The WTF Series: What is eCommerce dropshipping?

Dropshipping is a great business model for a first-time online entrepreneur or for someone seeking startup business option requiring limited capital to get started. It’s attractive because it’s a low-risk  way of starting your own business, thus doesn’t feel like so much of a gamble.

What is dropshipping?

Dropshipping is an eCommerce business model which enables eCommerce retailers to operate without having to purchase and maintain inventory, setup and manage warehousing or faciliate the shipping of products to customers. Dropshipping is essentially a partnership between aretailer and a supplier, the latter of whom manages inventory and fufils the orders on the retailer’s behalf. Once an order is received by the eCommerce retailer (that is, you or me!), their dropship supplier packages the products and ships them directly to the retailer’s customer.

It’s a great business model because it spreads the standard responsibilities of eCommerce across two parties rather than one; the retailer is responsible for creating an eCommerce store, marketing and customer service, and the dropshipper takes care of the rest.
There are plenty of other benefits to dropshipping from a retailer’s perspective too.

What are the benefits of dropshipping?

The list of benefits for opting for a dropshipping business are longer than a centipede on a stretching rack. Here’s a rundown of the key benefits of a dropshipping eCommerce store versus a standard eCommerce store.

• Virtually no overheads – Got a PC and internet connection? That’s all you really need to setup and run a dropshipping ecommerce store. No expensive warehouses, no need dedicated staff to pack and send parcels, and no risks of over-ordering inventory.
• Risk is minimal – Due to the setup costs and overheads being low, the risk to your bank balance is virtually nil. Some businesses can cost hundreds of thousands of dollars to setup…thankfully that’s not the case with a dropshipping business!
• Setup is a breeze – If you are efficient, you can literally have a dropshipping store setup within hours. An online shopfront and a reliable dropshipping supplier are all you’ll need to get cracking. No need to invest heavily in branding, ordering samples and waiting for stock to arrive. The best dropshipping busineses are lean, mean and simple.
• You can run the business from anywhere in the world – If you are keen on the idea of a laptop lifestyle, the lack of physical inventory
• The sky is the limit with products – There’s a supplier willing and able to dropship products in almost every niche imaginable. This means you can stock your store with virtually any product you can think of, which is great news for you and your customers.
• Your time is spent on the business, not fulfilment – Dropshipping is basically outsourcing. By tasking someone else with all of the fiddly fulfilment tasks, it gives you more time to focus on growing your business, a luxury that some other business models don’t easily allow for.
• Reduced possibility of goods being damaged – Other forms of eCommerce rely on goods being passed through several sets of hands. Having a product go from the manufacturer, to the distributor, to the retailer and then to the customer significantly increases the risk of goods being damaged somewhere along the way. Dropshipping cuts out the middleman and therefore the potential for damage.

Where can I find suppliers?

There are several ways to find and appoint your dropshipping suppliers. There are a multitude of dropshipping supplier directories available to streamline the process, however if you are willing you are to do some detective work and be a little more proactive you may increase your chances of sourcing unique products that no one else is dropshipping, thus limiting your competition.

1. Supplier directories – Dropshipping supplier directories generally attract a small fee (usually $49-$499) due to the time and effort that goes into them, and the time and effort that they save you! The directories can vary so do you research and read some reviews before committing to purchase.
2. Contact manufacturers – You can contact manufacturers directly with a proposal to be your dropship partner. This is a good way of finding a unique product that no one else is dropshipping, and also to potentially maximise your margins by purchasing straight from the source. Be warned, there is a bit of an artform to this, mainly because many manfacturers aren’t aware of dropshipping and may not understand your proposal.
3. Contact distributors – Distributors are the next rung up from manufacturers, so they may be a little more savvy with the concept dropshipping when contacted and therefore more willing (or not) straight off the bat. Being the next rung up however, they will potentially eat into your margins because of the additional handling costs they have already outlaid.
4. Alibaba / Aliexpress – The Alibaba marketplace is extraordinarily extensive! Whilst some products will have minimum order quantities, you will find some merchants Alibaba who are willing to dropship directly from China to your customer. Aliexpress (also owned by Alibaba) has more merchants that are willing but is usually a tad more expensive as it’s more of a B2C channel than B2B.

How does dropshipping work?

The process for to become an eCommerce dropshipping extrordinaire is undeniably simple, and can be summarised in four steps.

Step 1: Find a supplier for your niche

The first step is to find a reliable supplier of products that you’d like to stock in your store. Suppliers can be sourced from as supplier directory or by direct contacting manufacturers or wholesalers.

Step 2: Build a store

Secondly, you’ll need to build an online store. Shopify is the best option for this in my opinion, however you may wish to consider other options such as the free WP-Ecommerce pluginf or WordPress (which may be a cheaper upfront alternative to Shopify but may end up requirnig a lot more maintenance and bug-fixing in the long run).

Step 3: Fill your store with products

Once you’ve built your store, you’ll need to fill it with the products you wish to sell. This includes setting prices, uploading images and writing unique product descriptions so the more products you have, the longer this step will take.

Step 4: Promote your store

Use whatever networks you choose to promote your store to a relevant audience. This could include paid advertising on Facebook or Instagram, Google Ads, email marketing and your own networks.

Step 5: Suppliers ship your orders

When customers are purchasing your awesome products, send the details of each order to your supplier and they’ll send the product directly to the customer.

What are the disadvantages of dropshipping versus other eCommerce businesses?

In comparison to alternative online business models there are some disadvantages that you should be aware of before you commit to a dropshipping venture.

Lower margins are the norm when you compare dropshipping to other forms of online retail.  This should really come as no surprise, given that dropshipping is essentially the same as outsourcing the warehousing & fulfilment and the costs to do so need to be absorbed somewhere.

You are liable to your customers even when your supplier stuffs up.  Sometimes your supplier may send the wrong item, the wrong size, a damaged item or maybe even no item at all!  Your shopfront is the face of the business, so remember it’s up to you to ensure your customers are happy with their purchase – your business’ reputation depends on it.

Multi-item purchases can be a headache if you are using several suppliers.  Each supplier will send their item from a separate location, in a separate package, with separate postage fees and therefore probably arriving to the customer at different times.  It’s a customer experience aspect you’ll need to think through before launching your store.

Competition for common products is fierce.  Dropshipping has been around for a little while now and new stores pop up regularly.  The more common your product range, the more likely you are to be vying for the same customers as other dropshippers.

Monitoring supplier stock levels can be challenging because they often don’t give you live visibility of their inventory.  Keeping in mind they also provide their products to many other businesses (and maybe even other dropshippers), your suppliers are busy too and won’t always be great at proactive communication.

Is dropshipping profitable?

The average margin on a dropshipped product ranges from 15% to 45%.  This is purely the difference between the price you sell the product for and the price you sell the product, and doesn’t take into account other expenses such as marketing and website running costs.   Like any business, it’s all about doing the numbers and coming up with a system that is profitable.  In dropshipping there are several ways to achieve this including:

• Tinkering with pricing to maximise margin whilst ensuring you don’t price yourself out of the market
• Strategies to drive more sales volume to offset the low margins
• Finding advertising channels which are not already cluttered (anything but Google Ads) and/or require a limited investment (such as promoting on forums or on Facebook Groups)
• Focusing on luxury items which attract higher margins however can be more challenging to sell

Where do people sell drop shipped products?
– Shopify
– Ebay
–

Why start a dropshipping business?
– Keep outgoing costs low (don’t need to buy stock)
– Less Capital Is Required
– Easy to Get Started
– Low Overhead
– Flexible Location
– Wide Selection of Products

How to get started
– target a niche market rather than try to find a product that everyone wants to buy
– contact manufacturer and setup drop shipping arrangement; if that fails go to the dsitbutor