.

• Not having to worry about storage and shipping leaves you plenty of time for what’s really important in an e-commerce: selling. By delegating work to a dropshipping wholesaler, you will be able to devote yourself to attracting as much traffic as possible to your store, and then encouraging them to buy the products you have so carefully placed at their disposal. You will be able to optimally allocate your resources – both financial and in terms of time – so that your e-commerce reaches its full potential.

• Using a dropshipping wholesaler allows you to offer a very extensive catalogue of products, which could prove complex if working alone. In addition, it will be constantly updated, without you having to worry about it. At BigBuy we have thousands of items and are constantly looking for new products to expand our catalogue.

• Your business will be 100% scalable. In a traditional shop, scalability can be limited by simple things like the size of your premises. In order to grow, the owner would have to look for a new space, with all the costs that this entails (and we are not just talking about rent. Should they change areas, they would also have to launch an advertising campaign to publicise their new location, and that does not come for free).
  And, although an e-commerce store that doesn’t use dropshipping is certainly more scalable than a physical one, the real difference is felt by the brand which uses dropshipping. This distribution model allows you to direct all the traffic you want to your store, without the risk of selling too much and not being able to manage everything. The dropshipping supplier will make sure that all your orders arrive on time and in your name.

What to sell with dropshipping

If you are just starting out in dropshipping, it is normal to worry about what products to sell, the market trends and opportunities, etc. The best thing is to begin with a market study of possible niches and trending products and attempt to find a balance between both. If you don’t know where to start, here’s how to pick a niche to get started with dropshipping.

To give you an idea, some relevant niches in dropshipping today are: 

• Household
• Health and beauty
• Sports
• Sex Shop

But, beyond the products you sell, you should also take care when it comes to choosing a trusted dropshipping supplier. Ultimately, you will be placing responsibility for some of the most important aspects of your business in their hands: variety available in the catalogue, product quality and shipment fulfilment. Don’t forget that all this has a direct impact on the reputation of your brand – which you are the face of! 

Tips when choosing a dropshipping supplier

As we discussed, the choice of dropshipping supplier will largely determine the success of your store. In the end, delegating so many things to them is convenient, but it also carries a lot of responsibility. Fortunately, there are many companies, such as BigBuy, that have plenty of experience and that can offer you a very good service. 

But in order to find them, we offer several tips:

• Find a dropshipping supplier who is not an intermediary! One that distributes their own stock. BigBuy is a dropshipper with 20,000 m² of logistics warehouses, from which we distribute thousands of items. It will always be more profitable to work directly with the wholesaler, since intermediaries will only end up redirecting you to a wholesale company like us when they don’t have an item in stock. BigBuy is a B2B business leader and online and offline wholesale specialist. Our sales volume allows us to buy directly from manufacturers and save on costs related to intermediaries. Ultimately, this results in a better experience for our customers, who can purchase our items at especially competitive prices.
• Excellent Customer Service. Beyond their catalogue, delivery conditions, and so on, it is essential that your supplier has a good after-sales support team, so that you can rest assured that you will be able to quickly resolve any problems that may arise.
• Good shipment management. Most importantly, since we are talking about a dropshipping business, it is important to ensure your supplier makes the shipment anonymously. The speed of delivery is also important, as online consumers increasingly expect a fast delivery service, which is why it is so important that your supplier can guarantee this. Another factor to take into account is an order tracking facility, as this will enable you to respond confidently to your customers if they need to know where their order is. 
• Technological synchronisation solutions. Check what simple and technological synchronisation options your supplier offers, beyond a CSV file. 
• Stock in Europe. If your supplier has the stock located in Europe you can save yourself all the problems associated with dropshipping via Chinese suppliers – delivery time frames of more than 20 days, lacking in guarantees or quality certifications, etc. 

Where to sell with dropshipping

This is another big decision when starting out in dropshipping. The changing digital environment means it is no longer necessary to have an online store in order to sell on the Internet. Indeed, according to IAB Spain’s 2021 e-commerce study, 71% of buyers use marketplaces as an information search channel, and of these, 9 out of 10 also purchase on these platforms.

With BigBuy, you can synchronise your catalogue with all e-commerce software, as well as with the main marketplaces: Amazon, eBay, FNAC, Rakuten, Cdiscount, Carrefour, etc. 

Some conclusions on dropshipping

In this article, we have discussed what dropshipping is, how it works and the advantages it brings to those who decide to sell over the Internet. Now that you know the most important things about this business model, let’s review the main conclusions to bear in mind:

• The dropshipping supplier you choose will be the cornerstone of your customer satisfaction levels. Make sure you work with a trusted and experienced supplier that offers you as much potential for expansion as possible, even to countries where different languages are spoken.
• One basic requirement is to have some knowledge of online marketing. Although working with a dropshipping supplier frees an e-commerce owner from many tasks, it still leaves them the most important part, which is selling. They are in charge of developing a good social media strategy, managing their AdWords campaigns and, essentially, being aware of the latest trends in online marketing and putting them into practice in their store.
  If the distributor has no knowledge of how to run a digital business, their e-commerce will not function as well as they hope. That is why we advise our distributors to study online marketing and not to believe any “gurus” who promise that simply by having a presence on the Internet you are guaranteed to make any income. An online business requires less investment than a physical one, and is more easily scalable, but both require a great deal of effort and hours of work in order to make them profitable.
• Although, as in all things, you will need to make an initial investment, dropshipping provides many advantages when it comes to launching an e-commerce without spending too much money. Remember that it will always be easier for you to position yourself in a specific and well-targeted market niche, and that, the more traffic you generate, the more chance you have of making a sale. Dedicate a portion of your budget to advertising, keeping analysing the market, optimise your approach, and you will sell more and better.

We hope our article on dropshipping has proved useful. BigBuy is a leading dropshipping supplier in Europe. We hold over 200,000 items of all types, including top brands. From our 20,000m² warehouse, we serve customers from all over Europe. We invite you to get to know us and take your next step in dropshipping.