You might have heard of the term dropship before, but what exactly is a dropshipping business?
In this article, you will learn what is a dropship business, how does it work, and the prerequisites to starting your own.
Table of Contents
Sell Products Online Without Inventory
Dropshipping is a type of online eCommerce business where the store owner to sell a product without buying any product in advance.
We all know of this common business chain – Manufacturer > Wholesaler > Retailer > Consumer. With a dropship business, the retailer does not keep goods in but transfers the customer’s orders and shipment details to the manufacturer or wholesaler (a.k.a the dropship supplier) who now ships the goods directly to the consumer. The retailer sells the product at retail price but pays the suppleier at wholesale price.
Now, let’s take a look at the traditional eCommerce model so you can get a better idea of how a dropshipping business differentiates itself from traditional eCommerce business.
Traditional eCommerce Business
- With a traditional eCommerce business, you buy the products in advance from your supplier, usually in bulk, for a discounted price
- You then store the products in your warehouse/home, list the products on your online store, and start selling
- When your customer buys the product from your online store, you then package the product, go to your nearest post office, and ship it to your customer’s address
What Is Dropship Business
- With dropshipping, you list the products you want to sell in your online store
- When your customer buys the product from your online store, you then forward the order with your customer’s name and address to your dropship supplier
- Your dropship supplier will then pack and send the product directly to the customer
How Does Dropship Work
- Your customer purchases a product from your dropship store
- You forward the order and the customer’s shipping information to your dropship supplier
- Your dropship supplier will package and ship the product to the customer under your dropship store’s name and brand
With dropshipping, the seller can earn a significant profit without doing much of the heavy lifting.
Why start a Dropship Business?
Here are a few key stats that should help answer this question:
- eCommerce business is forecasted to reach USD 7,724.8 billion by the year 2025 according to Grand View Research, Inc. As a dropshipping store owner, you are part of this thriving market!
- According to Statista, there will be over 2.14 billion digital buyers purchasing from an online store in 2021. That’s a lot of demand for online purchases. So supply and demand will stay balanced
What are the Pros and Cons of Dropshipping?
Why Dropshipping Works
Here are some of the perks you can get if you’re looking to start your own dropshipping business:
- Low Startup Capital – You don’t need to buy any product in advance. You only pay the dropship supplier after the customer pays you
- Wide Selection of Products – There will be a dropship supplier for almost every product out there (large and small)
- Highly Scalable – Since a large portion of the work is being handled by the dropship supplier, your business can scale up without much extra effort on your part
- Lower Risk – Even if the business does not work out, you won’t get stuck with a lot of inventory that can’t sell (since you didn’t purchase any product in advance)
- Sell Anywhere – You can practically sell any product from anywhere in the world as long as your dropship supplier can ship to that location
Why Dropshipping is Bad
Since nothing is perfect in this world, there are always cons to everything. Here are some of the challenges that dropshipping faces:
- Overcrowded Market – There are many dropship sellers like you due to the low barrier to entry. So you need to find a product niche with low competition
- Lower Margin – If your product niche is competitive, you might need to lower your price to compete. This will, of course, affect your profits
- Not Easy to Find Good Dropship Supplier – There are many dropship suppliers out there. However, it’s not always easy to find one that is both good and reliable
- Lack of Control Over Availability & Quality – Your brand may be affected if you offer products that are low quality or out of stock during the order
- Requires Basic Retail Skills – Skills to manage your store, list products, process payments, marketing, etc. are required to do this job effectively. However, you can use some tools to simplify these, especially if you have no prior knowledge
- Supplier Management – The more dropship suppliers you work with, the more work it takes to manage them all (check for stock availability, pricing, etc.)
- Fees – You’ll be charged fees for every sale when you sell on those established platforms like Amazon, eBay, Shopify, etc.
Start a Dropship Business
- You need to create a dropshipping environment for yourself by selling the products you’re interested in and have a firm knowledge of. For instance, if fashion is your passion, go into clothing and shoe sales.
- Ensure you have adequate knowledge of the niche you’ve chosen to dive into. Is it oversaturated? If it is, then try to make your environment unique. There’s always competition, so have an edge over rivals by being knowledgeable about your product.
- Make sure your dropshipping product isn’t over 2kg in weight and avoid selling seasonal products. Take the clothing business, for example; it’s non-seasonal and everyone wants a new outfit all the time.
- Your products should be between $15 – $200. Anything less and you’re risking your profit. If it costs anything more, well, that’s going to be a tough sell for starters. Remember, you’re just starting out.
Prerequisites to Start a Dropship Business
- Know your niche or area you want to dive into. Is it clothing? Footwear? Gadgets?
- Get experienced and legit dropshipping suppliers. If you are planning to start your own dropship business in Europe, you can check out this European Dropshipping Supplier.
- Get a sales tax ID (also known as retail or reseller’s license, tax ID, resale number, resale certificate, or a vendor’s license). This is optional and depends on what country you’re in.
- Choose an online selling platform – You can build your own online store and dropship with Shopify or WooCommerce. On the other hand, you can save yourself the stress and time and get a professional to build your dropship business for you.
- Get a dropship plugin (i.e. AliDropship) to help automate the tedious daily tasks so you can focus on making sales rather than the menial tasks that follow.
- You have to attract customers to your store either by ads (Facebook Ads, Google Ads, or social media influencer marketing), content marketing, or email marketing. There are many ways to get customers attracted to your dropshipping business. Check out this “7 Methods to Drive Traffic to Your Website”.
Is Dropshipping Worth It?
Dropship business is a low-risk business model because you as the drop shipper don’t have to store bulk stock that may end up not being sold, which may put a damper on your wallet. It requires little investment but yields similar or even more gains when compared to traditional eCommerce.
There is so much you can bypass with dropshipping. Think of all the costs you don’t have to worry about. The burden of employee cost, product cost, maintaining unsold inventory, etc.
Dropship business is considered a way of making passive income since you can set it up and just let it run automatically. Most passive income out there requires initial effort before you can see the money start coming in. However, with the current boom of global eCommerce business, this is definitely something with a lot of potentials. Here are some of the key stats you can read to help you better understand the potential of dropshipping.
So, do you think you have what it takes to start a dropshipping venture yourself? Learn more about what a dropshipping business can do for you or contact us to get yourself a ready-made dropship business.