The E-Commerce mode of selling is a huge enabler of business opportunities for sellers worldwide. They get to tap a comparatively larger number of customers and don’t have to worry about meeting the expenditure of maintaining an extensive inventory or a display store. If you were looking to launch your own online store and monetize this e-commerce trend for your own good, we have news for you. You must definitely check out the Dropshipping business method of online retail that we will be talking about in this guide.
As per a 2017 report, Global retail e-commerce sales will reach $4.5 trillion by 2021. The fact reflects upon the profit model entailed in the entire E-Commerce setup. With people making their way to online portals for all kinds of shopping, the sky is no more the limit. An extension to the traditional format of retail and eCommerce selling, the Dropshipping business model of online selling has caught quite the fancy of online sellers.
The Dropshipping method of business is quite popular because of its non-obligation of maintaining a warehouse or physically stocking the products. The entire setup of Dropshipping model is such that it eliminates the factor of risk for the dropshipper such as the loss of inventory, inventory maintenance overhead, or similar issues.
If you are new to the concept of Dropshipping business, we will gradually be exploring it for you in this blog post as you read through.
What is Dropshipping?
Simply put up, Dropshipping is a kind of e-commerce retail method of online selling wherein the sellers don’t directly handle the products or maintain an inventory of the products they are dealing in. They don’t stock the goods that they are selling to their customers.
Dropshippers list themselves on e-commerce platforms for selling goods that they purchase from a third party and have it shipped directly to the customers.
The entire Dropshipping arrangement obviously requires several pre-checks and clear terms on the sales percentage with the several third-parties involved.
The Dropshipping Chain
The entire process of order fulfillment under the Dropshipping business model of online selling involves three kinds on individuals i.e. the Manufacturers, the Wholesalers, and the Retailers who play their roles in the procurement of supplies and the shipping of the ordered products.
As and when a customer places the order for a product on the seller’s website or product listing, the order is further moved to a third-party for fulfillment i.e. packing and shipping. If you are wondering about the profit margin of the dropshipper, it will be the difference in the amount received by the buyer of the product and the amount paid to the supplier who ships the product to the same buyer.
What you must know is that any of these individuals can be the Dropshipper of the product you just bought online on an e-commerce website. Now, let’s have a look at how things really function for these individuals involved in the entire Dropshipping chain.
- A Buyer (A) places an order with an online platform.
- The order is approved by the store confirming the stock availability.
- With this, the buyer makes the payment and the same is transferred to the seller’s account via the payment gateway.
- A confirmation email containing details of the order goes out to the buyer as well as the online store seller (B).
- The online store(B) seller then conveys the order to the Dropship supplier (C) that he/she has an arrangement with. He might choose to either simply forward the confirmation email or resort to other methods of forwarding the order to the Dropship supplier (C).
- The Dropship supplier (C) then comes into action. After confirming the stock availability, they will then pack the order and send it to the customer/buyer (A) on the address mentioned in the email forwarded by the online seller (B).
- Placing the online seller’s (B) name and address on the package, the order is shipped to the customer. The supplier (C) will then hand over the invoice and a tracking number to the online store seller (B).
- Via the Dropshipping software and the email setup in place, the online store seller (B) will share this tracking number with the buyer to let them track the shipment.
- With this, the entire Dropship Chain for that certain product and the customer comes to its completion.
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The Dropshipping business model lets you make money with least of the hassles, if not entirely since there is a certain risk factor involved with all kinds of business models. So, if you had always wanted to start earning through online selling and are now wondering if you should really move ahead with the Dropshipping fulfillment method, here are the reasons.
Benefits of getting started with the Dropshipping model
1. No obligation of maintaining an inventory/stock: This is the biggest advantage that an E-commerce seller could have. There’s no denying the fact that maintaining a warehouse for stocking the inventory can be quite an investment that would demand constant maintenance.
With Dropshipping, you can bid adieu to your fears that you might have regarding the upkeep and maintenance of a warehousing facility. On the other hand, Packing and shipping the orders need resources such as sturdy packing material and manpower that will handle the entire packing and shipment procedure.
The Overhead expenses involved in it can consume a larger quarter of your profit margin instantly; especially, if you have just started out.
2. No warehousing risks involved: If you are a Dropshipper and you are not handling inventory or maintaining a warehouse, you are running no risks that are involved with warehousing. Talking of the risks, you will not have to stress about any damage occurring due to events of nature or other unfortunate ones.
A fall in the demand of products or in an event when your products might turn obsolete, risks can kill your business aspirations. But, with Dropshipping, there is the least number of risks involved.
3. Low on the initial investment: Dropshipping really does have a plethora of benefits. Since your online business is not going to need a physical warehouse or an office, you will be able to cut a huge cost off the initial investment. Low overhead costs will mean that you don’t have to spend a fortune setting up your new online business.
4. No Location constraints: Dropshipping business doesn’t need you to have a physical address for your business or run a store/office for the credibility purpose. You can keep running your business from a single location or feel free to do so while you are on the move.
5. Scope for focus on growing your business: When you don’t have to deal with issues mentioned in the above benefits, you will be able to scale your dropshipping business by either exploring new product categories and focus on marketing your business and amassing new leads.
Challenges involved with Dropshipping
Obviously, just like everything, there are certain challenges you might have to face as a new Dropshipper.
1.High competition: Tagging along with the merit of low initial investment, the Dropshipping business can be a challenging pursuit for some beginners due to the high competition involved. Since a lot of people can manage to run an online business when the initial investment is very low, the competition will tend to grow tough.
2. No control over what happens over the supplier’s end: Since the Dropshipper is not handling or inspecting the shipped products directly, the chances of errors occurring at the supplier’s end increase manifolds. Any other shortcomings or damages can be easily overlooked which will affect the customer’s experience with the seller.
3. Not a large margin to profit: People shop online for a reason – Low pricing. But with the huge competition, the online seller’s profit margin is drastically reduced. For some dropshippers, sustaining a business on relatively lower profit margins can get quite difficult.
4. Complexity for beginners: If you are entirely new to Dropshipping, you will definitely need some time to grasp the nuances of it. Beginning from the payment gateways to making clear terms with the chosen dropship suppliers, there’s a lot of stuff that needs to be carefully researched and studied so that when you finally launch your online business, you don’t have to face any complexities.
Getting started with the Dropshipping business
If, by this point in the blog post, you are wondering about the arrangement that you need to make before actually kick-starting your own Dropshipping business and making the first sale, the definitive guide below will be a useful resource for you.
1. Selecting a profitable product niche that you are passionate about
Before you invest in any of the Dropshipping efforts or even think of starting one, you must figure out the niche of the product(s) you would be dealing in. Figuring this out is really crucial as the success of your online business will largely depend on it. The niche of your choice must offer profit so that it can keep you running.
Selling stuff that everybody else is selling due to a sheer trend will not sustain your Dropshipping business in the long-term. You should always choose to deal in products that are needed by customers around the year and their sale instances are high as well such as makeup, jewelry, clothing, electronics etc.
However, never underestimate the passion that you might have for products for a certain industry. It is always more fun to earn a living with something you are passionate about.
If you are looking for definitive criteria about what kind of products should you choose to deal in, here it is.
- Products that appeal to the upper-middle-class individuals because they are always looking to equip their household or work with new supplies and they can afford to do that, at a reasonable price.
- Products that are extremely popular or trending and people are looking to procure them. You will be able to beat the competition in this category only if you offer highly competitive pricing for your shipment.
- If you are not able to figure out the kind of product that you want to sell, you can simply begin with one that offers a decent margin i.e. an expensive product that can be procured for a substantial price difference from a dropship supplier and then can be sold to the customers at a generous price.
- Products from new promising brands that have found their way into the market but are not very popular. Your online business can cash into this marketing gap and make a good amount of money selling products from new brands that promise quality.
- Non-availability of certain product types is the biggest driver for their sales. Your Dropshipping business can tap this segment of product and sell them at great prices when customers can’t find them in offline stores or other online portals.
2. Figuring out the challenges associated with the niche/products
Well, there will be certain challenges to be faced while you are figuring out your product/niche. It can get a bit overwhelming when you are trying to figure out the average profit margin of a product over a certain period of time. This can be challenging because the online shopping trends demand discounts for customers which further reduce the profit margin of the online sellers and the dropship suppliers.
The research will be a savior as well as a challenging factor while finalizing a niche/product type for your Dropshipping business. You will be required to put in a lot of research in order to find the right target audience that you want to deal with. Considering their purchasing power, you can then choose to go with products that work for them
Some other challenges associated with these products is that of their size, weight, geographical constraints, and other ethical considerations.
3. Carefully analyzing your competitors’ call-to-action
You probably got inspired to start a Dropshipping business after seeing many other online sellers successfully dropshipping their way to higher sales and larger profit margins. Now that you have the key; you can carefully study their course of advertising, marketing, and growing their online business.
4. Selecting the right Dropship supplier
Probably, the most important part of your Dropshipping pursuit; you can not afford to go wrong with the choice of your Dropship supplier(s) because once the order escalates from your end towards their, the entire stock quality, packaging, and shipping are at their discretion.
Before you hop on, always keep in mind:
- The cheapest Dropship supplier isn’t always the best deal.
- If you are planning to trade in branded products, ensure that the chosen Dropship supplier is indeed sending out original and branded shipment. If you don’t, you will lose your customers faster than you make the new ones.
- Don’t fall for suppliers who demand a payment for a period of time in a manner similar to a subscription.
- Do not go for wholesalers who are also catering to the public for the same goods. It will affect your profit margins.
- Always assess the sales representatives of the particular supplier that you want to get started with. The professional the representatives, the legitimate the supplier.
Hence, making the right choice will save you from many possible hassles, which might be a case with irresponsible or inexperienced suppliers.
Best Dropship supplier Directories:
- Worldwide Brands
- Sunrise Wholesale
- Wholesale Central
- National Dropshippers
- Dropship Direct
- Inventory Source
However, if you are planning to restrict your Dropshipping business within a certain geographical location, you can look for local yet reliable Dropship suppliers by simple googling them.
5. Finalizing business terms with the Dropship Supplier
Once you have finalized the Dropship supplier for your online business, you will need to be clear on the certain terms. This is crucial so that no errors or issues might creep in once the parties get started.
1. Duration of the shipment: It is crucial for a Dropshipping business to be aware of the time taken by the Dropship supplier to ship a certain product for a respective distance. You can also figure out quicker deliveries such as the ‘Next day’ delivery if the Dropship supplier is capable of fulfilling it. In case the supplier fails to meet the requirements and the said terms for the promised shipment duration, you should be able to figure out a solution at the earliest.
2. Available shipping methods: Since you won’t get to handle the inventory or decide the mode of shipment via courier services, you need to know about them in the earliest stages. Terms such as what happens if the shipment is damaged in transit or if there’s a case of theft or loss at the shipment company’s end. If not, any future shipment mishaps will affect your seller reputation or even cause your business to crumble.
3. Warranties, Returns, and Replacements: Your Dropship supplier is the inventory holder and the manager. When you decide to procure a certain product from them, you should stay very transparent over all the definite policies. Issues such as the warranty of the product, instances that could void the warranty, terms related to returning of the products, and each and everything related to replacement policies of the order.
4. Dealing with defective items: Defective items are often shipped to the customers or they get damaged in transit; such events calling for product replacement or refund. You must know how the supplier has planned to deal with such scenarios, in case they happen.
5. Display details: Selling products online comes easy when you have the right product images for display on your online portal. Since buyers determine their purchase with the help of these images, you cannot resort to being crafty in their display. You should discuss this with the supplier well in advance and maybe physically examine the stock once in a while (if your finances and time schedule let you) to ensure that you and your buyers are not being scammed.
6. Available Customer support: A really important part of the entire e-commerce setup is that you must ensure customer satisfaction at all times. Setting up a customer support option for your online customers will save you and your buyers from a lot of issues. After an order has been placed and the customer has an issue with it, he/she will have a point of contact to seek redressal. You can discuss it with the supplier if it would be them or you who is going to handle the customer support.
6. Getting your Retail/Vendor License or the Tax ID
Now that both the parties have agreed to all the terms and conditions placed by each of them, it’s time to get the business legally started. For running a Dropshipping business, you will have to procure a Retail/Vendor License or the Tax ID or the Employer Identification Number (EIN) Online.
Depending on your location, this License will enable legal proceedings and let your business apply for wholesale Dropshipping accounts. If you would have any questions for obtaining the License from your location, you can check out the Shopify guide for Business License.
7. Selecting your online outlet/selling platform
As and when you and your Dropshipping business is ready to take orders, the last step would be to choose a selling platform for your business. Depending on the requirement, the kind of the target customers, and the ease of operations, you can either set up your own online store using WooCommerce, Shopify, etc. (or using any other platform) or get your products listed with vendors such as Amazon and eBay. If you choose to set up your own online selling website using WordPress, Dropshipping with the WooCommerce plugin can help you manage your E-retail online store or website well.
8. Kickstarting your store’s promotion
You can opt for paid promotion and other sponsored social media announcements for your online selling store. If you have a good grasp of the industry and you had put out money for promotion investment, you can get in touch with influencers to get them talking about your store on their social media channels.
An Email list has always been a marketer’s favorite when it comes to promotion. Similarly, you can send out marketing emails to the targeted audience and wait for them to drop by your online store.
The Referral system is yet another great way of launching an online store wherein you can offer discounts or gifts to people coming in through a reference. Making a chain of references is quite a trendy mode of promoting new products/services these days.
At this point in your Dropshipping journey, you are now expected to promote your online store through all kinds of available channels to increase customer engagement on your online business website.
Major Dropshipping mistakes to avoid
Before we wrap up this guide, you must definitely make a note of the most common Dropshipping mistakes that can affect your business in its entirety.
- Not working on the SEO of your online store
- Moving ahead with a single supplier only
- No focus on the customer experience i.e. seamless returns, replacements, and refunds
- Selling trademark protected items
- Trying to sell a large range of products
- Not offering free shipping even after the business has grown
As a Dropshipping business, you must avoid these mistakes at all cost as these can kill your Dropshipping career in a jiffy.
Dropshipping is probably a profitable way of selling products online, if not entirely. There are certain risks and challenges involved in this chain, but the many benefits discussed above should be helpful for you if you have always wanted to make the transition to a Dropshipping business.
Through this Dropshipping guide about starting your own online business, we have managed to capture quite a lot of information that would be needed by you for the launch. Yet, a lot of it remains. If you would still be interested in the A-Z of Dropshipping, keep checking out this space for more.