What Is Dropshipping

by | December 8, 2018 | Business, Making Money, Marketing

What is Dropshipping?

It is a business model where you can run your own online store without actually holding inventory at all. If you make a sale, the supplier ships the product from their warehouse straight to the doorstep of your customer. You never have to worry about storage, packaging, or shipping products with this business model.

Why Start a Dropshipping Business?

It is a low-risk business model. In terms of product costs, you only pay for products sold to customers that pay. You are never burdened with the hassle and cost of product creation, carrying inventory, maintaining unsold inventory, and the cost of packaging and shipping products as well as employee costs.

It is a great way to start your own business and you can even do it part-time. However, it requires daily work if you have to process orders daily. Thankfully, most order processing steps are automated and require the simple click of a button.

How Does It Work?

The dropshipping business model involves 3 key players:

  1. The supplier/manufacturer.
  2. The retailer (you).
  3. The customer.

The role of the supplier/manufacturer is to create products, carry inventory, ship products to customers, replace defective products, and restock products. The manufacturer/supplier sells products to the retailer at retail rates essentially assuming the risk of unsold inventory.

The role of the retailer (you) is to sell products provided by the supplier/manufacturer on your web property under your own brand. It is up to you to select which products to sell and market them to. You are also responsible for managing customer complaints and inquiries.

The customer is the final key player in this model and he/she buys products from you the retailer directly. If the customer has any questions or issues arise, they contact the retailer that they bought the product from.

How To Get Started With Dropshipping

If you want to start making money online, dropshipping can be an excellent place to start. You will have the freedom to sell products to customers, set your prices, and even market your brand. There are no inventory costs with Dropshipping either. You can build a successful brand with this business model, but only if you are ready to put in the work. The following is a discussion about dropshipping and what it entails so that you can determine whether or not it is right for you.

How to Start a Dropshipping Business: 5 Important Steps to Follow

dropshipping planning 5 steps

Step 1: Find a Suitable Niche

The reality is that what you sell matters, so take time to find the best business ideas. A niche is a segment of a market and the more specific it is, the better. The first step to starting a successful dropshipping business is to find the right niche.

Unfortunately, finding the right niche is much harder than it sounds. The growth in popularity of this business model means that it is now harder than ever to find niches that are not saturated yet. Fortunately, new niches and produces emerge every week, which means that opportunities are seemingly endless.

People often assume that you can be profitable and successful in any niche with this business model. However, nothing could be further from the truth. If you choose a niche that’s already dominated by large brands or saturated with sellers, you will face an uphill battle when it comes to the new business.

If you want to find the right niche, here are a few guidelines:

Start with your passions and interests: Tap into your interests and hobbies. If you love hiking or traveling, you will have a unique perspective and knowledge of the trends and products in those markets to help you identify viable niches.

Solve a problem: If you have a particular problem in your life, chances are high that other people face similar problems. If you are able to identify a product that solves the problem, you might have uncovered a great niche.

Competition Research: If the niche you are considering is saturated, you need to determine whether or not the competition is easy to beat. You will find that, in most cases, the niche you are interested in joining is the one with a lot of competition. It does not automatically make it not worth getting into, but rather you should be ready for competition.

Ensure that it is profitable: You are obviously getting into business to make money. So, you must check the profitability of each niche and product idea you come up with. It is advisable to aim for a profit margin of not less than 40% after seller fees, shipping costs, and taxes. However, you should aim for margins of 100% if not higher.

How to Choose the Perfect Dropshipping Product

The ideal product should:
  1. Not being dominated by large brands: A great product should not be dominated by major brands so that you have higher chances of capturing a chunk of the market.
  2. Lightweight and small: As a rule of thumb, the product that you choose should be capable of fitting inside a shoebox and weigh less than 2 kilos to save you from having to pay extra for shipping.
  3. Non-seasonal: It is important to steer clear of products that are only in demand for one season of the year. If you choose seasonal products, you will seriously be limiting your selling power during the off-season. Only choose products that are in demand throughout the year.
  4. Priced between £10 ($15) and £150 ($200): This price range is the sweet spot when it comes to building an e-commerce store. If you choose products below that price range, you won’t have much of a profit margin and anything beyond that price range will be hard to sell in bulk.

Step 2: Find a Good Supplier/Manufacturer

The hardest part of starting a dropshipping business for most aspiring entrepreneurs is to find a good supplier. The supplier is your most important business partner since you rely on them to keep your product in stock, ensure that products are of the right quality, and make sure that orders are shipped without delay.

What to Find in a Dropshipping Supplier?

Actual Dropshipper: It is worth noting that not all product suppliers actually offer to dropship as a service. Some are manufacturers or wholesalers. You need to ensure that the supplier is actually a drop-shipper before you make contact.

Product Quality: It is always advisable to request product samples for the purposes of quality testing before you commit to a supplier. The supplier needs to at least have high-quality images for you to use in product listings.

Fast Shipping: Dropship suppliers are usually located in China, which means that overnight shipping is definitely out of the question. However, it is still important to ensure that your customers get the products they order as quickly as possible. Check the supplier’s shipping times to the countries that you supply.

Experience: It is important to choose suppliers with years of drop shipping experience. Suppliers take on a great deal of responsibility with this business model, so you should be sure that you can always count on them.

Referrals: A reputable supplier should readily connect you with businesses that can verify their service. Word-of-mouth referrals are ideal, but if these aren’t available you can use online customer reviews to help you make an informed decision.

Low Order Fees: Dropship suppliers typically charge a nominal fee for the services they provide, which is perfectly okay since they are holding onto the stock and doing the packaging and shipping for you. The fees should be quite low. If they are considerably high, you should find a different supplier.

Where Can You Find a Reliable Supplier

You can use one of two approaches if you want to find a good supplier. You can conduct a manual online search or use a wholesale directory:

Searching Online: You can just enter your preferred product plus “supplier” into your favorite search engine and see what comes up. You can also search for your preferred product on websites such as Aliexpress.com and Alibaba.com since many Chinese-based suppliers use these websites to sell their products.

Wholesale Directories: If you choose this option, you can save a lot of time and even avoid eCommerce fraud. The suppliers you find on the wholesale directories have been vetted and verified. You can get in touch with them in just a few clicks and be more confident in their ability to provide excellent service.

Step 3: Choose Your Selling Platform

Once you have decided on a product and lined up a supplier, the next step is to choose the right selling platform, but which one is most suitable for you and your business? You will have to choose between selling on an established platform and starting your own independent store online. Here are the benefits and drawbacks of using different online marketplaces and selling platforms.

Popular Online Marketplaces/Selling platforms

Dropshippers typically use well-established online marketplaces such as eBay and Amazon, particularly when starting out. The great thing about both of these e-commerce platforms is that you can easily set up an account and start selling, they attract a lot of traffic, they are trusted by consumers, and you can make significant money by using them.

However, while they offer a lot of benefits, you need to be aware of the drawbacks associated with using these platforms. You will be charged fees for each sale made, you have limited control on a lot of the aspects of marketing your product, you are in direct competition with other sellers on the same platform, and consumers have a wide variety of options in the same place.

Having said that, here are some of the most popular online marketplaces used by drop shipping businesses:

eBay: It is a platform with over 171 million active users globally with close to a billion products listed across 190 different markets. It charges listing fees as well as sale fees, which are usually below 10 percent. It also has an auction option and still operates as a regular online retail platform too.

Amazon: It is one of the most recognizable online marketplaces in the world today. It is estimated to have more than 300 million active users globally. It offers extra services such as Amazon Prime and Fulfilment by Amazon. Its fees vary widely, but it is estimated that sellers typically pay 15 percent of the sale price to the company. It is a very popular option among drop shippers.

Etsy: It is said to have about 32 million active buyers and 2 million active sellers. It is very popular with women. It has established itself as a trendier online marketplace focusing more on handmade goods, homeware, arts, and crafts.

Establishing Your Own Store Online

Dropshippers also take the route of establishing their own stores online. It might require a greater investment up front, but it is the ultimate long-term option when it comes to making money and building a business online. Fortunately, numerous tools such as SaleHoo Stores, WooCommerce, and Shopify that make it incredibly easy to get started are available online. Learn to set up a Shopify store here.

The Good
  • Higher profit margins and no fees.
  • It is all about building a business that’s independent of a third-party platform.
  • You can total control over all the aspects of marketing such as layout, design, branding, etc.
  • You don’t have to worry about competition from other sellers on the same platform.
The Bad
  • It will take time to rank in the search engines and have to invest in marketing and SEO.
  • You will miss out on guaranteed traffic available on established platforms.
  • Setting up and designing your own store costs money.

Starting your own store is the best option if you have the resources to invest in your dropshipping business and plan to do it long term, especially with competition growing exponentially each year on the established platforms.

Step 4: Marketing Your Business

At this point, you have found your niche/product, found a reliable supplier, and chosen a selling platform, now it is time to market your business. Marketing is another critical step in your business plan. You should never be afraid to put yourself out there.

When it comes to marketing your business, you have the option of choosing a paid platform or a free one. Each option has its benefits and drawbacks. For instance, the paid option is much faster to get started with but obviously costs money while the free options take much longer to produce results but don’t cost you anything. The best option is to use both options.

marketing your business

Facebook Ads

Facebook is the largest social media platform in the world. It is an excellent place for marketing your products because you get access to a massive audience. It is how the platform generates its money, so each customer acquired through the platform will come at a cost. Facebook Ads is an excellent option due to the following reasons:

  • They can produce results quickly
  • It’s possible to target very specific demographics
  • It’s very easy to get started
  • Your boosted post or ad can go viral
  • It helps increase brand awareness for your business
  • You control the amount of money that you spend each day

Related Article: How to set up Facebook ads

Influencer Marketing

Influencer marketing has been playing an increasingly prominent role in customer acquisition for retail brands especially in recent years and this trend is likely to continue in the near future. If you are in a trendy niche, it can be an incredibly effective option.

The cost of influencer marketing will depend on how famous the influencer is. A post from a popular celebrity with tens of millions of followers might cost several hundred thousand pounds/dollars while a post from a model with just 20,000 followers might cost just several hundred pounds/dollars.

If you are unable to afford influencer rates especially when starting out, you can use affiliate commissions instead. It is a great approach for you since it will be up to the influencer to convert the sale, which means a lower risk for your business. It is also great for the influencer since he/she could potentially make more money as an affiliate than if you were to pay them a flat rate.

Related Article: What is influencer marketing?

Retargeting Ads

If you are working on a very tight budget, it can be a good idea to use retargeting ads since they help keep the costs low. It works great if your store receives a lot of traffic. Perhaps you are marketing on Pinterest for free and getting a great deal of traffic from there. Perhaps you posted on your blog featured influencers, and the influencers are sharing your blog for free.

If you use retargeting ads, you will be making the most of all that free traffic and it is more likely to convert into paying customers. The great thing about retargeting, which sets it apart from Facebook Ads is that it costs much less and produces great results.

Related Article: What are retargeting ads?

Free Marketing

Content Marketing

Content marketing typically takes the form of a blog on your website, witty Twitter posts, trendy Instagram posts, or a YouTube channel. It is aimed at involving the creation of valuable content to help you build an audience that can be converted into buying customers. It isn’t as explicit as advertising and should always focus more on serving the audience rather than the brand.

Related Article: What is content marketing?

Forum or Blog Marketing

It involves finding forums or blogs related to your niche/product and actively participating in discussions. If you position yourself as an authority in your niche and include a link to your website, it is possible to increase traffic and acquire new customers.

Related Article: How to start and monetize a blog?

Email Marketing

Building an email list still stands as one of the most effective customer acquisition methods. You need a way to capture email addresses, such as a competition or offer that requires an email address or a request to sign up at checkout. Once you have a decent list of email addresses, you have a way to regularly reach a large group of people for free.

Related Article: What is email marketing?

Social Media Marketing

Achieving organic reach is getting increasingly harder, but it is still possible. If you are able to create and share great content on your social media consistently, you will eventually build a following that you can subsequently convert into customers.

Related article: What is social media marketing?

Step 5: Monitoring and Adjusting

Now that the drop shipping business is up and running and your store has started building a steady flow of traffic, your work is still not done. It is still important to constantly monitor how your business is performing. It is important to familiarise yourself with Google Analytics and closely monitor your numbers. Analyze what works great and what doesn’t.

You need to ask yourself several questions, such as:

Where are most customers coming from? For instance, if Instagram is your best source of traffic, increase promotional activities there.

Which products are selling particularly well? Promote those even harder.

Are customers returning certain products more often than others? If this is the case, there could be a misleading description on the product page or quality issues with the product.

You might be fortunate enough to have a store that’s successful right away. However, chances are high that you will need to do a lot of experimentation with products, marketing strategies, and suppliers before you start generating regular income. It is completely normal. You should hang in there without ever giving up. The moment you find an approach that works for you, it will be definitely worth it.

Final Thoughts

If you have been following through, you now have a basic idea of how to get started with a dropshipping business. By applying the advice provided here, you will work towards building your own online empire. If you have any questions, you can find numerous resources online to help you out. Finally, never forget that the best way to learn how to start your drop shipping business is to actually take the first step towards building it.

If Dropshipping isn’t for you don’t worry, because there are other 39+ ways to make money from home. We also have a blog post on the top 10 Dropshipping companies you should definitely check out!

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