Whether you’re just getting into the entrepreneurial world or want to learn how to make money online, you may have heard the term ‘dropshipping’ floating around. But what is it, and how can you make money with it?
If you’re unfamiliar with it, don’t worry. In this blog, we’ll explain dropshipping and show you why it’s a feasible business model for beginners to start and run their very first store.
What is a Dropshipping Business Model?
What’s a dropshipping business? Let’s say you have been thinking about starting an eCommerce business, but you don’t know where to begin. You don’t know what you should sell. You don’t have any money to invest. And the scariest part – You don’t have any room to keep the stock – the inventory.
What would you do? Sack the whole plan?
Statistics say otherwise. According to Oberlo, in 2020 alone, eCommerce sales accounted for 16.1% of global retail sales (an increase from 10.4% in 2017).
So, it’s safe to say that there’s never been a better time to start an eCommerce business. But again, the same question. What about all the money and the inventory you need?
That’s where dropshipping seals the game for you.
You see, with an eCommerce dropshipping business, you can sell products online without a storage space or a warehouse. All you need is an internet-enabled device like a computer, an online store, and a basic understanding of sales and marketing. Here’s how it works.
How Does Dropshipping Business Work?
Dropshipping businesses involve three key players – the supplier, the retailer (you), and the customer.
First, you find a supplier who offers you the product you want, and then you list the product on your (retailer) website at the price you set.
Next, when someone buys that product from you, they pay you the retail price, and you earn a profit.
After that, you will place an order with your supplier at a wholesale price and have it shipped directly to your customer.
So, let’s say you found this office chair on a supplier’s website for $40. After that, you’d list it for $70 on your website. Once the order comes through your website, you forward the order to the supplier along with the customer’s information, keeping a $30 profit and having the product shipped directly to the customer.
That’s how dropshipping works for eCommerce businesses. If problems or questions arise, customers contact the retailer they bought the product from, which is You.
Now I know what you’re wondering.
Couldn’t someone just order the chair directly from the wholesaler’s website?
Well, there are a couple of reasons:
- Overly Competitive Internet – There are many suppliers on the internet, so customers may not know where to find them directly to purchase from.
- Product isn’t everything – When people buy things, they don’t just buy the products; they also buy the marketing, positioning, brand trust, and lifestyle that come along with those products.
As a dropshipper, you can concentrate on marketing your products and saying the right things at the right time, as well as providing real value to the right people. Since you aren’t managing warehouses and inventory or dealing with most of the other challenges associated with running an eCommerce business, branding and marketing will help you attract people to your business.
Speaking of challenges. There are a couple of challenges that you do need to consider in dropshipping.
Significant Challenges in Dropshipping Business
Dropshipping is far from easy, though it may seem like it. When you factor in all the day-to-day hassles of finding reliable manufacturers and other legal obligations, the real picture sneaks in.
So, before you stake all your dollars into the eCommerce dropshipping business, here are some key challenges you need to be wary of:
1. Visibility In The Customer Fulfillment Process
Getting a new customer is more expensive than retaining an existing one.
As this adage grows into meaning day by day, your eCommerce dropshipping business needs to maintain visibility for your products.
Every time your products go live, you need a faithful line of customers already waiting for the sale. And in this age of social media advertising, you cannot afford to start from scratch every time you go live.
So, how to keep the customers intact? Through a solid brand-building strategy.
As already said above, it’s not the product you’re selling. You’re building a relationship with your customers. So, as retailers, you’d need to compete in other ways, such as offering customized packaging, messages, and labeling. You must, however, tackle the next dropshipping challenge to accomplish this.
2. Finding Credible Suppliers
When you are a dropshipper, you and your supplier are responsible for delivering the product. But what if your supplier fails to deliver? Maybe there was a stock-out or any other emergency, and now there’s a massive disruption.
Your business will suffer, so it is best to find a complying supplier upfront to avoid customer complaints.
Honestly, you can find suppliers on your own. But, when you’re dropshipping, you can end up spending a lot of time researching and negotiating with suppliers to guarantee your customer satisfaction.
Because dropshippers try to avoid this hassle, they settle for unreliable suppliers with multiple partners, but they do so at the expense of the quality of the products. Plus, they cannot offer any value-added service to the customers, such as sending a personalized message on books or offering incentives on account setup.
It’s not that you can’t find potential suppliers who can source quality B2B products at affordable shipping rates. The process of finding suppliers involves a lot of research. As you read through the steps to get started with an eCommerce dropshipping business, you will learn where to find the right suppliers.
3. Unusual Shipping Times
Since many dropshipping suppliers are based overseas, shipping times are generally longer, turning some customers off.
The general rule is that, if you clearly state your shipping times throughout the buying process, many customers appreciate it. Especially if you’re dropshipping products in a niche where delivery times don’t matter much. So, your best bet is to be truthful with your customers. Doing this helps you build trust in the market. A better option is to choose local suppliers that deliver the products on time.
4. Low Profit Per Product
Because you don’t have to store or manage inventory, the overhead is low. But so are the returns.
A low barrier to entry comes with its own set of challenges. Dropshipping suppliers, wholesalers, and manufacturers provide shipping and storage services, which means you pay a little more than bulk wholesale prices. A higher per product price means your consumer has less room to negotiate which can turn away your customers.
To overcome this, you’ll have to sell more products to equal the revenue you’d generate if you owned your inventory. Your online store must run at full throttle all the time, like an oiled machine.
5. Tough To Stand Out
A low barrier to entry also means you’re not the only seller in the market. It is common for suppliers to have a partnership with more than one dropshippers, meaning you’re fighting to attract the same pool of customers as your counterparts. The more the competition, the stiffer it gets to stand out.
Online shoppers have a lot of flexibility in terms of choosing which eCommerce store to buy from. If you don’t provide them the flexibility they need, be prepared to lose them to your competitors.
And among the top customer magnets for eCommerce businesses have been payment and shipping options. 66% of customers say they’d prefer to buy from your competitors if you don’t provide easy payment and shipping facilities.
In short, improving customer experience is the only way to stand out. As part of your checklist to improve customer experience, choose a supplier who can offer flexible rates and can scale along the way as your business starts gaining new customers.
So, Should You Go For an eCommerce Dropshipping Business?
Today, dropshipping is a very diversified business strategy, so it’s difficult to answer.
Dropshipping – is it a good idea? Yes, otherwise, no one would do it. It’s the way of doing dropshipping business that has changed. Gone are the plug-and-play days when you could sell refurbished drones, iPhone cases, and fidget spinners with 3 week wait times. That model doesn’t work anymore.
The best thing to do is build your brand around a product, work directly with a manufacturer to ship orders, and make a deal with them in advance to have a local forwarding warehouse for the industry you’re targeting. It’s also possible to source products from overseas suppliers within short notice.
Or you could build your stock inventory and become a manufacturer. Like you could print-on-demand products such as shirts, phone cases, towels, and bags. That’s also a form of dropshipping since the sale happens before the store places the order with the printer, and you don’t have an inventory anyway.
Dropshipping is a low-risk business model fruitful for early-stage entrepreneurs. It can be a great headstart for eCommerce businesses. But the key to sustaining a dropshipping business is to come up with specific, target-driven business ideas that have a scalable future in the market. Because, just like if you asked, “is it a good idea to start an advertising agency?” the answer will most likely be “yes, only if you do it right.”
One small side notes: Everyone on social media wants to sell you something. Even though it may not be a paid course or membership, they are trying to sell you on the idea that their work is winning. Your social media feed shows you “successful” dropshippers because it knows that’s what you want to see. So, don’t take everything you see there at face value.
What Do The Numbers Say?
The latest study indicates that dropshipping fulfillment models constitute 33% of online stores, up from 23% recorded in 2017.
Not just the online retailers but the manufacturers and suppliers too are adopting the model since they had a huge revenue spike.
And the reason is simple — An efficient shipping facility at minimal storage & marketing expense.
Think from the supplier’s perspective here. How does dropshipping benefit a supplier?
Suppliers can very well open an online store, but the cost of marketing and branding will leave nothing for fulfilling orders. So, they are comfortable switching to the dropshipping business model. It’s more like instead of finding sales opportunities, you can hire dropshippers to attract and forward orders for you to ship.
As a result, they don’t need to bulk sell to wholesalers who often ask for a huge cut. Instead, they choose to cut the chain entirely by selling directly to indirect consumers (dropshippers) without having to market anything.
How To Start Your Dropshipping eCommerce Business – 6 Easy Ways To Get Started
If you’ve made up your mind, these 6 actionable steps on how to get started with an eCommerce dropshipping business are going to help you ace the baby steps and build a profitable business in the long run.
1. Find Your Niche
You have to keep three things in mind while choosing a dropshipping niche –
i) Attention Factor – Does it Appeal To You?
Does that particular niche interest you? Are you passionate enough to analyze trends and analytics to discern a profitable business opportunity through that niche?
ii) Attraction Factor – Does It Appeal To The Customers
How high is the product’s conversion rate? You need to ensure whether customers need your product or not. Remember, in dropshipping, the amount of work required to sell a $20 product is essentially the same as it would be to sell a $200 product. So, it’s better to invest with a revenue-driven approach to capitalize on the high demand for the product.
iii) Shipping Factor – Does it Cost Too Much to Ship?
What’s the product’s shipping cost? Even though you don’t have to ship, it will repel customers if it is expensive and complex. So, go for a product with low-cost, flexible shipping options.
2. Do Extensive Competitive Analysis
Remember, you will be competing with several of your dropshipping counterparts and of course, the global retail giants. This is where the ostrich mentality kicks in for most new dropshippers. They start hunting for a product with little to no competition.
But the truth is low competition doesn’t mean high growth prospects. Low competition means the product has high shipping costs, manufacturing errors, and low-profit margins, which is why people abstain from buying those products.
So, always go for products you know you can sell and have the customer’s attention. You can’t dive into a competitive market without evaluating the profitability of your product. You need to ensure you can make money from it.
3. Find The Right Supplier
Don’t rush into selecting a supplier because the wrong one could wreak havoc on your business.
Do your homework
The majority of dropship suppliers reside overseas, which makes effective communication incredibly important, both in terms of speed of response and understanding. So, you need to sift through a thousand wholesalers, manufacturers, and suppliers for which you’ll need a concrete plan of attack:
i) Look Them Over Internet
It’s normal to hit the web to explore potential suppliers. You’ll also track down a great deal of data there. Yet, investigating drop shippers online can be deceiving.
Why? Because many suppliers go after new small businesses and dupe them with high membership charges. Wholesalers also make no efforts on advertising and operate on outdated sites that make them nothing close to genuine.
So, dig in all you want and keep in mind a simple parameter that differentiates a good supplier – a good supplier won’t just offer you the products but also become a trustworthy ally in your dropshipping journey.
ii) Run a Phone Call to Check Legitimacy
If you’re still unsure of the supplier’s credibility and want to dig deep, call them directly. You can also call the manufacturers to see which wholesalers they deal with. Nothing better than a straight-up conversation overcall.
iii) Find Aggregators
Dropship aggregators are directories that provide seamless access to a huge number of vetted suppliers. With aggregators, online stores are empowered to partner with multiple suppliers through a single interface, taking the directory concept to the next level.
iv) Get to know your competitors’ suppliers
In case a competing online retailer sells products you’re interested in, you can always order from their store and check the packaging once it arrives. If everything appeals to you, take out the supplier’s details and reach out.
4. Create Your eCommerce Website
Let me tell you the fastest way to get your eCommerce dropshipping business live on a website – Out-of-the-box or traditional eCommerce solutions.
With traditional solutions, you get templates and scripts to build a fully functional website. You also get loads of applications and integration features to help increase sales. What’s more, you can operate all of these features without any technical knowledge.
You might be tempted to go for a custom solution if you have a significant budget. But it’s much wiser to wait until you’re established and use one of the simple, ready-made solutions in the beginning. As your business grows and revenue starts rolling in, you can consider customizing your website.
5. Use Proven Acquisition Methods To Acquire Organic Customers
No business is successful without customers, no matter how great your product or website is.
Customers are the bloodline for an eCommerce dropshipping business. Not only can you generate quick sales and revenue but establish yourself as a brand among the largest dropshippers in the industry. More recognition means great, consistent traffic. Great traffic means more visibility and more visibility leads to high conversions and sales.
So, what are the effective ways to grab eyeballs in the market?
The evergreen, tried-and-tested Search Engine Optimization (SEO), Social Media, and Email Marketing.
With email marketing, you can grow your mailing lists from the start by setting up a newsletter series about special offers and discounts.
With SEO, you can attract organic visibility on your website, thereby improving your website ranking on the Google Search Result Pages.
Social media is where the hub of your target audience resides. Utilize the latest social media content trends to inform, persuade and sell your message to customers. But keep in mind that you don’t go overboard on promotional messaging. Maintain a clever mix of information and promotion in your content. And soon you will be attracting brand advocates rooting for your brand in the future.
Leveraging such customer acquisition methods can generate great profit at minimal advertising and marketing expenses.
6. Track And Optimize
Your primary customer acquisition channels need frequent tracking and monitoring to optimize further business marketing strategies.
Use Google Analytics and Social Media & Email insights to generate reports on customer online behavior, demographics, buyer patterns, preferences, etc.
With this information, you know what your customers think, where they come from, how they found out about your website, what they don’t like about your business and several other invaluable insights. All these factors help you to know what works best and develop a scalable business model.
Any business, including dropshipping, is not a set-and-forget model. It is crucial to test new opportunities and evaluate current campaigns to know how, when, and where to allocate your funds and resources in the future.
Few Things To Keep in Mind in Dropshipping
Now that we’ve covered all the things you need to get started. Here are a few additional things to keep in mind while starting an eCommerce dropshipping business:
1. You Have a Lot to Learn
Dropshipping is relatively easy to learn, but it still comes with challenges and a learning curve.
You’ll make a lot of mistakes, maybe shipping errors or website mismanagement.
But the key is that a mistake can serve as a learning opportunity. If you can develop resilience, you can find success with dropshipping products like many other eCommerce businesses.
2. Everything Comes With A Price
Although dropshipping is more cost-effective than traditional e-commerce, the process is not free. There will always be costs associated with marketing, generating traffic, sales, and handling returns.
3. Not a Get-Rich-Quick Scheme
Dropshipping isn’t a get-rich-quick scheme, nor does it guarantee overnight success. You have to work consistently on your store to be successful.
Yes, there will be less time commitment than running a traditional e-commerce business. But, it won’t succeed without your commitment. Any eCommerce business requires your time.
4. Don’t Source Copyrighted Items
And most importantly, avoid copyrighted items. They are illegal around the world and can land you in trouble.
Start small if you are entirely new to dropshipping, with one product or a few complimentary items from just one supplier. You can always add more inventory as you gain experience. Yet it is better to start small and expand than going for the kill too early and running out of bait midway through.
Once you’re confident with dropshipping, my last tip is to diversify.
It is common for dropshippers to not rely on one store for their entire income but to build multiple income streams by operating a series of stores targeting different niches.
With another business to your hat, you’re very likely to establish your market presence sooner than your competitors.
Is Dropshipping Worth it in 2022?
The answer is yes. But you will need a lot of time and some money. It takes months of research and design and a few thousand to cover themes, setup, branding, company requirements, and so on.
Dropshipping is one of the best business models to test your entrepreneurial skills. With minimal risk and low-cost investment, it’s the easiest way to get recognized as an eCommerce business. All you need is a mix of tenacity, resilience, patience, and the ability to learn from your mistakes and those of others.
If you have time, resources, and the drive to persist – you too can be a successful dropshipper!
So, are you ready to start a successful eCommerce business with dropshipping?