One of the most popular business models of many businesses today, dropshipping has taken the ecommerce world by storm. Let’s get into details today and find out what dropshipping is, how it functions, its pros and cons and who can do it successfully.
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What is Dropshipping?
Dropshipping a business model where a store doesn’t store the goods that it sells. It has a catalog and an online store, however. When someone purchases a product, the store forwards the order to third party, who ships the goods. This is usually a wholesaler or a manufacturer – and the profit is made in the difference between the wholesale and retail price.
What are the Pros of Dropshipping?
The biggest advantage of dropshipping by far are the costs. In order to start your own store, you don’t need to invest a lot of money at all. In fact, you just have to pay for a website with an ecommerce store, without investing in inventory to sell.
Additionally, the third party takes care of shipping and handling as well. As you don’t have to pay to have items in stock, it’s possible to start a dropshipping store with very little money – only a few hundred dollars in most cases.
When we say low cost, we really mean low. As you have no inventory, you also don’t have to manage a warehouse. You don’t have to pay for any workers who handle the items or shipping. Additionally, you don’t have a physical location, so you also save on rent, tax, insurance and utility bills. Ultimately, your ongoing store costs could be only a few hundred dollars on a monthly basis.
This also translates to low risk. If you run a traditional ecommerce store, you may buy lots of stock and then the store could never take off. Unfortunately, this is a reality that all ecommerce business owners need to be prepared for.
However, if a dropshipping store doesn’t work out, all your losses are the website setup costs. If you have a more traditional store, you have those costs, as well as thousands locked up in stock items that you now need to put up on sale.
Another major benefit of dropshipping is the freedom of location. Do you have a solid internet connection and a working laptop? Then the sky is the limit, as you can run your store anywhere from Philippines to the Antarctic, as your heart desires. For this reason, many digital nomads choose dropshipping as their primary source of income.
How many people do you need to run your dropshipping store? Almost no people at all, once it’s properly set up. If you carefully set up your store so that orders automatically go through to your supplier, your business is pretty much automated.
If you happen to achieve the level of success where you have hundreds to thousands of orders daily, you may have to do some dirty work or hire someone. However, this is very little manpower compared to the amount of work that gets done and the profit that you can make in the process.
Finally, there is scalability. You can grow as much as you want with a dropshipping store, because you don’t rely on standard commerce processes. As the demand increases, you can simply hire someone to order from the third party and take care of your daily tasks and you’re all set. In this way, you can grow from making hundreds to hundreds of thousands of dollars of profit monthly, all on the same platform.
Disadvantages of Dropshipping
Not all is fine and dandy with dropshipping as a business model. The first one actually stems from an advantage we previously mentioned – low cost of operating. Because the barrier to entry is low, there will be plenty of competition, no matter the niche you try to go for. As dropshipping is increasing in popularity, there are more and more stores popping up daily that function on this principle.
The second issue is that because everyone seems to be interested in dropshipping, they are lowering their margins. Since it only costs a few hundred dollars to set up a store, people are willing to run stores and earn pennies per sale, as it makes sense to them on a larger scale. While this is competition that you can easily beat with quality, it is unfair competition that may scare buyers away with low-end pricing.
How to Get Started – Find Your Niche
The key to a well-functioning dropshipping store is specialization. The most successful stores do only a handful of products, but they do them really well. Unfortunately, going too broad means that you’re casting a net that’s too wide. That means more competition and a harder time breaking through.
A niche is a specific subcategory of a market that you need to focus on. For example, instead of going broad with pet accessories, you can focus on chewable rubber toys for dogs. Or instead of selling socks, you can niche down on selling RGB socks with motives from the 80s. Whatever you choose, be prepared to change your niche at all times, as you may have to make this move.
Sometimes, there will be a new trend forcing you to sell new products. Other times, your best suppliers may stop working. Finally, you may identify a new niche which is much more profitable in the long run.
Unfortunately, there is a belief that every niche can be profitable and that you will be able to succeed no matter what you choose to pursue. In reality, you need to work hard on finding your niche way before you set up a store and start marketing your products.
First off, find out what you’re passionate about. It doesn’t matter if it’s novelty spoons or smart fitness accessories – as long as you love it, pursue it. Times can get tough and if you hate what you’re selling, you don’t have too many chances for success.
Furthermore, you will be more knowledgeable about the products you’re selling, which is always handy, especially if you know the right people to market to.
Second, figure out if what you want to sell is actually profitable. No amount of love for the product will pick you up if there is a big fat zero on your bank account statement at the end of each month. Do some research by comparing wholesale prices to those in major online stores and outlets such as eBay and Amazon. Figure out how much your margins will be once all costs are calculated.
Once you’ve settled on what you want to sell, it’s time to see what others are doing. Before setting up any sort of shop, it’s important to research your competition well. The risks may be smaller with dropshipping than regular ecommerce, but you should still devote your time in researching those in your niche, especially if they are doing dropshipping as well.
In the end, finding a niche may be the hardest part of setting up a dropshipping store. However, you can make it easier by applying a few tips:
– Sell items you’re already a consumer for
– Sell items you’ve already sold offline
– Find what works by doing and not contemplating
– Sell items in a niche where you’ve seen others win/fail
– Don’t give up too early in the process
Finding a Dropshipping Supplier
You know what you want to sell, you know the competition and that your store can be profitable, now it’s time to put it in action. At this stage, you need to find a dropship supplier, a third party that will deliver the items directly to buyers according to your orders and instructions.
Needless to say, it’s really important that you get this part right, otherwise you will be dealing with a whole lot of complaints and refunds as time goes by.
There are plenty of directories out there listing dropshipping suppliers for different type of items – you can also use Google. Once you’ve found a few companies you want to deal with, it’s time to ask some questions:
– How do they handle shipping?
– Do they have delivery tracking?
– How long does it take from order to shipping?
– Is there a warranty policy?
– How accurate are their product photos?
Choose a Platform to Sell On
If you’ve taken a bit of time to research the technical aspect of dropshipping, you’ll know that a standard website will not suffice. You’ll need to use a specialized ecommerce platform, with integrations for shopping carts, inventory tracking, promotions etc. The majority of websites use Shopify, which we strongly suggest as well.
It comes with lots of useful plugins and integrations and you can modify your website to your liking, as there are plenty of Shopify developers around for hire.
Once you have the technical aspect covered, you can choose a company to work with. Namely instead of chasing suppliers yourself, you can select a company that already does dropshipping on large scale and simply integrate their services directly to your store.
This comes at a price, as all dropshipping companies charge a monthly fee for their services. However, the pros far outweigh the cons. For example, Salehoo is one of the most popular dropshipping services out there. It offers more than 1.6 million products from more than 8,000 companies. You can simply select which items you want to sell and move them to your online store, and you’re good to go.
By the way, each of the 8,000 suppliers is verified, which means that you can do business with them knowing that they will deliver on time, every time.
There are plenty of other dropshipping platforms out there, such as Megagoods, Smart Living Company, Oberlo, Wholesale Central, Inventory Source and many others. It’s well worth your time to research the best option for your business before committing to a paid monthly or annual plan.
Do I Need to Have My Own Website to do Dropshipping?
The most common way of selling products through dropshipping is with independend websites. While this may be one of the pricier models, it offers much-desired freedom and scalability in running your store. The downside is that you have to pay for your own promotion in order to get traction with your buyers.
On the other hand, you can do dropshipping through major ecommerce websites such as eBay or Amazon. In fact, there are hundreds of thousands of articles sold there on daily basis through this business model. By selling on these websites, you are covered for promotion, as people will find your products using search.
On the other hand, your margins will go lower, as you have to calculate the platform fee into every sale that you make through eBay or Amazon. What’s more, you also have to compete with other businesses selling similar or identical products on these platforms.
Start a Dropshipping Store Today
Do you think you have a winning strategy to succeed as a dropshipper? Awesome, now all you need is a reliable partner to make your dreams come true. At ADSpirine, we’ll help you set up a profitable dropshipping store in no time. We can handle everything for your, including website design, integrations, content and marketing promotion.
With our Growth Hero package, you will have everything you need at your disposal to successfully set up and run a dropshipping business. Reach out to us today and get started with your dropshipping business!