Compared to traditional businesses, the dropshipping model is very economical
Many retail websites offer unique business opportunities to people who want to start selling goods on a part-time basis. You can work remotely from home or any location. Stay-at-home parents, students, or retirees are welcome on board too. Such work ads include a mysterious word “dropshipping”. For what that is and how that works – read below.
What dropshipping is
The dropshipping retail model involves three main participants: the manufacturer (wholesaler), the salesperson, and customers. The sales representative advertises products and places listings as usual. The only difference is that sellers don’t have to stock up their inventory, thus, saving on offices and warehouses. They buy from the third party (manufacturer/ wholesaler) only the products needed to fulfill placed orders. Some may not even deal with logistics. They organize shipping from the manufacturer’s facility directly to the client’s address.
How dropshippers make money
To begin with, they don’t spend much. Compared to traditional businesses, the dropshipping model is very economical. Furthermore, you can buy items at wholesale prices and resell them with extra markups.
SEE ALSO: How to sell stuff online: basic guide
Another point of increasing your profit is working internationally. When customers order individual items from faraway countries, they often face too-high shipping prices. Therefore, they prefer to buy the same things from dropshippers who can offer lower fees due to their bulk orders. Many clients are willing to pay a premium and wait extra time for many exclusive items that aren’t sold at local stores. Hence, intermediary dropshippers can put their price tag on such goods. Finally, a lot of dropshippers work with the AliExpress platform. There they can buy cheap items, copies of famous brands, etc. Such things are popular among numerous segments.
Every year there is a new discussion about dropshipping becoming dead. However, that is still not the case because dropshippers only adapt to market changes. Many businesses of this type have not withstood the competition and yet many more are striving. Customers know they get dropshipping products with a little margin, but the sellers compensate that slight price difference by higher customer service, faster refunds, special offers, etc.
Manufacturers like cooperating with dropshippers too. This way, they can reach out to a wider audience without additional marketing costs.
Pros & cons
To tell the truth, dropshipping is quite a controversial business model. Think twice before opting for it. The most common factors to consider are:
➕ low initial investments;
➕ unlimited number of suppliers;
➕ extreme flexibility;
➕ ease of testing the demand on new product categories;
➕ e-commerce is on the rise;
➕ less hassle and paperwork;
➕ it can be an additional income source besides a full-time job.
➖ strong competition forces lower added markups;
➖ a lot of time and effort required to stand out;
➖ expensive shipping;
➖ international shipping delays;
➖ dishonest suppliers;
➖ bad quality of the advertised products become your responsibility;
➖ you can hardly build a brand with this model;
➖ you can’t properly track your inventory;
➖ supplier mistakes lead to refunds and returns at your expense;
➖ extra efforts are required for customer support;
➖ you don’t always enjoy bulk pricing.
How to start a dropshipping business
Like every business project, a dropshipping startup needs a business plan.
- Brainstorm to find the best dropshipping business ideas. Some most popular goods for this retail model include tech-friendly fitness clothes, health and wellness products, accessories, toys and baby products, birthday and party supplies, home decor, phone accessories, and creator tools, etc. You’d better choose something you’re familiar with since clients will probably ask additional questions and you’re unlikely to hire any employees, at least, at the initial stage. Another tip is to concentrate on niche products not available in local stores.
- Estimate your overhead costs. Shopify enlisted the essential costs: ~$29/month for hosting your online store at a trusted marketplace; $5-20/year for registering a domain name; at least $500 for advertising, though there are plenty of ways to promote your goods for free using social media.
- Choose a platform. The most popular are Shopify, Oberlo, WooCommerce, OpenCart, Magento, Salehoo, BigCommerce, AliDropship, Dropified, etc. eBay and Amazon are also common choices though they may have higher fees.
- Build your e-commerce website on a chosen platform. Create relevant marketing channels on social media.
- Find reliable suppliers. This point is crucial if you want to avoid customers’ disappointment over product quality, shipping terms, etc. If you are not 100% confident in the communication abilities of a potential supplier and their integrity, move on and continue your search.
- Attract customers. Social media allows you to place your offer directly in front of a highly targeted audience. Collect emails from the start and set up automated email sequences that offer discounts and special offers.
- Analyze and improve. You need to track all of the data available to grow your business. This includes Google Analytics traffic and media conversion data. Constantly test new opportunities and optimize advertising campaigns. Focus on your customers, make their feedback your starting point towards improvement.
- Make it legal. You’ll need to register your business once you start to make sales consistently. You can reach out to local authorities for more information since national policies differ.