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Making Money Online Using the Dropshipping Business Model

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  • Making Money Online Using the Dropshipping Business Model

    In the last few years, more and more people turn to the internet in a hope of making some extra money. Anything from ridiculous clicking on ads or reading email, to opening your very own hosting company is promoted as the best way of earning money online. While some of these methods may provide you a decent online income, most of them never work.

    Recently, a relatively new method is also being promoted as a good method of making money online, called dropshipping. But what exactly is dropshipping? Does it really work? What are the benefits and are there any risks involved in it?

    In this article, we will try to find the answers to all of this questions by exploring the world of dropshipping.

    First of all, what is dropshipping?

    Dropshipping is a supply chain management method in which the seller accepts payment for an order, but the customer receives the product directly from the manufacturer warehouse. In a dropshipping business model, the seller acts as a middleman between the manufacturer and the customer. His profit is the price difference between the wholesale and retail price of the item sold.

    Can dropshipping really work? Yes and no. for some people it works very well, but for others it is a complete fail. There are many factors involved in making the dropshipping business model work, such as:

    1) The product being sold - usually dropshipping works only with high quality products. If you try to sell a low quality product, then your customers will request a replacement or refund so you will be in big loss, since the shipping cost for the reverse logistics is going to be paid by you.

    2) The price of the product - if the product has a competitive price, than dropshipping will work, but if your supplier will ask a higher price than your competitors, than the dropshipping business will not work for you.

    3) Delivery time - if your supplier can not ship the products fast, then your customers will be unsatisfied, leaving you bad reviews and sinking your reputation.

    4) Supplier honesty - In a dropshipping business, a good supplier means very much. There have been many cases where suppliers cheated the sellers, sent defective or cheaply made products to the buyers, so it is very important with which supplier you start the dropshipping business

    What are the benefits of a dropshipping partnership? Well, there are many benefits in a dropshipping partnership, but the most important ones are:

    1) Lack of physical inventory - since you sell using the dropshipping business method, all the products will be stored at your supplier warehouse, saving you lots of money on maintaining stock in a warehouse.

    2) Increased products in your online store - since you do not store the products you sell, you are not limited by your warehouse size in selling as many products as you want, on your online store. You may even sell products from multiple suppliers in your online store.

    3) Reduces shipping prices - usually the manufacturers that do dropshipping get lower prices on shipping prices due to the fact that they ship thousands of products every day and they get better shipping quotes from the shipping companies.

    So far so good. It looks like dropshipping is the right thing to do when selling online. But just as with anything that has a positive side, dropshipping also has a negative side. So what are the risks and hidden costs involved in a dropshipping partnership?

    First of all, the main risk involved in a dropshipping business is that your supplier may scam you. He may send you a different product or even a defective product, and later to claim that the product broke during transportation. And the cost of sending the product back would be covered by you, the seller. Another major risk comes from the buyers. Buyers can scam too. They may receive the product, and later claim that the transaction was not authorized by them, and that someone used their credit card without permission, so they would file a chargeback on you leaving you with no money and no product. Another downside of dropshipping is that the wholesale price of the dropshipped products is higher than buying them in bulk, so this is a point also worth focusing at.

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