With the advent of the internet, commerce has slowly transitioned to e-commerce. It is more convenient to sit in front of a laptop or lie down with a mobile phone and order what you want from an ecommerce retailer rather than going to a retail store in town.
Is Drop Shipping Business a Get Rich Quick Scheme?
Setting dropshipping stores are not quick. Anything you do right, will take time. Being successful with an ecommerce store that drop ships is not that easy.
It requires a lot of time and effort, like building any other type of online business.
You are simply a third party supplier in the supply chain.
There are other business models, but this one requires the least amount of investment and this business model is the one that comes with no inventory issues.
Dropshipping Business Model & Customer Experience
Customer service is important whether or not you have an online business model or if you are an actual brick-and-mortar store owner. Even though you do not have your own inventory, you have to keep in mind that customers complain if they do not receive the order on time or receive the wrong order.
It is best to create a page, like FAQ, that answers most of your customer’s questions regarding customer orders.
The Dropshipping Model is Everywhere!
Did you know that market research has shown that over 30% of ecommerce stores are dropshipping companies? Yupp. They look like any regular ecommerce business, but they are actually drop shipping businesses.
New businesses and aspiring entrepreneurs who are looking to start their e-commerce businesses are looking at drop shipping as an exciting option to explore.
What is Dropshipping?
Dropshipping is a retail fulfillment method where the store that sells the product doesn’t keep stock of the product.
The dropshipping business model is based on retail arbitrage, which means buying products at a discounted price and selling the same products at a higher price.
By letting the manufacturer/supplier handle the order processing, the retailer can focus better on advertising, marketing, and expanding into other product categories to grow the e-commerce business.
How Does Dropshipping Work?
To understand how dropshipping works, let us view a typical order from the point of view of the customer and the point of view of the drop shipper.
Point of View of the Drop Ship Buyer or Customer
Let’s say “Jane” places an order for a product from your online store.
Step 1: Jane places an order on your online store
Step 2: Jane receives order confirmation on her email and phone number
Step 3: Jane receives order tracking details on her email when the order is shipped. The order is usually shipped within 2 days of placing an order.
Step 4: Jane receives her product
For Jane, all she did was place an order and wait for it to be delivered to her. She also got the tracking details to better track her order and see if it is on track to be delivered by a given date.
She does not know anything regarding the association between you (retailer) and the wholesaler/distributor.
Point of View of the Dropshipping Suppliers
From your point of view, as the operator of the dropshipping business, these are the steps involved when an order is placed on your online store.
Step 1: Order details of customer received via email. This is made possible with the order management software you’re using.
Step 2: You share the order details of the customer with the supplier.
Step 3: The supplier receives the order details and prepares the order for you.
Step 4: The supplier ships the product to the customer under the shipping label and name of your online store. The supplier also shares with you the tracking details for the shipment.
Step 5: You share with the customer, the tracking details you’ve received from the supplier.
Step 6: The customer receives the product with the label and name of your online store and believes that you’ve shipped the product.
As a drop shipping business, your job is to:
- Take the customer order and hand it over to the supplier.
- Take the tracking details from the supplier and share them with the customer.
If everything goes smoothly, you will no other task other than these two. However, if you’re working with an unreliable dropshipping supplier, you may run into issues with delayed customer orders and have to ramp up your customer support team to handle queries from customers.
Benefits of Dropshipping
1. Easy to Start a dropshipping business
Dropshipping doesn’t require a lot of upfront work to get started. There is little to no investment required and anyone can start an online dropshipping store easily. All it takes is a few hours to set up things and get a dropshipping online business started
2. Very Little Capital Requirement
Starting a dropshipping business requires very little investment. Usually, all that is needed is a laptop and an internet connection. Everything can be managed from your laptop and even when the business grows, you don’t need to a lot of investments to keep it going.
3. Easy to Grow
Since you do not manufacture products yourself, you can easily expand into other product categories by finding the right supplier for the product.
Since there is no need to handle inventory, the process of growing a dropshipping store is relatively easy compared to stores that handle inventory.
Operating a dropshipping business gives you a lot of flexibility. If you can automate the processes and ensure everything goes smooth without you having to actively monitor it, you can free up your time and focus on other projects or things that interest you. There are a lot of e-commerce millionaires who have built multiple successful dropshipping businesses that require little time to manage, allowing them to travel the world and live their life.
Cons of Dropshipping
1. Smaller Margins
As a dropshipping business, you have to settle for slim margins. You should note that there are certain niches where you will have better margins, but it would not be close to anything you’d make if you have your own branded products and sell them to customers. Since convenience is prioritized over margins, you will be working with slim margins as a dropshipping business.
2. No Control Over The Supply of Products
Since you’re the retailer acting as the middleman between the supplier and customer, there is no control over the products you sell. You do not get to physically see the product before it is shipped to the customer.
This is why it is very important to choose a good manufacturer/supplier that has good processes and quality checks in place so that your customers get the best products every time they order from your store.
4. Customer Service Problems
Since the manufacturer directly ships the product to the customer and has no communication whatsoever with the customer, the customer believes that you are the one doing all the work. This is the magic of dropshipping.
The customer doesn’t know that you’re the retailer buying from a wholesaler and selling them the goods. So, when there is a problem with a purchase, customers turn to you to resolve their problems.
From your point of view, since you had not physically shipped the products, you aren’t aware of the problem and have to get in touch with your supplier to have the issue fixed.
If there is any communication gap between you and the customer or you and the supplier, the whole customer service experience turns bad. This is a challenging aspect of dropshipping.
A drop shipping supplier is part of the supply chain. It is the company that drop ships ordered products for you and holds all the inventory.
The dropship supplier may or may not charge extra shipping costs for a dropship order. You will see that some suppliers will charge a flat fee or a percentage of the order on the top of the cost of goods.
When you are comparing multiple suppliers, it is important to compare the dropship fees they charge, because that can make a huge difference in your bottom line.
Dropshipping Agreement Contract
Most dropshipping sellers will need you to agree to and sign a dropshipping agreement or contract. This contract should include the following:
- Any fees they charge you for drop shipping the products for your company. It should also outline inventory costs if they charge you any.
- The company’s intellectual property belongs to them, ex. images and descriptions
- Order fulfillment process
- Customer experience and customer expectations
- Information about the shipping fees,
- Wholesale price
- Possible supplier errors and how they may correct them
- Fulfillment centers for drop shipping and the fulfillment center locations
If the drop shipper doesn’t give you a contract, make sure you ask for one. However, if they do not have one, consider going with an experienced drop shipping company instead, to avoid running into product quality issues.
How Soon Can You Start a Dropshipping Business?
It doesn’t take too long to start a dropshipping business if you have everything ready. I believe it’s the preparations that take time.
- Do you research – What type of products do you want to set up for drop shipping ? Do you have a passion or understanding of one type of product or do you want to set up a store with all types of well-selling products that produce high profit margin? I would avoid products with low profit margins, unless you can sell them in bulk.
- Set up your own website and all the legalities, like business license, etc.
- Set up your payment processor, so you can take payments on the website. All ecommerce businesses need a payment processor in order to take payments.
Dropshipping Inventory Management
With the dropshipping process, you can have a successful business and sell products without the need for physical inventory and purchasing inventory, or do any kind of order fulfillment. This also means that the drop shipping retailer doesn’t need any inventory management software and system set up, no inventory issues, no need to hire people to do inventory, either. This saves a lot of money and headache.
The order fulfillment in this order fulfillment method is a 100% taken care of by the drop shipping seller. When a customer places an order, the product is shipped directly from the manufacturer/distributor instead of the retailer.
You will not need to worry about unsold inventory, warehouse space or the shipping costs and shipping complexities.
How to Select a Drop Shipping Supplier?
Drop shipping businesses can be very profitable with high profit margin if you have done your research and choose the best products for your product niche.
I recommend doing an extensive research on your chosen products and competitors. Before you start dropshipping, I recommend the following:
- Check if the profit margin is high enough
- Read the dropshipping FAQ
- Read the company’s dropshipping legal contract
- Make sure you are dealing with a legitimate business
- The product quality is good. For this, you could test the product quality by ordering a product from either the manufacturer or the distributor. If the product quality is not good enough, you can look for another, more reliable drop shipping company to do business with.
- Test the drop shipping company’s customer service. If their customer service is not good enough of non-existant, it’s best to find another dropshipping supplier.
Can You Negotiate With Your Dropshipping Suppliers?
Whether or not you can negotiate with your drop shipping supplier, depends on the following:
- If they are even willing to negotiate. Some companies just have their dropship pricing, and that is it for all their dropshippers.
- How badly they want your business. If you can sell a lot of products for them, they are more likely to negotiate. Also, if they want to get into your market, they are more likely to negotiate. For example, if it’s a foreign company that wants to get into the US market and you can help them, they may give you a special drop ship price to encourage you to market for them a little harder.
- It also depends if they have set their pricing in a way that allows them to discount it even more.
You will need to talk to the drop ship supplier and find out if there is any flexibility in the pricing structure. It never hurts to ask…
Is Drops Shipping Business Profitable?
So many people ask how much drop shipping businesses make. This one is a difficult question to answer.
If you do it right, choose the right products, and the right dropshipping suppliers, and you do the marketing right, you can make a healthy income with drop ship products.
Depending on your effor and skills, you can have profits from a few thousand to millions. Again, it depends all on you!
Setting Up An Online Store That Drop ships
Whether or not you can create and set up a very profitable drop shipping business is up to you. Do your research, sell what you have passion for, learn the ins and outs of the dropshipping business and pull up your sleeves and get to work. It is not a get rich quick scheme and will require work like any other business model.
Work hard, and you will have a successful business.
You will need to learn about creating an ecommerce store that drop ships. Depending the size of the ecommerce business you want to set up, you need to choose an ecommerce software to run your dropshipping business.
Selecting Products That Your Ecommerce Business Drop Ships
If you want to be successful in your dropshipping business, you must do your market research and select the right products that your ecommerce business drop ships.
Product selection is an important part of creating your dropshipping business model, because depending on what products you sell in your online retail store, you will also need to set up shipping costs and create a marketing plan. Creating an ecommerce store that drop ships is not easy, but definitelly worth it.