1 min

Dropshipping: What is it & How Does It Work?

Aug 25, 2022
in a nutshell
  • In dropshipping, an online store owner buys items from a manufacturer, which then sends the items to the customer directly.
  • It allows you “to spend more of your time developing your products, marketing, and selling them,” says side hustle expert Kathy Kristof.
  • It’s a popular side gig, but there can be steep competition. Experts suggest finding a unique, niche product if you’re looking to try it out.
Image of Dropshipping is a popular side gig that could help you earn extra cash. Here’s how it works.
in a nutshell
  • In dropshipping, an online store owner buys items from a manufacturer, which then sends the items to the customer directly.
  • It allows you “to spend more of your time developing your products, marketing, and selling them,” says side hustle expert Kathy Kristof.
  • It’s a popular side gig, but there can be steep competition. Experts suggest finding a unique, niche product if you’re looking to try it out.

As the popularity of side hustles grows, people continue to look for ways to make a little extra cash. Some people produce songs for DJs, others dog-sit, and still others teach people how to bake sourdough bread.

Another avenue for earning money is selling items online — for example, by dropshipping. Sellers build an online store but they don’t stock the items they’re selling in a physical location. Instead, once a sale is made, they buy the item from suppliers, who ship it directly to a buyer.  

“Dropshipping can be very profitable,” says Kathy Kristof, founder of Sidehusl.com. “It takes all the back-office labor off your plate. That allows you ― the entrepreneur ― to spend more of your time developing your products, marketing, and selling them.”

‘Their sales grew into the hundreds of thousands’

Kristof recently spoke with a couple who pivoted from selling LGBTQ-themed apparel at events to selling it online via dropshipping. “You don’t know how many products are going to sell at an in-person event, so you invariably end up with too much or too little,” she says of what they found.

When they changed the business model, they could shift their focus to building a community around their products, and “their sales grew into the hundreds of thousands.”

Challenges include competition and little control over a supplier

Many people who sell products through dropshipping do so on e-commerce platforms like Shopify. The site offers guidance on how to begin, but warns there are challenges with this type of business.

One consideration is steep competition. Unless you’re making and selling your own original items, it’ll be hard to find unique merchandise only you can offer. This can also make it harder to increase your prices. If other sellers are offering the same merch and you’re charging more, buyers will simply opt to buy from them.

Problems with a supplier, like long shipping times, can make the business a challenge. As you’re not the one storing and shipping the products, it’s harder to have control over what happens to them once an order is placed. Customers may not understand that, though, and a bad customer service experience means you won’t get repeat business.

Try using tools like Facebook Audience Insights

If you’re considering dropshipping as a side hustle, Shopify suggests starting by finding a unique, niche product. The site recommends using tools like Facebook Audience Insights and Google Trends to dig into what people are looking for.

E-commerce is also seeing significant growth: Sales for U.S. e-commerce retailers went up 6.6% in the first three months of 2022 compared to the same time last year, according to the U.S. Census Bureau. And most of the work for this hustle is done up front, making it a potentially lucrative source of passive income.

This material has been presented for informational and educational purposes only. The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses. Article contributors are not affiliated with Acorns Advisers, LLC. and do not provide investment advice to Acorns’ clients. Acorns is not engaged in rendering tax, legal or accounting advice. Please consult a qualified professional for this type of service.

Gili Malinsky

Gili Malinsky was a lead reporter for Grow.

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