Dropshipping is a retail fulfillment approach where a shop does not keep the products it sells in its store. Rather, whenever a shop sells an item using dropshipping, it buys the product from a 3rd-party and has it directly shipped to the customer.
Because of this, the seller won’t have to directly manage the product.
The major difference between the standard retail model and dropshipping is that the store does not own or stock inventory. Rather, the store will buy inventory when required from a 3rd-party to fulfill orders. The 3rd-party is typically a manufacturer or a wholesaler.
Dropshipping is excellent for aspiring entrepreneurs since operating a store does not demand as much operational capital compared to the traditional model. You do not need to have a physical store, stock products, pay overhead, keep the lights on, or hire employees.
All you’ve got to do is open a business online and purchase wholesale from manufacturers who have products and warehouse space.
What is a Dropshipper?
You might be wondering which of the following activities would a drop shipper be most likely to perform. Well, a dropshipper is a supplier or manufacturer who handles inventory for a retail store and ships orders to their clients. The main responsibility of the store is to gain customers by driving traffic and processing orders. This means that a dropshipper is considered a middleman.
However, dropshippers can still earn a lot of profit by marking up the products they sell. It is a simple, yet rewarding business model.
A lot of aspiring entrepreneurs choose dropshipping since it requires less capital to start and has low barriers to entry. That is why a lot of people are interested in it. Aside from that, you can establish a sustainable business in the long run with dropshipping. All you need is a laptop or computer.
Obviously, there are pros and cons to dropshipping. Thus, it is vital that you should consider them before you begin your dropshipping journey.
After you know the benefits and drawbacks of this business model, it will be easy for you to decide if it’s the best fit for your needs.
Benefits of Dropshipping
For wholesale buyers, convenience and efficiency in shipping and ordering products to their clients is the main factor in finding business owners to work with.
Because of this, it’s crucial to understand the advantages of dropshipping. Providing dropshipping to wholesale customers will offer you an edge over businesses that don’t.
When it comes to retail businesses, dropshipping offers flexibility in many aspects. For instance, you can operate from anywhere, offer various forms of products, and change your offerings easily if market trends change.
Broad Product Offerings
Dropshipping opens up more possibilities for product variety. You can provide a bigger variety of products. This means that a small business that can’t offer as many options without warehouse space can still sell a huge selection.
Lower Inventory Management
Dropshipping lowers the management overhead that you will face by getting rid of the need to maintain physical inventory. You don’t have to waste time managing shipping, handling warehouse dropshipping, and tracking inventory. You will outsource everything to the supplier.
Since order fulfillment isn’t dependent on the number of employees required to ship out an order or the size of a physical location, a dropshipping retailer can immediately scale.
That is why dropshipping can drastically benefit retailers that experience irregular sales due to seasonal factors.
Lower Startup Costs
A business that follows the dropshipping model will not have to invest capital in building a store or getting inventory. Also, they do not have to spend time hiring employees or organizing inventory to fulfill orders.
That is why dropshipping has an extremely low barrier to entry since you can begin this business model even if you do not have the funds required to operate a traditional retail store.
Cons of Dropshipping
Now that you know all the benefits of dropshipping, it’s time for you to also learn the drawbacks. Almost every individual who promotes dropshipping will probably not mention these. They’ll probably tell you that dropshipping is the simplest approach to getting rich. However, that isn’t the case.
Poor Customer Service
Keep in mind that the customer will take it out on you if your supplier delivers the wrong item, damages them, or delivers them late.
You can’t maintain the personal touch that traditional retailers provide to their customers. You can’t immediately solve customer problems without overseeing the inventory yourself. To solve issues for your clients, you will have to deal with the supplier.
This middleman approach to helping your customers can result in problems with your suppliers, who might take a long time to finish your requests.
The lack of bulk pricing is one of the hidden “expenses” of dropshipping. You’ll probably pay more for every item you sell, unlike when you pay less for a large inventory of items.
This results in less profit.
You will have to sell more products if you want to earn a lot of money with this business model.
Relies on the Stock of Other People
One of the biggest benefits of dropshipping is that you can stop selling slow-moving products and start offering new trending products right away.
The disadvantage of this is that you do not control the inventory of your supplier. You’ll run out of stock if they don’t have stock. This will lead to lost customers and longer lead times.
Less Control Over Lead Times and Order Fulfillment
While you do not carry the expense of warehousing stock, you will pay for unhappy customers. The wholesalers and manufacturers you work with are accountable for shipping and handling your stock. If they fail, the customer complains to you or purchases from your competitors.
You’ve got to ensure you work with reliable 3rd-party vendors if you want to follow a dropshipping business model.
How Much Do I Need to Invest to Start Dropshipping?
For those who don’t know, you can begin a dropshipping business for less than $100. If you know how to look for starter plans and free trials, a bit of investing is all you need to start a dropshipping store.
However, just because you can do it does not mean you should.
Still, the startup expenses for dropshipping aren’t that bad. A couple of the expenses are one-offs, and some are per month.
The factors that affect the cost of starting a dropshipping business include creating an online store, ordering and sampling products you plan to sell, additional functionality to your online store, marketing, and more.
How Do Dropshippers Make Money?
As mentioned earlier, dropshipping is an order fulfillment approach that allows online stores to directly sell to customers without stocking any inventory.
Whenever a consumer buys an item from a dropshipping store, a 3rd-party supplier will directly ship it to them. The customer pays the retail price you set. Then, you pay the 3rd-party for the wholesale price, and the rest is your profit. This is also known as your drop shipment sales.
Is Dropshipping Legal?
Is dropshipping legal? The short answer to this question is yes. Dropshipping is legal. Depending on who your supplier is, you might face a couple of legal problems. However, dropshipping on its own is a legal approach to order fulfillment.
If you want to protect yourself, all you need to keep in mind is to have a Dropshipping Agreement Contract.
Can You Do Dropshipping on Amazon?
The short answer is yes. However, you have to make sure you follow the dropshipping policy of Amazon. You can also utilize dropshipping for your business on Amazon.
If you want to utilize dropshipping services for your business on Amazon, there are a couple of things you need to follow:
- You need to be accountable for processing and accepting customer returns of your products.
- You need to categorize yourself as the seller of your products on the external packaging, invoices, and packing slips.
- You need to be the seller of record for your products.
Can You Dropship on eBay?
Technically speaking, dropshipping is allowed on eBay. However, you need to fulfill orders from a wholesale supplier directly. This means that if you buy bulk quantities from a manufacturer, you can market these products on eBay.
However, you need to remember that it isn’t allowed to purchase items from another marketplace or retailer that directly ships to your customer.
Thus, you cannot list something on eBay, buy it from Amazon, and ship it to your eBay customer. Aside from being confusing to the customer, eBay can’t also track the shipping.
What is the Difference Between Dropshipping and Retail Arbitrage?
As mentioned earlier, dropshipping refers to a retail fulfillment approach where a reseller doesn’t physically store the items they’re selling. Instead, they directly ship the products to the customer from a 3rd-party supplier. Resellers don’t need any investment to start because order fulfillment tasks are managed by a 3rd-party.
On the other hand, retail arbitrage refers to the act of buying products from one retailer and then selling these products on other marketplaces, such as eBay and Amazon. This business model carries a lot more risks and needs huge investments to maintain inventory. Training courses like the Amazon FBA Marketplace Superheroes can give you a headstart.
How Do I Start a Dropshipping Business?
Just like any kind of venture, it’s not easy to learn how to start a dropshipping business right away. Still, it is an excellent first step if you want to become an online entrepreneur.
You can sell to consumers without stocking up any inventory. Also, you do not have to invest in the products. You can establish a sustainable income stream in the long run if you are serious about this venture.
So, how do you start a dropshipping business? Here are the steps.
Choose a Business Idea for Your Dropshipping
Always remember that it’s important what you choose to sell. You need to take time to look for the ideal business ideas for your dropshipping store. Almost every individual will tell you to choose a niche that you’re passionate about.
However, that’s not ideal. You need to find the right balance between passion and profit. Still, you need to focus on profit more.
The truth is that the ideal business ideas for dropshipping are typically the profitable ones. You’ll have an easy time being passionate about your store if you are making a lot of money.
Analyze the Competition
After choosing what products you want to sell, the next thing you need to do is to analyze who your competitors are, how they sell their products, and what they sell. There are a lot of methods to do competitor analysis. This includes:
- Understanding the content of your competitor and what performs better for them through the use of online tools so you can copy it.
- Hunting around social media.
- Searching through SimilarWeb or Alexa to look for niche competitors that may not show up high in general search results.
- Entering the name of the products you’re planning to sell and analyzing the one that shows up on top.
Look for a Supplier
When you’re on AliExpress, it’s quite easy to find a reliable supplier. If you’re on the platform, try searching for products. Then, they will give you a list of results for the suppliers. You can also see ratings and reviews on the platform. Aside from that, you’ll also see how long the supplier has been on the platform.
After getting at least five possible suppliers, the next step is to call them and ask crucial questions. This includes shipping times and minimum order quantities. This should help you narrow your options down to 2 to 3.
The ideal way to choose the right retail shipper is to order a sample product and compare each one of them. You need to compare the packaging, product quality, and shipping times.
Establish a Dropshipping Store
If you want to properly create a dropshipping store, there are a couple of factors to consider. This includes:
It’s important to choose the right domain name. This is particularly true if you want to establish a long-term business. You can utilize a couple of free business name generators if you need help.
When getting a domain, always choose one that ends in “.com”. Furthermore, do not use your name as the domain for your store.
Sign up for Shopify
Today, one of the best eCommerce platforms for your drop shipping marketplace is Shopify. With new apps, resources, tools, and features regularly being added, you will find that it is simple to utilize and operate a business on the platform.
Market Your Dropshipping Store
During this stage, you probably have created a store, found a product, and partnered up with a reliable supplier. This means that you’re good to go.
However, before people can find your business, you need to market it. Since you’re new, you need to promote your dropshipping store as much as possible. This is a vital step in your business plan. There are a lot of ways to market your dropshipping store; you simply have to do a bit of research.
After spending time marketing, creating your brand, and designing your store, you can begin to analyze the results of your hard work. You might discover that particular marketing activities are greatly successful while others don’t do well.
Also, you should try to look at your competitors’ pricing and see if you can change things up a little to improve the competition.
In conclusion, the most crucial aspect of creating an effective dropshipping store is to analyze and optimize to improve the revenue that you generate. This ensures that your store won’t fall behind best practices and keeps you ahead of the competition as well.
Is Dropshipping Worth It in 2022?
So, when it comes to dropshipping vs. ecommerce, is dropshipping really worth it? To answer this question, dropshipping is still worth it in 2022. The truth is that as more people have moved away from platforms such as AliExpress, drop shipping has become more and more popular. It is a great choice for entrepreneurs looking to start their careers online. There’s eBay Dropshipping Titans by Paul Lipsky that can give you an advantage to know the ropes in this business.
Aside from being profitable, dropshipping is also thriving. Dropshipping and eCommerce profits have reached more than $4 billion. This is a 7% year-to-year increase for the last decade.
So, whenever someone asks you if dropshipping is dead, you can simply tell them that it isn’t. This is particularly true today, with the world greatly relying on online shopping and eCommerce.
The possibility of the dropshipping industry dying is little to none.