Different business models exist online thanks to all the opportunities digitalization and globalization have opened. The list won’t be complete without a mention of business models like affiliate marketing, blogging, and ecommerce. The last of them has been a huge event in the last couple of years.
Quite often many have asked the question, “What is dropshipping?” You may be right to call it an extension of the traditional ecommerce business model in a way. But it is quite different from it. This article looks into what this business model is all about.
Simply put, dropshipping is a retail e-commerce business model but the merchant doesn’t operate a physical store. Instead, the retailer purchases the product from a supplier, wholesaler or a third-party website (on behalf of customers) that ship directly from there to the customers.
Without owning a physical store, the merchant needs no inventory or fulfillment solutions for the orders. The third-party wholesaler or supplier takes responsibility to make sure orders are fulfilled when made by the drop shipper.
Drop shipping is definitely considered a great opportunity for many aspiring e-commerce store owners intending to get started. It makes a shift from the traditional e-commerce business where the merchant takes care of every detail involved in the business including stocking, running a store and fulfilling orders made by customers.
There is no need for stocking products, paying overhead and running a store with a big staff to manage different departments.
The drop shipper is basically responsible for getting his customers, placing the orders and ensuring they are processed. The dropshipping business model places the merchant as a middle man in the entire process.
Being a middle man in the business still affords the merchant a good position to enjoy the maximum profit. They earn per sale for each item the customer buys. They determine the profits they make by marking up the prices for each item displayed on the website.
It’s normal to be very interested in this business model. Why? It requires little capital to set up. It’s quite possible that all you’ll need are the funds to host your website and to drive traffic to it.
You don’t need to worry much about the products. There is definitely not much hassle involved in the whole setup process. Basic website design and hosting will set you up quickly to get started with dropshipping.
If you’re searching for a business that can be sustained for a long time, dropshipping falls in the list of such business models. Little wonder why many entrepreneurs are going in this direction today.
As with most business models online, dropshipping is not spared of drawbacks. It has its own pros and cons, as well as advantages and disadvantages. But this should not deter you from getting started with this business model.
It shouldn’t take much time to fully understand the whole process. That said, it is time we took a dive into some of the important factors, components, and facts surrounding the creation and operation of this business model.
Now, if you understand “what is dropshipping”, you should already know some of the benefits.
Benefits of Dropshipping
Drop Shipping is easily Scalable
Drop shipping is very easy to scale up. In a conventional business model, the amount of work you’ll need to put in place is proportional to the amount of business demand you receive or an upward growth that affects the running of the business effectively.
This means you’ll need as much staff and space to stock products when your demand is growing. Expansion of the store and employing more workers will always be required.
This doesn’t happen with dropshipping. Your supplier bears the increment in the orders. You can scale up your dropshipping business seamlessly with little to no difficulties involved. Fewer pains or visible incremental work is required.
It takes you mostly the additional time to process more orders which actually should not be anything difficult to do. Growth in sales may be a big one for the traditional e-commerce website to manage but not for the drop shipper. To the dropshipping business, scaling up has no significant stress to live up to the increasing demand.
Dropshipping Requires Less Capital to Begin
The biggest benefit that anyone can point to is the possibility it gives to own your own e-commerce store without the need to invest a huge sum of money on inventory before getting started.
Dropshipping offers you this benefit.
It is a common thing to find traditional e-commerce businesses use large amounts of capital to buy inventory. You don’t need that to get going with drop shipping.
Dropshipping helps you bypass this huddle.
You have no business buying a product from your supplier except when your customer has placed an order for it and paid for it on your storefront.
Starting Dropshipping is easy
Determination, time and a little money are all the things you need to get started with dropshipping. You don’t need a degree nor to be an expert to get started with drop shipping.
Don’t get overwhelmed by the whole e-commerce website thing, it isn’t as difficult as you think with dropshipping when it comes to how to set up your store. You can start as quickly as possible and learn the ropes as you go on.
Don’t forget that you only need little effort to get started with drop shipping. You can be everything behind the website to drive your success with drop shipping. Keep in mind that you are not bogged down with owning a store or warehouse to stock products.
You are not responsible for the shipment.
You’re not responsible for packaging either. You need only a little amount of time daily to attend to your dropshipping business except when you have so many orders, which is actually a positive one for your business.
Take this as a morale booster:
You can get started in a matter of hours with dropshipping. You don’t need several seminars to get things up and running with dropshipping.
Get some basic knowledge. Gather the tools together and pull up the resources and you’re good to go with hosting your owning dropshipping business.
Your suppliers have all these covered for you:
- Packaging and order shipment
- Paying and running a warehouse
- Tracking of inventory
- Handling of returns
- Managing of order level and ordering of products to maintain good stock level.
Access to a Large Collection of Products
Dropshipping allows you the opportunity to have a large collection of products. This is possible because you’re not limited to a particular supplier.
You can have a collection of products from different suppliers and list them all on your website if you want. Once a supplier has a product, you can keep adding to your list as the need demands.
Or you can decide to open a store on a broader market and sell all of the above? The only key thing to remember is to find reliable suppliers for your store. And you can do that with the help of a proper directory like SaleHoo, for example.
Dropshipping can be Run from Anywhere
Running dropshipping is quite easy. You can get started anywhere in the world. This makes it a very flexible business model anyone can run and manage anywhere around the world. You are not restricted to a specific location.
With a laptop and good Internet connection, location flexibility makes running the business very attractive and interesting. If you can easily connect with your customers and communicate freely with them, you have no trouble managing your dropshipping business.
Drop Shipping has very Low Overhead
Running a dropshipping business saves you from the usual overhead managed in the traditional e-commerce business model. The reason is you don’t have to manage an inventory, a warehouse or keep a staff.
It may surprise you to know that many successful drop shipping companies are run by an individual behind a laptop in his home office. Some dropshipping businesses run on as low as $100 per month in expenses.
Still want to learn about “what is dropshipping?” Find out more before taking the leap.
Disadvantages of Dropshipping
Drop Shipping Allows Less Control
Besides dealing with your customers and orders, the entire dropshipping process is handled by your supplier. This goes from stocking to order fulfillment and shipment. Though this may save you from stress, it, however, takes control away from you. You have less control in the process.
Now, your customers don’t know you run a dropshipping business model, they don’t have to. It is when things go wrong that you’ll find yourself in a mix-up and dealing with it may not come easy. You have to rely on the efficiency of the third-party website, wholesaler or supplier.
Generally, the products you list for sale on the dropshipping website are the ones offered for sale by your suppliers. Another trouble is that it becomes difficult to know when your supplier runs out of stock for a particular item.
This becomes an issue when a customer orders for the product on your website not knowing that it is out of stock from your supplier’s end. Also, inventory from the different suppliers you use can change drastically too, even on a daily basis. Though there may be a means to get around this situation, you can’t rule out the possibility of falling short of demands.
But don’t you worry, there are product directories and automation tools like DropshipMe and Inventory Source that allow you to sync inventories and never have trouble tracking the stocks of your suppliers.
The biggest downside of the dropshipping business model are low margins. Imagine one simple fact – many entrepreneurs in the dropshipping business compete for the same customers. The company with the lowest price may be winning with making more sales, forcing others to lower their prices.
Selling at rock bottom prices is a major disadvantage in this business model. You have nothing to lose anyway because you don’t spend much on overhead or setting up the business. For the fact that many drop shippers invested a little amount of money in the business, they can afford to run at a very low margin.
This can be avoided to some extent by making your store more niche-oriented. The narrower the niche, the less the competition. Simply find top trending products and build your store on a profitable niche.
Even when the quality of service of the merchant is below average, low prices are the incentive that keeps the customers coming and returning. As we mentioned, you can get around this advantage by going for a niche that is better suited for dropshipping.
A niche with higher margins and more specific products. If you have found the niche for you, you can even spy your competition with tools like Niche Scraper to see which are their best selling products, instead of wasting time wondering what to sell online.
Drop Shipping has some Shipping Difficulties
Yes, it appears quite simple to run this type of business:
1. The customer places an order on your site;
2. You process the order so it reaches your supplier;
3. Your drop shipping supplier fulfills the order, and that ends it.
Conversely, things may not work as expected when more than one supplier is involved. It is normal to find many drop shippers running their business through multiple suppliers.
You may experience some difficulties and costs in delivering an order made by a customer. Take for instance, if you have to meet a customer’s order on four different items that are not available in a single supplier’s store and you have to submit an order for them with a different supplier for each item.
Here, four separate shipping fees will be incurred. You won’t want to pass the cost over to the customer not to lose favor from them. You may have to bear the extra cost. Even if you eventually do, implementing the automation process doesn’t also come easy.
In addition, shipping times might vary as well. But with access to a proper supplier directory, you will be able to choose your dropship suppliers with close shipping times and from the same region.
There are directories like Spocket that will help you connect with suppliers from the US and the EU, helping you to significantly cut down on shipping times as well.
Errors Made by Suppliers
Fulfilling orders is never a perfect thing. The best suppliers in the industry will one time make a mistake. Your supplier may ship the wrong product to your customer. The blame will still come down to your end.
You just need to accept the responsibility for such mistakes. Your customers don’t have any dealings with your supplier but instead – contact you directly. In fact, they are unaware whether you run a dropshipping business or not, unless you’ve stated so. Most dropshippers don’t.
To keep your customers, it is your duty to do everything in your power to retain them. Your business reputation can be affected by frequent cases of missing items, poor packaging, and non-delivery.
This can be more frustrating when you find yourself dealing with a supplier who is not professional enough about his services. Avoid dealing with unreliable suppliers by choosing only vetted ones.
Customer Service can be a Big One to Deal with
When orders go wrong, you just have to give reasons why this happens to your customer. The thing here is that you have to shoulder the blame for whatever happens even when you know that your supplier is at fault.
And because you’re not totally in control of some areas, it may be very difficult to convince your customers. Your store is where customers will search for answers and not your supplier. This is why customer service can be a bit challenging sometimes.
If, by now, you can tell what dropshipping is, the advantages and benefits, there is one more question you should ask.
Is Dropshipping For You?
Drop shipping is a great business model that can make you good money when done right. If you are passionate about it, it can just be your thing. You need to figure out your mindset. Are you determined to succeed? What is dropshipping to you?
Have in mind that not every business works for everybody. The truth is, you shouldn’t expect too much from dropshipping. The fact remains that it won’t work for everyone out there considering the various aspects of the business model.
If you’re looking at making quick profits doing this business model, this may not be your thing. Dropshipping won’t make you rich overnight. It takes time to work at it to get to the level you desire, to offer quality products and to have a good and sustainable store.
Should you give up your day job to start drop shipping business? Not absolutely necessary. The flexibility of the business model allows you to put in as much effort as you want to run the business. You can go at your own pace. There is no proven-to-work formula. Simply start with hard work.
You can run your dropshipping business on a part-time basis as a side hustle to support your regular job or go full time. There is no need giving up your 9-5 job to start a drop shipping business. You can be a successful drop shipper while still keeping your day job, especially if you want to have a stable source of income at least at the beginning.
What may be of concern is your employer. Will they tolerate the practice to allow their employees to have a side income source? You will need to find out about this from the company’s policy.
Know your limits and consider your ambitions. If you already work overtime and have only a few hours to rest, drop shipping may work for you only if you find the right balance and the right tools to support your business.
The bottom line is, dropshipping is very flexible to run but it is not for everybody. You can operate your business on different scales as you manage it along the way.
What would you answer if you’re asked what is dropshipping? The simple answer will be – shipping a product for someone. It is that straightforward!
How the dropshipping process works is pretty simple too. What the customer sees is the store of the drop shipper but a lot goes on behind the scene. This is more on the supplier’s end. In running the dropshipping business model, you must know what the supply chain process entails to better understanding how it works.
The Supply Chain
Don’t be carried away by this economic jargon. It simply represents the flow of material, products, money or any form of items that may be under consideration from the factory, warehouse down to the final consumer.
It starts with a supplier wanting to create a product. He then goes to the manufacturer who produces the item. The product goes from there to the warehouse and to the distributor, who is usually the retailer, who sends it down to the end user.
The whole dropshipping process can be explained practically using the supply chain components. It is nothing different from the process you go through when you buy things online. This is how it works:
- Customer places an order for a product on your store and they instantly get an automated email confirming their order.
- The drop shipper (you) processes the order with the supplier.
- The customer receives a notification on the shipment of their order after some days or hours depending on the shipping arrangement already in place. Tracking information may also be included.
- The customer receives their order and leaves a review on your website about the order.
How to Start a Dropshipping Business
As the name goes, dropshipping is a business model that lets someone ship the goods to your customers on your behalf. All you need is the passion and determination to build the dropshipping business you want.
If you are committed to putting in some work, you are on your way to building a lasting and successful business that will pay out.
Getting started with drop shipping is a step well-made in the entrepreneurship journey. You already know the amazing benefits and ease in running the business model. If you must recap, know that:
- You don’t need to manage an inventory
- You don’t stock the products you sell
- You don’t require a large staff to operate the business
- You don’t need a huge sum as capital to get started.
To start a drop shipping business, it begins from the very first step of conceiving the idea of the business down to when you finally make your first sale. That said, here is a step-by-step way to get started with your dropshipping business.
Come Up with a Viable Dropshipping Niche you Want to Run with
There are a whole lot of products on the market. You’re not going to sell everything in the world. Of course, that won’t be possible. Your business idea covers the niche area you are going to concentrate on.
So, answer that – what to sell online? Should you go for the one you are most passionate about? That will be lovely but it should not always be your first choice.
What happens if you’re so passionate about a product but not many people are interested in buying it. You need to find a niche people are willing to spend some money on. Go after niches that will fetch you more profit.
Trending products may not fall into what you’re absolutely passionate about. Let passion and profitability of the niche be a guiding principle to choose right.
There are evergreen niche markets that will get you good sales no matter what. Those are niches you want to align with. People will keep buying the following items:
The competition with these products is high and many drop shippers have succeeded in this area. It is even advised to stay with niches that are competitive rather than going for a niche that is not known by people. You will still make sales. So, what you have listed on your store matters. Your niche area is vital to your success with drop shipping just like when you choose to blog about a particular niche or topic.
To come up with a very viable niche for your drop shipping business, take the following factors into consideration:
- Utilize the power of Google Trends to see how a product is doing.
- Make keyword research with viable tools like Keyword Planner from Google.
- Make social media your friend to discover how people are reacting to some products.
- Get ideas from well-established websites in your chosen niche area. Even spy on them with tools like Niche Scraper.
- Check out order volumes of products in your niche area
Build a Functional Store for your Dropshipping Business
Your store is where your customers meet your business. This is the most important aspect of your dropshipping business. The aesthetics must be right and the content must be well-optimized to convert.
Get a well-designed store up and running to sell your products. You can even set up a store yourself thanks to all the user-friendly platform builders out there.
The website should be intuitive and simple to use. Customers should not be confused when they land on the store for the very first time. Images are important in e-commerce, make sure to have well-optimized images for your products.
You know what it takes to have your store running:
- you need a proper and memorable domain name – this will be the brand people recognize you by;
- a website host that will allow your store to run smoothly and without interruptions;
- a reliable e-commerce platform to showcase your products to the public.
If you can’t design a professional store with every detail well-spelled out, get a professional designer and copywriter to do what’s needed for you.
Be committed to Effective Marketing
Nobody is going to come looking for you if you don’t market your products. Except for implementing good SEO, making your first sale will be a hard one. If you’re on a budget, start marketing your business by word-of-mouth.
Tell friends and relatives about what you do. Get into paid advertising later on when you can afford one. Start little with a few bucks and scale up afterward when you’re more comfortable with the process.
A $20 budget or less can get you started with ads. Don’t even consider starting with a large sum until you have learned the ropes enough to know how ads convert. In the world of paid ads, the following are no pushovers:
- Facebook advertising
- Google AdWords
- YouTube ads
- Instagram ads
- Twitter ads
Other Marketing Strategies include:
Have a Page on Social Media
Social media is a source of a huge amount of traffic. Almost everyone on a global scale has one or two social media accounts running.
Your dropshipping business should have a face on social media networks. Have a page made to market your store on Facebook, Instagram, Twitter and other platforms where you can find potential buyers for your products.
This is one potent marketing strategy to adopt on social media. Find influencers on social media in your niche area and introduce your products to them. It may require you sending the product to influencers for free to try out.
That shouldn’t stop you if you’re going to keep making sales from there. You can offer to pay commissions per sales made through influencers as well. Influencer marketing is now a big business itself. You may need a budget to pay for the services of some influencers to help you drive sales. You can choose to run an affiliate program with your chosen influencers.
And now you know. You’ve got what it means to be a drop shipper. What is dropshipping is as simple as ABC but you have to put in some efforts. You can get started right away!