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Definitive Guide to Dropshipping
This is a definitive guide to dropshipping. You’ll learn what dropshipping is, how it works, and the pros and cons of being a dropshipping retailer.
This is a definitive guide to dropshipping.
In this new guide you’ll learn:
- What Is Dropshipping?
- How Does Dropshipping Work?
- Advantages of Becoming a Dropshipping Business
- Challenges of Being a Dropshipping Wholesaler
- How Much Money Do You Need to Invest to Start Dropshipping?
- How Does Dropshipping Make You Money?
- Is It Worth It Get Into Dropshipping?
Let’s jump right in.
If you’re just starting out in e-commerce, dropshipping is a GREAT delivery business idea.
In fact, the dropshipping industry is expected to reach $557.9 billion before 2025, with a CAGR of 28.8%.
So with minimal starting capital and some equity, you can start with dropshipping.
There’s only one problem:
Before you get into it, you need to know what dropshipping is.
So in this part of the article, we cover the basics to give you a better understanding of how it works:
What Is Dropshipping?
Dropshipping is a type of fulfillment method where retailers don’t keep inventory of the products they sell.
Rather, the online merchant purchases goods from third-party vendors and then delivers them directly to the customer.
As a result, the vendor is relieved of direct product handling.
How Does Dropshipping Work?
The biggest difference between dropshipping and typical retail is that the B2C seller doesn’t own or keep any inventory.
Instead, the seller executes orders by purchasing items from a wholesaler or a manufacturer.
Dropshipping retailers rely on wholesalers or manufacturers (dropshipping suppliers) to produce, store, and transport products on their behalf.
In theory, the drop shipper acts as a middleman between wholesalers and customers.
The procedure is straightforward:
You get an order and transmit it to your supplier, who then oversees the fulfillment process, until the order reaches the consumer.
The Advantages of Becoming a Dropshipping Business
Dropshipping allows entrepreneurs to enter the e-commerce market in a relatively simple manner.
To enter the market, you don’t need a business degree or a large amount of money.
Dropshipping allows you to rapidly test several business ideas with little risk.
This enables you to learn a lot about how to select and promote in-demand dropshipping products.
But that’s not all.
Here are seven other benefits of dropshipping you should be aware of:
#1 Easy to Set Up
To get started with dropshipping, you don’t need any prior business experience.
You can start a business quickly and learn the rest as you go along.
And with dropshipping, you don’t physically have to store the products you sell.
So unlike other e-commerce business models, you only have to spend money on setting up your online store and marketing.
Your supplier covers all of the costs associated with manufacturing, transportation, delivery logistics, and e-commerce fulfilment.
This demands significantly less upfront investment, as you buy only what you sell.
Due to a large online client base and the lack of costs associated with storing products in a warehouse or store, retailers report a 50% cost reduction when they get into dropshipping.
Retailers can also start selling things faster because they don’t have to buy inventory initially.
You also won’t have to deal with inventory or shipping. Once you’re up and going, it’s amazingly hands-off.
As a result of all of this, you may get started on your business right away.
In fact, everything could be up and operating in a couple of hours.
#2 No Shipping
One of the most appealing aspects of dropshipping is that you don’t have to worry about storing or delivering the goods yourself.
You can run a retail store without ever touching the merchandise.
When a customer purchases a product from you, a third or fourth-party logistics (4PL) provider can handle all the orders.
You don’t need to rent a warehouse, pick and pack or ship the products, deal with returns, or manage inventory with dropshipping.
But you still need to evaluate the quality of the products you sell.
So you should order product samples to maintain quality control over your dropshipping business.
#3 It Doesn’t Require Big Investments
The biggest advantage of dropshipping is that it allows you to start an online business without having to invest thousands of dollars in inventory upfront.
Typically, retailers have had to lock up large sums of money in order to purchase inventory.
With the dropshipping model you don’t have to buy a product unless you’ve already received payment for it.
That means you only spend money on setting up the web store and selecting products for retail.
And launching a dropshipping store or testing a new product line entails less risk.
That’s because, in most cases, you’re not obligated to sell through any goods you buy upfront. (Unlike a traditional retail business)
#4 Easy to Scale
As you grow, your business doesn’t have to change all that much.
As you use tactics to grow your operations, you’ll have to put in more effort in sales and marketing.
But your day-to-day operations remain mostly the same. (Aside from the fact that you’ll be processing more orders.)
One of the advantages of dropshipping is that when your business grows, your infrastructure expenditures DON’T rise.
As a result, you’ll have more resources to devote to your company’s marketing efforts.
The more you concentrate on building brand awareness, marketing products, and providing excellent customer service, the better you’ll do.
#5 It’s Flexible
You have the opportunity to be your own master and make your own rules.
Without a question, it is one of the most versatile professions available.
Working from home involves little more than a laptop and the flexibility to work whenever you choose.
This is ideal for entrepreneurs who want their businesses to work for them.
You can set your own pace.
Dropshipping is incredibly adaptable since it lets you make the best decisions for yourself.
You can add new products to your store at any time and adjust your marketing techniques on the fly.
You can automate everything to create passive money while you’re away if you’re going on vacation.
#6 Easy to Test
Dropshipping is an effective e-commerce fulfillment technique.
Both when launching a new store and testing the demand of customers for new product categories, such as accessories or entirely new product lines.
The key advantage of dropshipping services is the ability to list and potentially sell products before making a large investment in inventory.
#7 Sell Anywhere
You can manage a fully-fledged business from your laptop without having to make any high-level investments.
The most expensive part of your budget will be advertising, which you can increase as your store grows in popularity.
Your running costs will stay low as your firm grows, especially when compared to traditional business expenses.
When it comes to e-commerce, your location is irrelevant.
You can sell your products anywhere in the world as a dropshipper as long as you’re able to build trust with customers through delivery (and keep fees reasonable).
The Challenges of Being a Dropshipping Wholesaler
Despite all of the benefits of dropshipping, it still isn’t an easy gig.
And there are several downsides to dropshipping that are simply unavoidable.
#1 Slim Margins
One of the initial disadvantages of dropshipping is that you’ll have low margins at first.
That isn’t to say the business won’t be profitable. But some items have poor product margins, regardless of how much you sell them.
This is particularly true if you’re dropshipping in a market with a lot of competition.
It’s difficult to make the kind of earnings you want when you’re competing for clients’ attention.
However, if you find the correct niche and target the right audience, you’ll have a much better chance of increasing your profit margins.
You’ll have stronger margins in niches where there’s less competition, but sales may stagnate at some point.
As a result, many dropshipping sites rely on highly optimized ads to drive large volumes of sales.
#2 Order Processing Can Get Complicated
Dropshipping appears to be straightforward:
- Step #1: A customer places an order.
- Step #2: You process the order.
- Step #3: The supplier ships it out to the customer.
However, if you’re sourcing items from a variety of merchants, you can run into some complications.
It’s likely that each of your suppliers utilizes a different shipping method, causing you and your customer’s problems.
The cost of delivery can be expensive depending on your shipping setup, especially when shipping many products.
Different dropshipping suppliers will have different processing and billing structures in place.
Because of this, you’ll have to manage suppliers carefully.
You’ll constantly have to communicate with them and negotiate the right price for all of your deals.
And this may be challenging at times.
#3 Customer Satisfaction
When orders go wrong or suppliers fail to maintain order accuracy, it’s your customers and business that suffers.
It can be challenging to process orders and handle customer service when you’re only the store owner with limited authority.
There will always be delivery exceptions for when suppliers:
- Fail to deliver products on time
- Damage goods or packaging in transit
- Ship orders to the wrong customer
- Makes a mistake with an order
- And more
And here lies the problem:
Expect consumers to blame you - even if it wasn’t your fault.
This problem goes beyond order fulfillment and lead times because you won’t be able to provide the same branded dropshipping experience as traditional shops. Or you’ve accustomed your customers to.
Issues can’t always be fixed promptly if you don’t have total inventory and customer service control.
When consumers have to wait a long time for delivery issues to be rectified or for missing products to be delivered, even little errors can have a negative influence on their experience.
#4 Shipping Can Get Complicated
Calculating shipping expenses is simple if you buy all of your products from one supplier.
Dropshippers, on the other hand, frequently use many suppliers to source various products.
When a single transaction comprises items with varying delivery charges, calculating transportation costs, for example, becomes tricky.
Moreover, different invoicing systems may be used by different suppliers.
Using supply chain management systems or delivery management software like eLogii can help you stay ahead of these unexpected challenges.
#5 Lack of control
One of the drawbacks of reseller dropshipping is that you have no control over key areas of the last-mile delivery process.
This can include anything from inventory and order processing to fulfillment and delivery.
You must trust your service providers to complete tasks correctly and on time.
The lack of control may discourage some entrepreneurs, although it isn’t usually a problem.
This simply means that if something goes wrong, dealing with it can be challenging.
While supplier concerns can sometimes cause customer retention issues, with the right damage control, you can minimize these problems and keep customer turnover low.
How Much Money Do You Need to Invest to Start Dropshipping?
Though it’s difficult to estimate the expenses for any given company, there are a few things that any dropshipping company will need to purchase in order to get started.
Here’s a quick rundown of the most important charges:
To develop and host your online business, you’ll need to find an e-commerce platform.
The monthly cost of an e-commerce platform is estimated to be $30 on average.
Then, you’ll need your domain name.
Without your own domain name, it’s difficult to gain customer trust.
While there are a variety of top-level domains, if one is available, we suggest looking for a.com that fits your brand.
This will cost you up to $20 a year.
Although dropcommerce allows you to have a low level of engagement in managing your entire product catalog, you should set aside money and time to test the products you intend to sell.
The biggest investment that you’ll have is advertising.
For most product-based firms, advertising is usually a crucial channel to get started.
Search engine marketing (SEM), display ads, social media ads, and mobile ads are the most typical channels.
How Does Dropshipping Make You Money?
In exchange for distribution, dropshipping companies mark up individual products.
This is why dropshippers are fine with suppliers marketing their products for them: dropshipping stores bring in additional sales that the supplier would not have received otherwise.
In order to make a profit with your dropshipping business, find out how much it costs to “obtain” a customer and price your products accordingly.
Is It Worth It Get Into Dropshipping?
Dropshipping in 2021 isn’t a flawless, stress-free approach to develop a profitable online business.
Starting a dropshipping business always requires hard effort.
The approach has a lot of benefits, but it also has a lot of built-in difficulties that you’ll have to deal with.
Most of these obstacles can be overcome with proper preparation and consideration, especially when it comes to how you handle delivery and shipping.
And we can help you with that.