What is Drop shipping?
There is a lot of buzz around dropshipping. It is one of the easiest ways to get started in e-commerce. Dropshipping is an online business model where a company sells goods without having physical inventory. Instead, the inventory handling, warehousing, and fulfillment are outsourced to either the manufacturer or supplier.
This allows for a simple, yet effective business model that at no point requires contact with the actual product. Coupled with dropshipping’s low start-up costs, low risk, location freedom, flexible product selection, and easy scalability has made dropshipping one of the most popular ecommerce business models.
The Dropshipping Boom
Due to the dropshipping business model’s attractive qualities, it became popularized in the late 2010s and early 2020s. In fact, in 2020 the market for dropshipping e-commerce was $128.6 billion U.S. dollars globally.
This great success in dropshipping did not go unnoticed. The competition within the dropshipping market has skyrocketed in recent years. Now everyone from the teenager who heard about dropshipping on social media to large corporations want a slice of the drop shipping profits.
It’s no surprise that Google Trends has seen a significant increase in the search term “dropshipping” as the interest level has increased over 20x between 2016 and 2023.
Is Dropshipping Still Profitable in 2024?
With this rapid growth in competition in the dropshipping market it begs the question: is it still profitable in 2024? In short, yes! The dropshipping market is projected to reach $301.11 billion U.S. dollars in 2024. It is expected to exceed $476 billion U.S. dollars by 2026.
The Fine Line Between Success and Failure in Dropshipping?
Despite the allure of its benefits, dropshipping is not without its challenges. With its’ easy start-up and low up front capital costs, it has a multitude of benefits - dropshipping may sound too good to be true.
Despite the low costs and easy start-up, an estimated 80-90% of dropshipping businesses fail. Even with the high failure rate, competition in the dropshipping market increases by the day. With dropshippings’ popularity, it is becoming more and more difficult to succeed.
So, what separates those who thrive and those who fail in dropshipping? Customer Retention. In the ever-evolving markets of ecommerce business, those who do not keep up with the changes in technology and consumers’ expectations fall behind. Since the pandemic, customers’ wants and needs have shifted.
One major shift over the last decade is shipping times.
Customers now expect faster shipping times and effective customer services like simple return procedures not only from companies with a large online presence but from any e-commerce provider. Forbes states, “Consumers are expecting more from the companies they order from: 90% expect two- or three-day shipping to be standard and 32% of global shoppers will abandon their carts if an estimated shipping time was too long.”
Ecommerce retailers need to keep up with Amazon when it comes to meeting customer expectations, especially when it comes to shipping times (Click-to-door speed). Drop shippers must meet the high click-to-door speed consumers expect.
Simply put customer service is what separates success or failure in online business and not providing efficient customer services is leaving money on the table. Businesses that provide services such as fast shipping and effective returns management have far greater levels of customer loyalty. This customer loyalty is the reason for the disproportion of relatively low initial success despite the growing of the market for dropshipping.
To keep up with the evolution of dropshipping and to gain customer loyalty, many are turning to 3rd party logistics providers (3PLs).
6 Ways a 3PL Facilitates Dropshipping Fulfillment Success
Faster Shipping
Consumer expectations are high – and consumers will not hesitate to post negative reviews on social media. To be a successful dropshipper, fast shipping is necessary. Through strategic locations, efficient fulfillment protocols, technology, and strong carrier relationships a 3PL decreases shipping times for a dropshipping business.
In most cases, dropshipped products come from overseas. If a dropshipper relies on the foreign manufacturer to warehouse and ship the product to the consumer, it can upwards of two weeks to 30 days for the product to arrive. When product is warehoused in a 3PL in the United States, inventory can be located in multiple strategically located warehouses across the country. When inventory is closer to the end consumer, shipping times are greatly reduced.
Returns Management
According to the National Retail Federation, online sales have a return rate of 17.6%, or account for over $247billion worth of product returned. To muddy the waters a bit more, return fraud continues to grow, accounting for about $101 billion in retail losses in 2023. Dropshippers have thin margins and dealing with returns successfully can mean the difference between success and failure.
When a dropshipper leverages a 3PL for returns management, they gain consistent returns handling, faster consumer refunds, and a reduction of returns fraud.
Inventory Management
When working with a 3PL it can be assured that inventory is effectively allocated and can provide real-time reporting updates.
Poor inventory management impacts a dropshipper in many ways. Out-of-stock goes beyond the direct revenue loss, it will negatively affect brand image, conversion rates, and consumer loyalty. Inventory management is one aspect in the supply chain that many 3PLsexcel.
Through a sophisticated WMS (warehouse management system), a 3PL can provide real-time visibility into inventory levels. Dropshippers will know exactly when how much product to order, making out-of-stock a thing of the past. Dropshippers need to monitor their inventory levels closely, especially since they do not physically store their products. Warehousing:
Warehousing is the process of storing inventory in preparation for sale or distribution. Warehousing is a core function of 3PLs. Many 3PLs like a2b, operate in a shared space model. These 3PLs optimize the warehouse for quick order fulfillment.
For example, if a drop shipped product has a high-turn rate, it may be located in an area of the warehouse that is closest to the packing stations. This means that high-demand products can be easily accessed by warehouse personnel and orders are fulfilled quickly.
Scalability
Another advantage of utilizing a 3PLfor warehousing is scalability. A 3PL can easily expand and contract to the sales cycle and seasonality of products. For example, a dropshipper that sells pool toys will need more space during their peak seasons in spring and summer.
During their peak season, they require more space and as the slow season starts, their warehousing needs are decreased. Dropshippers can save significantly on warehousing costs when they are variable and not fixed. They pay for less space during off-season.
Technological Integration
An advanced WMS is the foundation of all 3PLs. Without a robust WMS, 3PLs cannot offer fast, accurate fulfillment services. The WMS handles all warehouse processes - everything from inventory management to returns management. A dropshipper will find little success without this technology.
A good WMS will have integrations with all major shopping carts, lot expiry tracking, returns management, quality control, and value-added services options like kitting and assembly. A superior WMS like a2b’s Engage, provides real-time data as well as historical data. This enables dropshippers to analyze their business and properly demand forecast.
Reduced Overhead Costs
Many people start drop shipping because it does not require as much capital to start. Fixed costs are low – some dropshippers can start with $200 a month, including advertising costs. In order to be successful in dropshipping though, leveraging the right partners can make all the difference.
Shared space 3PLs can be an optimal solution to inventory management, warehousing, order fulfillment, and returns management. By working with these 3PLs, dropshippers can see reduced capital costs while enjoying the latest order fulfillment technology.
At a2b Fulfillment, we utilize robotics and automation to reduce fulfillment times and improve order accuracy. Clients that leverage a 3PL can use this cutting-edge technology without the capital costs. This improves the order fulfillment process.
One main advantage of utilizing a 3PLis often the shipping rates. Since 3PLs ship millions of packages a year, they are able to negotiate better shipping rates with carriers and they pass these savings down to their clients.
Why a2b is the best choice for Your Dropshipping fulfillment needs?
a2b Fulfillment fully encompasses and bases its everyday operations on the six pillars above. Over more than 20years of working with dropshipping businesses, a2b Fulfillment has honed these foundational pillars dropshipping business requirements, transforming them from mere services into successful companies.
a2b Fulfillment takes their services one step further by offering a multitude of more convenient and powerful services to distinguish your dropshipping company as a success.
- Same day order processing and shipping
- Easy Integration with Shopify, Newegg, Ebay, Walmart, BigCommerce, Opencart, Buyist, and WooCommerce
- More than 1 million square feet of warehousing space in three strategic locations across the United States
- Ambient and climate-controlled storage spaces
- Pallet racking, bulk/high cube, and shelf/bin locations
- Returns management team that streamlines efficient returns while also promoting eco-friendly practices
- Product Refurbishment
- Top Tier customer service that provides, multi-channel support, save-the-sale expertise, social media management, and chargeback management
If you want to embrace the technological evolution of the dropshipping market and stand out from your competitors contact a2b Fulfillment today to explore how our fulfillment services can facilitate the success of your dropshipping company today.
