What is dropshipping business?
You might have heard of the term dropshipping before but exactly What Is Dropshipping Business? Let me break it down. Dropshipping is a type of online e-commerce business where you as the store owner sell a product without buying the product in advance.
We all know of this business chain – The Manufacturer to Wholesaler to Retailer to Consumer. Now here, the retailer does not keep goods in but transfers the customer’s orders and shipment details to the manufacturer or wholesaler who now ships the good directly to the consumer. The retailer sells at retail price but pays the manufacturer or wholesaler at wholesale price.
Now, let’s take a look at the traditional e-commerce so you can have a better idea of how a dropshipping business differentiate itself from traditional e-commerce.
- With traditional e-commerce, 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 in your online store and start selling
- When your customer buy the product from your online store, you then pack the product, go to your nearest post office and send it to your customer’s address
- With dropshipping, you list the products you want to sell in your online store
- When your customer buy 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 to your customer directly
Here’s how dropshipping business works
- Your customer buys a product from your dropship store
- You forward the order and the customer’s details to your dropship supplier
- Your dropship supplier will pack and ship the product to the customer but under your dropship store’s name and brand
So with dropshipping, the seller can earn a profit (sometimes up to a few hundred percents) without doing much of the heavy works involved (packing and shipping of the product).
What are the benefits of dropshipping?
- Low Startup Capital: You don’t need to buy any product in advance. Only pay the dropship supplier after the customer pays you
- Wide Selection of Products: There will be a dropship supplier for almost any products (large and small)
- Highly Scalable: Since most of the works are handled by the dropship supplier, your business can scale up without much extra work and effort
- Lower Risk: Even if the business does not work out, you won’t get stuck with a lot of product that can’t sell (since you did not purchase any product in advance)
- Sell Anywhere: You can practically sell any products anywhere in the world as long as your dropship supplier can ship to that location
Challenges involved in dropshipping
- Overcrowded Market: There are many dropship sellers like you due to the low entry-barrier. 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 affect your profit margin
- Not Easy to Find Good Dropship Supplier: There are many dropship supplier out there. However, it is not always easy to find one that is 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 payment, marketing, etc. However, you can use some tools to simplified these especially if you have no prior knowledge
- Supplier Management: The more dropship suppliers you work with, the more work to manage them all (check for stock availability, price update, etc)
- Fees: You’ll be charged fees for every sale when you sell on those established platform like Amazon, eBay, Shopify, etc
On starting a dropshipping business
- You need to create a Dropshipping environment for yourself by selling products you’re interested in and well abreast of. For instance, if fashion is your passion, go into sales of clothing and shoes.
- Ensure you have knowledge of the niche you’ve chosen to dive into. Is it over saturated? Then try to make your environment unique. There’s always competition, so have an edge over rivals by knowing your onions.
- Make sure your Dropshipping product isn’t more than 2kg and avoid selling seasonal products. Take the clothing business; for example, it is non-seasonal, everyone wants a new outfit all the time.
- Your products should be between $15 – $200. Anything less and you’re risking your profit. Anything more and well, that’s going to be tough selling for starters. Remember you’re just beginning.
Main steps to starting a dropshipping business
- Know the area you want to dive into. Is it clothing? Footwear? Gadgets?
- Get an experienced and legit dropshipping supplier. If you are planning to start your own dropship business in Europe, you can check out this Europe Dropshipping Supplier.
- Get a Sales Tax ID (also known as Retail or Reseller’s license, tax ID, resale number, Resale certificate or Vendor’s license). This is optional and depends on the country you’re from.
- Choose an online selling platform (you can build your own online store or save yourself the stress and time and get some professional to build one for you)
Tip: Many drop shippers use an established online marketplace, e.g. Amazon, eBay, Etsy, etc because they already attract potential customers.
- 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 the 7 Methods to Drive Traffic to Your Website.
Is dropshipping worth it?
Dropshipping business is a low-risk business model because you as the drop shipper doesn’t have to store bulk stock that may end up not being sold, which may diminish your pocket. It requires little investment but yields similar or even more gains when compared to traditional e-commerce.
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.
Dropshipping business is considered a way of making passive income since you can set it up and just let it run. Most passive income out there requires initial effort before you can see money coming in. However, with the current boom of e-commerce globally, this is definitely something with a lot of potentials. Read here on some of the key stats to help you understand the potentials.
Now that you’ve learned what is dropshipping business, are you interested to start one yourself? Learn more about what dropshipping business can do for you or contact us to get yourself a ready-made dropshipping business.