By Shanon Roberts, on 8 April 2021
Dropshipping is an extremely attractive fulfillment option for many eCommerce brands. That’s because dropshipping requires less upfront investment and means an online shop can be managed from anywhere. If you have online marketing skills but don’t want or need a physical location, dropshipping might be for you. Here we’ll discuss what dropshipping is and how it works, as well as offer some tips to help you succeed with your dropshipping endeavor.
What is Dropshipping?
Dropshipping is a product fulfillment method where a third party stores and delivers inventory for an eCommerce shop. Retailers typically purchase products from a wholesaler and re-sell branded products or package them with white-label branding. The retailer doesn’t need to keep stock and usually only buys stock as needed. This makes dropshipping an extremely attractive option as it’s low risk and easy to start—ideal for young eCommerce entrepreneurs. You handle the marketing, take orders and provide customer service, the dropshipper does the rest.
How Does it Work?
If you’re considering dropshipping as your business model, you have a couple of ways to get started: search supplier databases for products you’d like to sell, or use an app like Shopify’s Oberlo to connect with suppliers and their products. Oberlo is connected with Ali Express and once an order is confirmed the product fulfillment will be handled by Oberlo, not by you.
Sounds very simple, right? Don’t be fooled. Dropshipping requires a lot of hard work which includes doing your due diligence on suppliers as well as finding in-demand, niche products that have a high enough profit margin. On top of that, you’ll need to put in the hours to market your online store. Dropshipping is a real business and requires real work. That being said, dropshipping has some serious benefits which we’ll explore next.
Benefits of Dropshipping
The accessibility of dropshipping is undeniable, which has made it one of the most popular business models in the online marketplace. Here are the primary benefits dropshipping has to offer:
- Minimal Overhead
By going the dropshipping route you avoid a lot of the overhead normally associated with the retail industry: keeping and managing inventory in your own location. By outsourcing that component of your business you eliminate the recurring expense of rent and buying large amounts of stock upfront.
- Location Independence
The beauty of eCommerce—and especially with dropshipping—is that you can basically run your business from anywhere with an internet connection. Your job is to communicate with customers and promote your products, tasks which can also be automated and scheduled if needed even with time zone differences.
- Low Start Up Cost
With dropshipping you basically only need enough capital to establish your business, set up your shop and run a marketing campaign. You only purchase an item you sell once it’s been paid for by the end customer. This means dropshipping is ultra low risk for the budding entrepreneur and lays the path for eCommerce businesses to scale without the fear of suffering big losses.
- Wide Product Selection
Again, because you don’t keep inventory you can choose from a near endless selection of supplier products to sell. Let’s say you sell natural supplements: your shop can offer a very broad selection of brands and products for customers to choose from, all in one place. Plus, if certain items are trending you can quickly include them all on your site to reap the rewards of their popularity.
- Easier to Test and Scale
With such low upfront investment dropshipping allows you to test new business ideas and product lines without committing to a large inventory purchase. Likewise, when it comes to scaling your business, dropshipping allows you to handle sudden increases in orders without losing your stride. That’s because processing, packaging, and shipping is all handled by your outsourced fulfillment.
5 Tips to Help You Succeed in Dropshipping
1. Find Your Niche
We can’t stress this point enough. Find an industry and market that you’re generally passionate about so that when times get tough you won’t lose interest. Also, because profit margins can be quite low with dropshipping, choose a niche that has higher priced items. Marketing a $10 item and a $350 item takes the same amount of work, so make sure you’re using your time wisely.
2. Make Sure Your Products are in Demand
Piggybacking on the first tip, when finding your niche ensure that people are actively searching for the products you’d like to sell. Google Trends is an excellent tool for verifying that there is in fact demand for what you want to offer. If there’s no demand, there’s no business.
3. Closely Manage Your Suppliers
This may seem like a pain in the neck but one of the most important aspects of dropshipping is staying on top of supplier numbers. You need to know their inventory levels and keep up to date on any changes that may affect your orders. Suppliers are a key pillar of your businesses so know them well. Additionally you will likely be working with multiple suppliers (great for covering inventory shortages) and so keeping track of each will be a challenge. Make sure you have an organized and effective system for managing this fluctuating data.
4. Own Supplier Mistakes
Sometimes orders will be botched and customers will be unhappy. It’s just the name of the game. So when dealing with unsatisfied and frustrated customers, own the mistakes even if they aren’t your fault. Offer customers a refund, a free product, free shipping or just ask how you can make it up to them. Finally, demand the supplier pay for their mistake. If it happens often enough, however, switch suppliers ASAP.
5. Make Your Own Brand
One powerful way to stand out in the dropshipping crowd is to create your own brand. This can be done by creating a white label brand (you buy direct from the manufacturer and use your branded packaging) or by having a store brand that carries other brands’ products. Either way, your consistent branding builds an image that customers can connect with and associate their positive shopping experiences with.
Dropshipping is a proven business model that has helped many eCommerce entrepreneurs create online empires. That said, dropshipping requires serious effort and must be run as a serious business like any other if you expect success. Low barrier to entry and low risk, however, still make dropshipping a go to option for many. With a good niche and focused research on products and suppliers, dropshipping could be just the ticket for you in 2021.