Dropshipping is a business model in which a store is supplied while a supplier completes orders and is an economical way to start a business. But is it the right one for you?
What exactly is dropshipping?
With the dropshipping business model, you run an online store, but unlike e-commerce sites, you don’t deal with inventory or deliveries, and you don’t have to invest in stock.
Instead, you work with one or more suppliers who ship products directly to your customers. You pay only for products when they are sold and your profits come from the mark-up you apply on wholesale prices.
Who are the suppliers?
In recent years we have seen an increase in connections between global businesses, thanks to the digital revolution. Wholesale markets such as Alibaba or the smaller Aliexpress, more startup-friendly, facilitate business relationships with low-cost manufacturers in China, Taiwan, India, and other countries. They are the preferred option for many companies starting dropshipping, but certainly not the only one.
You can work with suppliers virtually anywhere, selling anything. One option is to register with a directory of suppliers such as Doba, Worldwide Brands, or Salehoo, or you can search Google for suppliers of the product you want to sell.
Where is the catch?
Dropshipping seems like a dream because it offers the opportunity to start a business without too many risks, but this type of business has advantages and disadvantages.
- You don’t have to invest a lot of money for products and storage before starting.
- It is a very simple business model. You sell, the supplier completes the order. Done.
- The risk for you is relatively low. If the products don’t sell, you don’t lose money and you don’t have any goods left in stock to sell off at a discount.
- It is a very competitive market niche (due to the low barrier to entry) and in some cases, very low margins have to be accepted to keep up with other companies in terms of prices.
- You don’t have much control over the customer experience with regards to shipping, packaging or product quality. (There is no possibility of creating a pleasant experience of opening the package or attaching a Flyer or Postcard.
- You may have to expect long shipping times to customers, especially if you are dealing with long distance deliveries.
- Tracking merchandise availability can be tricky, especially if you work with more than one supplier.
- Some suppliers charge, per order or per month. There may also be a minimum order amount, with penalties to be paid if you sell less than expected.
Tips for a successful dropshipping business
Automation is your friend
Hurray for the data! There are numerous digital tools that can facilitate connection with suppliers, automatic sharing of merchandise availability data, and even product descriptions on your site. Some, such as Inventory Source, also act as a directory of suppliers. Others, such as Spark Shipping, are able to automatically manage the processing and tracking of orders.
Choose your suppliers carefully
It almost goes without saying, but the choice of reputable and reliable suppliers to work with can be decisive for having satisfied customers. Make sure you have thoroughly checked the products and have service level agreements regarding shipping times and methods.
Take into account the costs related to returns and shipments
If there is one factor that characterizes the modern online consumer, it is the fact that they expect free shipping and returns. If you plan on offering free or subsidized shipping, remember to take this into account in your profit margins, especially if you work with multiple suppliers.
After all, if the customer chooses products from multiple suppliers, he won’t like having to pay two shipping costs for two items from what he perceives as a single source.
The return policy will also need to be worked out very carefully. Consider whether you are able to offer free returns, and if not, decide what you will do in case of defective or damaged items that customers have a right to return. In this case, it is essential to have a good relationship with the supplier.
Even if the merchandise is distant, marketing doesn’t have to be. Build your brand and network with a range of MOO Business Cards, or apply your branding to your workplace and stationery with Custom Stickers.
Final Thoughts about Dropshipping
Dropshipping can be (and is for a lot of people) a way to make an extra income. If done properly and with enough time and resources invested, it can become your primary job. Dropshipping can be a very lucrative business, but only a small percentage of people who dwell in this kind of business make it big.
The reason? Well, usually it’s the same old story of being seduced by some online “guru’s” promises of quick richness. Make no mistake: dropshipping is a business that requires a lot of time, energy, and constant development.
If you want to make it think very hard if this is the right road for you, and then learn, learn, learn.
To your success!