Dropshipping has gained rapid popularity in recent times. Beginners looking to get into dropshipping have questions such as what is dropshipping and what it entails. This blog post will cover everything you need to know about dropshipping.
Dropshipping is an online business model where an online store owner earns commission by selling products for a markup. it is a type of order-fulfillment method, where you don’t have to own inventory or have the product you sell online in stock.
How Does Dropshipping Work?
The dropshipping business model involves the supplier, the customer, and the dropshipper. The model is illustrated in the image below.
To understand this supply chain in-depth, here is what happens from the very first step:
Step 1: Publishing the product(s)
The chain starts with the ecommerce store publishing the product for sale. This means posting the product name, images, description, and other details. It lets the customer know more about the product.
Dropshippers can drive traffic to the ecommerce store by using a mix of promotional tactics, from Google Ads to social media marketing.
Step 2: Getting an order
The next step in the chain involves the customers viewing the product, liking it, and placing the order. That includes choosing the item, adding it in the shopping cart, and making the payment via credit card or any other preferred method.
Step 3: Forwarding the order to the supplier/manufacturer
Once the dropshipper receives an order, he/she forwards the customer’s information to the manufacturer and makes the payment. This step can be either manual or automatic, depending on the system involved.
Step 4: Packaging and shipping
At this stage, the ball rolls down to the supplier/manufacturer. They pack the product and also put a brand name/label on it according to the dropshipper’s preference. The manufacturer then sends the product directly to the consumer. That’s it!
Advantages of Dropshipping
More and more entrepreneurs are choosing the dropshipping business model over brick and mortar stores. Why is that? According to statistics, 33% of the entire e-commerce industry uses dropshipping. Below are some of the unique benefits of dropshipping:
Easy to set up
In dropshipping, there are no physical products, no hassle of tracking the inventory, managing the warehouse, or dealing with shipping issues. The process simply involves finding a supplier, setting up a website, and selling products.
Low set up cost
Perhaps this is the biggest advantage beginners have. Unlike other businesses where set up cost is a lot, dropshipping requires almost nothing. Much of the fee goes to running your website, including hosting, domain name, theme, and premium plug-ins. The low set up cost is a big incentive for entrepreneurs as well as businesses to have a dropshipping store.
Low overhead cost
Since the dropshipper doesn’t purchase inventory, rent a warehouse, or ship it, the overall cost of running this business is low. The only value the dropshipper incurs is setting up an online platform where customers can see and buy goods.
You can run your dropshipping businesses from almost anywhere as long as there is an internet connection. Since everything is online, what a dropshipper needs is the facility to communicate with customers and suppliers.
Variety of products to sell
Do you know a dropshipper can have a wide range of trending products in one platform? One can choose to have one main product, a bunch of products to sell at once, or mix many goods. Dropshipping gives entrepreneurs and online retailers the room to experiment.
Easy to scale
Unlike the brick and mortar model where scaling up means more work, in dropshipping, all a dropshipper has to do to make more profit is to market more and get more orders. The manufacturer does the rest of the work.
Dropshipping is a low-risk business. Dropshippers don’t have to worry when they don’t make sales because there is nothing to lose. The risk of investing money is also lower since you buy goods only when you receive an active order from customers.
Reduces losses on damaged goods
The dropshipping model of business goes through a few shipment steps. Goods move from the supplier/manufacturer straight to the consumer. This reduces the risk of damage that occurs when products are moving from one place to another. In case there is any damage to the product, the customer is always secured with the retailer’s return policy.
Disadvantages of Dropshipping
As much as dropshipping sounds appealing and easy to run, it also has its downside. Yes, it allows the entrepreneur to concentrate on building the business by eliminating unnecessary costs and work, but this business also has some disadvantages. Below are some of the cons of dropshipping:
Lower profit margin
The profit margin depends on the niche, location of shipping, and other demands from the dropshipper. Suppliers and manufacturers charge the goods and shipping costs depending on the above factors, which can significantly increase or decrease the profit margin of a dropshipper.
The customer only knows the retailer website from where they buy goods, so, in case of any supplier error, the customer holds the retailer responsible. This may damage a brand’s name and result in poor customer experience. That explains why it is imperative to choose a credible dropshipping supplier.
This problem usually emerges when someone is selling multiple products. Many products mean dealing with different dropship suppliers, which means shipping goods differently. This affects the conversion rate, which also affects the profit margin.
It is hard to monitor the supplier’s stock since the dropshipper is not keeping inventory. Miscommunication can happen, which in turn may lead to cancellation and other issues related to the order. Due to the lack of customer support in a dropshipping business model, things can get further complicated.
Lower level of quality control
The reputation of your brand lies in the supplier’s hands. They handle all the packaging, branding, and shipping aspects, which affect customer satisfaction. The good thing is that a dropshipper can have a supplier to meet all customer satisfaction aspects, but that comes at a cost.
Due to the attractiveness and the advantages of the business model, more and more entrepreneurs prefer to jump into the online business. That’s why there is massive competition in this business. An aspiring dropshipper needs to have a unique product, excellent marketing skills, and resilience to stay motivated.
Finding the Perfect Dropshipping Product to Sell
The success of a dropshipping business overwhelmingly depends on finding the right product to put online. An entrepreneur needs to have a product that people want to buy and re-buy. The following is the criteria to use when finding the product to sell:
Choosing the right product niche is a sure-shot way to bring sales and profits. You should avoid broad or general categories since they have thousands of orders every day. Also, there will be massive competition in such product categories. Instead, choose to go for a supply niche overlooked by the big sharks in the industry.
Repeat selling potential
People buy clothes, cosmetics, and electronics almost every day. That explains why the products are fast-moving online. Therefore it is advisable to have products that people are continually buying every day. This assures you of repeat sales, which in turn means constant profit.
In dropshipping, what determines the profit margin is the retail and wholesale prices, and that is what dropshipper should work with. Lower retail price attracts sales but means a small profit margin, while a higher one means fewer deals but a high-profit margin. Well, you should focus on 15%-20% profit margin, which sounds reasonable for beginners.
Size and weight
The size and weight of a product determine the packaging and shipping cost. That explains why beginners must look for a product that is easier to manage. Small, lighter products cost less to pack and ship, hence giving out a large profit margin.
Customers love disposable and renewable products. That is why they come back to buy more of the products after the first sale. Dropshippers can take advantage of that by having subscription options and discounts for repeat customers to encourage them to return as it increases sales.
Turn-over rate is the rate at which products change or update. Beginners need to consider it because it affects the overall profit margin. Go for products that don’t need constant updating and changing. For example, if the product updates more often, its photography and content marketing will cost you more time and money.
Adding value to your customer’s purchase is essential. Try to make them feel of buying more items from you. You can do that by having related products to sell together. For example, easels work together with paintbrushes, canvases, and other art tools. So, selling them together adds value to your profit and increases profit margin.
Best Dropshipping Companies
What happens when you set up a store, and your store is up and running? Have a partner to work with! The tricky part of this is that many companies don’t like to share products and suppliers. That’s because it brings in more competition and lowers the profit.
But, there are still plenty of companies you can partner with. You may have already heard of giants like Alibaba and Aliexpress dropshipping, but here’s a list of some other dropshipping companies you can work with:
Oberlo is one of the most popular plug-in service providers in the dropshipping industry. Their plug-in works very well with Shopify to give beginners a directory of suppliers verified by Oberlo. You can browse the products that you would like to sell in the online stores. Moreover, you can also take a statistical view of each seller and product. The statistics include information such as star-rankings, page views, and total sales.
SaleHoo focuses on giving verified directory details of companies to drop shippers. They currently have over 8000 companies in their network. So, you can expect to gain access to more than 1.6 million products. They have quality and reliable companies you can trust and work with.
Spocket is a fantastic marketplace for dropshipping. It allows retailers to build and develop their online stores. Thus, it is more like a database application that makes it easier to sort items by country. As a result, you can check the status and shipping availability of products before uploading them into your Shopify store.
Wholesale2b combines a variety of products offered by different suppliers and manufacturers into a single platform. Here you can find the matching products and sell them on your e-Bay or Amazon store. It also works very well with BigCommerce, WooCommerce, Magento, and Shopify.
Doba is the most comprehensive and straightforward dropshipping service available. It has a detailed directory of manufacturers and wholesalers. On this platform, you don’t need to partner with every other manufacturer to add new products to your store. That is awesome, right?
You can integrate your Shopify store with Dropified to automate your dropshipping business. It has a browser plug-in that lets you work on the web from anywhere. Thus, you can maneuver and change things in the store from any location.
On this platform, you can gain access to more than 15,000 brand products. Moreover, it also allows you to move your products to other e-commerce sites, such as eBay, Amazon, etc. It also supports syncing with BigCommerce and Shopify to give you the best service.
DHgate is one of the biggest Chinese ecommerce platforms after Aliexpress. This platform has more than a million Chinese suppliers. It is an excellent company to partner with, as it allows you to check the manufacturer’s ratings and feedback. This platform supports worldwide delivery and also provides escrow security on all orders.
Frequently Asked Questions (FAQs)
The concept of dropshipping and overall explanation may sound simple. However, the following are some of the questions that are still mystifying many people.
To start a dropshipping business, you need to do the following:
1. Choose your niche, i.e., selling products from a specific industry.
2. Conduct market research and analyze the overall competition
3. Find a manufacturer/supplier
4. Choose a suitable e-commerce platform and set up your store
5. List your products at an attractive price range
6. Create a marketing strategy as per your prospects/customer base
2. How do dropshippers make money?
A dropshipper buys goods from the supplier at a lower price and sells them to the consumer at a higher price. For example, a dropshipper can purchase products from a supplier at $100 upfront and sell it at $150-200, thereby making a profit of $50-100.
3. How much money do average dropshippers make?
It depends on many factors like the product they sell, the demand for the product, their expenses, their marketing skills, etc. On average, the margin could be anywhere between 5-15%.
4. Is dropshipping bad?
No. Dropshipping requires less capital, involves small risk, and allows you to experiment a lot. For beginners, it is wise to venture into dropshipping if you are thinking of an online business.
5. How much money do I need to start my dropshipping business?
You can start dropshipping with a low initial investment. It can be broken down as follows:
– Online store fees: Around $29/month
– Domain name: Around $5-20/year
– Website theme: Around $150-400 (One time cost)
– Online advertising: $100-200 (Facebook ads)
Thus, you can spend at least $500 to get started with dropshipping.
6. Is Amazon a dropshipper?
No, it isn’t. Amazon runs a Fulfillment By Amazon (FBA) service where they get goods from multiple suppliers and then ship to customers. Nevertheless, they accept dropshipping for as long as you follow their rules and guidelines in this regard.
7. Is dropshipping a legitimate business?
Yes, dropshipping is a legitimate business.
Dropshipping isn’t a perfect business and has its own pros and cons. Like any other business, it can be stressful and overwhelming if you don’t have the right information. But with careful planning and determination, you can build a thriving profitable dropshipping business.