Dropshipping is a fulfillment technique adopted by online retailers where they do not possess any goods in the inventory. Instead, they sell a product using the dropshipping model wherein they acquire an item from a third party and get it delivered straight to the consumer. As a consequence, the retailer is spared from any personal responsibility for handling goods.
The main distinction between dropshipping and the traditional eCommerce retail model is that the selling merchants are free from holding and managing goods. Instead, they contact the third-party sellers who offer them goods at discounted rates (on wholesale) and fulfill orders directly.
Not everyone cuts for a dropshipping business. You should not be taking it up as a ‘get rich quick’ option as it involves much at stake, right from personal equity to your business brand. However, if you’re prepared to overlook the downsides of dropshipping, jump in, and you may have your share of profit.
Ask yourself these questions before plunging into the dropshipping businesses:
- “Can I devote my full time to the businesses for the first six months till I set it up completely, right from a website to even building an eCommerce app?”
- “Do I have enough? I don’t want to0 risk getting fired from my day job.”
- “What if, after spending so much time and money, my dropshipping business turns out to be an unsuccessful one?”
It is natural to have concerns when starting up but make sure you answer the above questions in affirmation.
Dropshipping has grown in popularity as a business model as it simplifies establishing an online company without any difficulties. Shipping is handled automatically and adding new items to your catalog takes only a few clicks.
Your risk is reduced since you are not responsible for inventory or storage, and you can easily replace items that lose appeal. Additionally, starting expenses are low, and you can always implement some of the dropshipping ideas to increase your sales drastically.
Since you only purchase items that you are certain you can sell, and many dropshippers do not charge a fee to deal with you. Additionally, dropshippers provide consumers with more affordable and efficient delivery than they would get otherwise. All you need is an eCommerce website and a constant internet connection to keep a tap of orders.
Ultimately, you need to pick the products you want to start your business with and find out the model that works best. For instance, the retailer is just one piece of the puzzle as you have to invest time in marketing and rely on multiple parties to ensure everything works in sync.
If you decide to establish a dropshipping company, you may simplify the process by breaking it into smaller, more doable stages.
Consider how a manufacturer will sell sneakers. Once they roll off the manufacturing line, the sneakers are sold (in bulk) to suppliers and wholesalers, who then resell those to retailers.
You will need to look for a supplier (and not a manufacturer) who can provide the products you need to dropship. Most manufacturers have minimum buy requirements that may be very large, and you would also be responsible for storing, stocking, and shipping the goods. Therefore, engage with a supplier and begin with a collaboration agreement.
Although purchasing directly from the manufacturer may seem the simplest option, you will gain the most by purchasing through suppliers and dealing with a little margin.
Suppliers and wholesalers may not offer their products directly because they lack wider reach and technology assets like an eCommerce business. This is where you would come as a retailer and leverage your eCommerce reach by linking the product with the consumer.
As a retailer, you can offer internet storefronts through which consumers place orders. Following the wholesaler’s markup (profit margin), you can add further markup to arrive at the final price and make a profit.
While it is difficult to reach a precise number, a few key initial investments can help you figure a ballpark. This involves business setup costs, marketing expenses, and plenty others.
Let us check out the key factors that influence your capital spending in a dropshipping business.
Any dropshipping business will need an eCommerce platform or website to create and host your online store. Around 29% of the eCommerce businesses in the USA opt for Shopify stores.
You’ll be able to effortlessly sync it with a marketplace like Orbelo, Spocket, DropshipMe, and others. Setting up a store will need you to access Shopify themes and use free branding tools to quickly get your business up and running.
Estimated cost: $29-$50/month
Creating an identity for your online store is crucial, and this is why you need a domain name. While there are a variety of accessible top-level domain extensions (e.g., ABC.shop, ABC.co), it is best to go for a “.com” one that suits your brand. Start with a website domain generator to create an appealing company name.
Estimated cost: $5-20/year
Over the long run, you will need to decrease the average cost per client acquisition through organic marketing channels such as content marketing, SEO, and word of mouth.
Leveraging channels like content marketing and SEO is something you can DIY if you’re using renowned eCommerce platforms like Shopify and BigCommerce. For example, if it’s the latter, you can refer to this BigCommerce SEO guide to ensure you optimize your website for maximum traffic and conversions.
On the paid advertising side of things, pay-per-click (PPC) Google ads, display ads, social media ads, and mobile ads are the most frequently used paid channels for a dropshipping business.
Estimated cost: Increases with your business; recommended investing $500 a month to get started.
While dropshipping eliminates hassles to run and manage your entire product catalog, you’d still need the time and budget to test goods you want to sell. Early product testing clarifies target demographics who are most likely to buy additional goods and recommend your business to their network.
Product testing helps you filter out bad suppliers, so you start working with great ones and not risk marketing products with flaws which results in dissatisfied consumers.
Estimated cost: Varies, depending on orders you choose to test.
Once you know the nitty-gritty of dropshipping business, it is best to strategize implementing your plan. The competition is fierce, and to stand out amongst the rivals, you need to adopt a dynamic approach. This means carefully choosing the marketplace, partnering with appropriate suppliers, and creating a robust eCommerce platform that leverages market spending.
You may begin small with uncertainty and possibly fear failure, but many great businesses started the same way. Find out the product, get the domain name, assess possibilities and expenses, launch your company, and see it through.