Dropshipping is an online business model that allows you to buy and sell goods even without a factory or a warehouse. The most essential things to have are an ecommerce website and a supplier or manufacturer. Dropshipping allows you to earn a profit without handling the goods. If you want to learn how this business model works, you’re in the right place. This article provides general information about the subject.
How Does Dropshipping Business Model Work?
If you have ever wished to become a middleman in a business, dropshipping is a sure bet. It puts you between the supplier and the customer. You do not have to produce, package, ship, or maintain any stock in a warehouse. Instead, you will forward customers’ orders to the supplier and they will tackle the rest. This is how the dropshipping business model works:
- Locate an internet-based supplier that stocks the type of products you plan to sell on your website or a third-party site like Amazon.
- Add the supplier’s products to your ecommerce website and promote them. Feature them at higher prices to make a profit.
- Once a customer orders an item, take the payment directly. Send them an automatic order confirmation email.
- Forward their order to your supplier and pay them the initial price. The remaining amount will be your profit.
- Allow the supplier to package and ship the ordered item to the customer.
- Keep doing steps one to five to earn more profit.
Notably, you can sell your supplier’s or manufacturer’s goods without buying and storing them in a warehouse. You do not need to manage any supply chain or inventory either. Dropshipping enables you to connect suppliers and buyers in exchange for a small profit.
How Beneficial is Dropshipping?
Dropshipping has unique advantages especially if you host the business on a known online store like Amazon.com. Here are the crucial ones:
Easy to start
Dropshipping poses fewer risks than you can imagine. First, you can dropship products with a small amount of capital. Your supplier does the most expensive tasks, leaving you enough time to look for more buyers. Also, you can expand quickly by adding products from different suppliers.
Zero shipping and warehousing fees
Anybody selling products must store them somewhere until there is an order to fulfill. Warehousing comes with risks of theft, fire, spoilage, etc. If your sales increase, you will require a more spacious warehouse to keep extra products. As a dropshipper, you have no warehousing or inventory management roles.
Thus, you can buy and sell without incurring any warehousing or shipping costs. The supplier will store the products and ship them once you redirect customer orders to them.
Avoid the Loss of Stock
A lot can happen to goods on transit. If your products are fragile, they could break during transportation. If the goods require unique handling such as refrigeration, you must provide it or risk losing everything. The dropshipping business model exempts you from facing this problem.
Dropshipping is Scalable
Since you do not have to produce, store, package, or ship anything, you can expand your product line quickly. Once you identify a suitable product to sell, add it to your website catalog. The broader your catalog is, the higher are the odds of diversifying your risk and earning bigger profits. If you get fewer or no sales from one item, you can rely on the next one.
Dropshipping Protects You From Overstocking
Adding products to your online product catalogs does not mean you are overstocking them. Only your supplier can risk losing money for keeping excessive slow-moving stock. Thus, you don’t have to lower the prices of overstocked items. If the supplier marks down their prices, you can adjust yours and still earn a profit.
Dropshipping is Versatile
Sellers do not have to pick a strategic business location. They only require an online store, a computer/smartphone, and a strong Wi-Fi signal. Your residence can be any place on earth if you have these requirements. Since you do not manage stock or ship it, you can try other businesses as you dropship.
Alternatively, you can allocate more time to lead generation and marketing on social media. Dropshipping is less time-consuming and flexible to run than a physical retail shop.
Multi-channeling is Possible
Who says your website is your only selling platform? The dropshipping business model allows you to pick other channels through which you can showcase the same product offerings.
How Challenging is Dropshipping Business?
Before you start your dropshipping business, identify its challenges. Dropshipping has the following challenges:
A Low Profit Margin
Dropshipping is not a capital intensive business. Similarly, it does not generate high profits. You must be cautious when setting the prices of goods so as to attract buyers. You should set a price only after the supplier shows you theirs.
Since they must factor in the cost of production, warehousing, packaging, and shipping, their pricing must be high enough. It is upon you to mark up the price and sell the item even if your profit is small.
Stiff Competition
Countless people are tirelessly searching for easier ways to make money online. Dropshipping has become one of their favorite business ideas because of its many advantages. Considering that dropshipping offers no entry barriers, it attracts thousands of entrepreneurs. If you want to excel in it, you must find one thing that can help you stand out in a competitive market.
High competition could make it harder for you to differentiate your dropshipping business and create a strong brand for it. First, your supplier wants to sell as many products as possible. Since it is harder to sell all these on your website, the supplier will find other dropshippers willing to advertise for them. Competing with all of them is hard.
You Cannot Control the Supply Chain
The dropshipping business model allows you to become a middleman who does not control the supply chain. Thus, you cannot do anything to improve the product quality since you don’t manufacture it. If customers complain about the quality of your products, that could ruin your reputation and spare the supplier’s.
Since you do not control the transit process, you cannot do anything about poor packaging and shipping delays. If a supplier keeps delaying your customers’ orders, your business could collapse too fast.
How Can I Start My Dropshipping Business?
Following a given procedure is a must when starting a dropshipping business in your country. Here’s is how the procedure works:
Choose a Product Niche
The first thing to do when starting a dropshipping business is to select a suitable product niche. Research the preferred niche thoroughly to understand its current level of demand and supply. Select a product you can passionately promote and sell. Additionally, conduct thorough research about the competition aspect.
Will it be harder to brand your business and differentiate it from the competition? If several people have selected the same market segment, consider picking another one.
Locate an Appropriate Dropshipping Supplier
After discovering your product niche, the next thing is to find a supplier who deals with it. The internet provides many ways to locate suitable suppliers, including platforms like Amazon, AliExpress, and Alibaba. Locate a platform that best works for importers from your country. Pay attention to the reviews a supplier has received about product quality, shipping prowess, product pricing, and overall reputation.
Select a Dropshipping Platform
Since dropshipping is popular now, you can find a few platforms that deal only with dropshippers. If you don’t want to incur the cost of building, hosting, and marketing an ecommerce website, you can use an already popular platform. Examples include WIX, Magento, WooCommerce, Shopify, etc.
Select a user-friendly platform with helpful apps and plugins. Match a platform with the type of website you want to use for your dropshipping business.
Create an Online Store
The platform you found appropriate above would provide the things you require to set up an successful online store. Some like Shopify have an app that lets you add various features to your store. If you are not good at technical things, you can ask your website developer to assist you.
Fill your Platform with Products
After creating an online store via your dropshipping platform, source products to add from the supplier. Some special applications, including Oberlo, can let you add products from Alibaba or AliExpress. You can also look for plugins that allow you to do the same on other platforms.
Select and Install a Payment System
Once a customer orders a product, they should know how to pay for it. The platform you chose above will provide the right payment system to set up. For instance, Shopify has many payment getaways and apps that could let you finish this task successfully.
Advertise Your Business
If you have social media accounts, you can use them to promote your online store. Set up attention-grabbing ads on Facebook, Instagram, TikTok, etc. This will help you generate traffic for your new dropshipping business.
FAQ
Should I try dropshipping or will I fail?
If you want to make an extra buck and have an online store, you can start the dropshipping business. However, do not ignore the dropshipping challenges as they can affect your progress.
Do dropshipping suppliers allow product customization?
Most suppliers do not allow you to control product quality and packaging. If your customers don’t like either of these, you can’t customize the product to their taste.
How can I increase my dropshipping profits?
One thing is to offer products from different suppliers. Another way is to sell on your website and third-party channels like Amazon, EBay, etc.
What money do I send to my supplier?
You should wait until the customer finishes the transaction process at your website. Then, use their money to pay the supplier and yourself.
Who should tackle product returns, replacements, and refunds?
Discuss various matters with your dropshipping supplier, including who should pay for defects on goods. Also, determine who between you covers the shipping fees for returned items and the restocking fees. Lastly, inform the customers to return a product only within a given timeframe.
How can you improve the customer care service for your dropshipping business?
Customers will ask you questions about the products you’ve featured on your website. They might want to know something about the product quality, shipping, packaging, returns, replacements, and so on. Even if you do not handle the goods, you must know how to answer the customers’ questions.
If you fail at this, you risk receive negative reviews from customers who feel your customer care service is wanting.
KickStart Your Dropshipping Business
After gathering important information on dropshipping, you should put it into practice. No matter where you live, you can implement this business idea without risking chunks of money. Although you can’t control some supply chain issues, you can still expect to make a small profit from every sale.
Do you find the dropshipping business idea viable in 2023? Have you attempted to implement it and did you succeed? Let us know in the Comments section below.
