“How do you make money out of something that you don’t have in stock?”
It’s not another lame riddle - it is the basic funda of ecommerce dropshipping!
From the business perspective, when it comes to ecommerce business, inventory management plays an integral part and on that note - “Having too much in stock implies risks of having them lying unsold, whereas, having too little of stock means failing to meet demand and thus, losing customers”.
That’s exactly the confusion you bypass with the dropshipping business model.
Without further ado, let’s get started with all things ecommerce dropshipping, from what it is to what are the challenges, from the end-to-end process to the budgeting..and much more :
Simply said, ecommerce dropshipping is a business model that allows you to sell items without keeping them in stock. Dropshipping enables you to work with suppliers to have products shipped straight to customers who place orders through your store without having a physical inventory in place.
Thus with a dropshipping business model, you can concentrate entirely on selling items rather than worrying about inventory management in the face of shifting demand.
But, before you take the leap, it's highly important that you have a good idea about how the business model works.
So, without further ado, let’s have a look at how ecommerce dropshipping really works!
Talking about how dropshipping works, let’s first know the parties participating in the process :
Manufacturers are those who make products. They generally don’t sell it directly to the public; instead, they sell the products in bulk to wholesalers and retailers.
Also : Did you know what makes IoT in maufacturing the hotcake of the hour ?
Wholesalers are the bulk buyers who buy the products from multiple manufacturers and then resell those to retailers (up next!) at a higher price.
Quite predictably, retailers are the ones that buy products from wholesalers and sell those to the general public, at a marked up price.
So, now that you have a fair idea on who’s involved, let’s have a look at the basic dropshipping workflow. :
[i] The customer places the order with you.
[ii] You notify your dropshipping partner, either the wholesaler or the manufacturer whoever is packaging and shipping the product to the customer.
[iii] The dropshipper picks, packs, and ships the product directly to the customer.
[iv] The dropshipper then costs you for the service and you bill the buyer.
So, before we go on to the next chapter of ecommerce dropshipping, here's a quick tip : try to make your supply chain as short as possible, because the shorter the supply chain, the higher the profits and the fewer people getting a share.
Wondering what a short chain supply is ?
A short supply chain is the one in which you connect directly with the manufacturer with no other parties involved in between.
What is dropshipping? Checked.
How does it work? Checked.
But wait, are you sure if it’s the right business model for you to opt for?
While answering that question, what you need to do is first, think about all the pros and cons of dropshipping, as well as if the model fits your vision, purpose, and real niche.
To assist you with that, let's begin with the goods and bads of dropshipping, as well as the most likely causes for the failure of many dropshipping businesses.
Dropshipping appears to be a great option from its definition. But, before you formulate a dropshipping business strategy, know its benefits first:
It doesn't take much to get started with a dropshipping business since there are just three steps: identify a supplier, set up your e-store, and start selling things! To someone who is new to ecommerce businesses, dropshipping business model is relatively simple and easy to comprehend and implement.
The majority of the expenditures in traditional business models are associated with setting up and conducting retail operations, such as acquiring inventory, keeping track of things, and refilling them. But, since dropshipping minimizes the need for inventory and hence its cost, all you have to pay is the cost of running your e-store.
While the other business models associated with ecommerce mostly depend greatly on networking and acquiring & maintaining physical spaces, ecommerce dropshipping requires absolutely no office, no warehouse,not many workers, and thus, no headaches. With little to no connectivity to a physical area, you can simply relax on a beach, drinking exotic beverages while still making money. The only thing you’ll need is a laptop and internet connectivity.
There are dropship providers for every category - from garments to gaming, healthcare to hardware and pretty much everything you can probably think of to dropship ! You can focus on a single product, provide many products at once, or mix things up; the choice is completely yours! All you have to do is simply discover your niche and finding a provider that caters to your needs won’t be a tough job.
In traditional ecommerce business structures, if you want to make more money, you’ll have to put in more effort and invest much more on resources. Dropshipping, on the other hand, requires you to just send extra orders to your dropship provider and allow them to handle everything else while you gain the profit and have more time to build and scale your business!
Since the items are delivered directly from the warehouse to the consumer, there are fewer shipment steps to perform, lowering the chance of products being damaged while transferring from one physical area to another. Thus, there’s less significant losses!
You may not want to miss our shipment tracking software development guide !
What comes easy is hardly ever worth it and given that, ecommerce dropshipping too comes with its own set of challenges.
Listing the prime challenges of the dropshipping business model here & also, the ways to overcome those :
When it comes to a dropshipping business, you're usually relying on third-party suppliers, and if one fails to fulfil an order as promised, you'll have to pay the price when a consumer complains. Similarly, when a supplier goes out of business, your business operations would be severely disrupted and ultimately you’ll have to face the blow.
When such interruptions occur, it is highly important that you have a backup plan in hand that will assist you in overcoming such obstacles. With a physical inventory stocking bestsellers in place for emergencies, you can ensure the business operations continue uninterrupted even when such scenarios arise. In the meantime you can look for a new vendor and get them onboard.
When anything goes wrong with an order, giving customer support to resolve the issue becomes more challenging since inventory is not within your control. If a customer has a query about a product and says it was faulty or that they never got it, then in that case, you need to work with your third-party suppliers to resolve the issue which demands a mammoth deal of time and effort. The issue becomes even more challenging when there are no additional suppliers involved in the order fulfillment process.
To solve such customer grievances, consider including a chatbot into your e-store, which will assist customers in resolving their concerns while providing you with a clearer picture of the issues the customers are experiencing. Additionally, try having more suppliers that offer you similar items so that when times like this come, you can simply initiate a return or offer a product exchange to the customer in a shorter period of time.
As mentioned already, dropshipping being easy to comprehend and implement, it's quite obvious that you'll encounter significant competition. Unless your company has an exclusive deal with a supplier to dropship the items, nothing prevents rivals from selling comparable products to the customers.
To win the competition, the first and most important step is to be unique - try to offer a good variety of items to your customers and also include images of the same in your e-store as a catalog. Since most dropshipping companies utilize the same product images that are available on Google, consider outsmarting them by offering your own "original" product image. In addition, try including product ratings or reviews on your items. This will help your customers comprehend your product better, have more faith and distinguish your business from competitors that do not offer the same.
Inventory management gets more difficult as the availability of your inventory expands with dropshipping. For example, one supplier's inventory may be depleted while another's is plenty. Similarly, when a product isn't moving fast enough, then you need to be able to look into the process across the supply chain which requires undivided attention.
When looking into the supply chain process, you need to deal with large amounts of data, such as order tracking, processing, and so on, and doing so manually can be time consuming. So, to avoid such situations, consider using a software that automates and speeds up order processing activities such as shipping, billing, and inventory management amongst your suppliers.
As dropshipping involves outsourcing a large portion of the order fulfillment process to a third-party provider, it lowers your revenue and this happens to be the most challenging part of your dropshipping business.
To increase your profit margin, try adapting ‘up-selling’ and ‘cross-selling’ techniques into your dropshipping business.
Now, what is up-selling and cross-selling?
Upselling is simply convincing your customer to spend more money by purchasing an upgraded or premium version of what they are about to buy. For this, all you need to know is what your customer wants.
The most effective technique to execute up-selling is :
A side-by-side comparison to demonstrate the difference between the items.
Display a wide range of items that meet the same criterion as the ones the customer is looking for, but try not to overload the buyers.
You can also display some alternatives to the product the customer is looking for.
Cross-selling, on the other hand, is a business approach that involves selling a completely different product to a customer.
Before you kickstart your dropshipping business, you need to chalk out a plan along with USPs to differentiate your business from the competitors. To assist you with that, we have prepared a business strategy that will help you stand out from the crowd :
The very first step in establishing an ecommerce dropshipping business is to determine your niche. To begin with, start asking yourself questions such as “What market do I can serve best? OR, What kind of items should I sell?”
Often, the easiest way to get answers to these questions is to pay a closer look into your own strengths and business areas that you’re passionate about. It is much simpler to operate a business when you are sincerely passionate about what you are offering. So, while deciding on a niche, focus on the things that spark your interest.
On that note, you should also look at a niche that is business-friendly. Working on a product you're passionate about is good, but if it doesn't generate cash, it's a leisure, not a business.
So, before you move on to what products you want to offer, ask yourself these questions :
Dig through Google Tools and look for the buzz around the products of your choice. So it’s not always about the present buzz and trends - think through to anticipate it’s demand in future.
It's all about making money when it comes to owning a business. That is why you should select a product and a niche with suitable profit margins. To identify such products, try performing some research on the items sold on dropshipping websites.
Already have a product in mind? Fantastic! The next step is to research your niche's competitive landscape. Investigate your rivals. Look at what they're selling, at what aspects they're doing well, and where their flaws are? The answers to these questions will assist you in determining how to advertise and position your ecommerce dropshipping business.
After figuring out what product you want to offer and how you'll position yourself in the competitive environment, the next step is to set up criterias on how the items should be delivered.
For starters, consider the following factors :
The answers to these questions will assist you in locating and assessing prospective dropshipping providers for your business.
The next step is to follow the plan and finally build an ecommerce website to sell your things on.
You can either start a store on a huge ecommerce marketplace or build one from scratch with the help of an ecommerce platform provider.
But, whatever you choose, keep the following points in mind :
[i] One of the considerations being how comprehensive the platform’s functionalities are. To keep things simple, rather than depending on various solutions, you can pick a single solution that gives everything you need to build a dropshipping site.
[ii] The second element to consider is how much visibility your dropshipping site and accompanying tools will provide you in the order management process.
[iii] Another important factor to consider is the online user experience, as providing a consistent digital experience can help you stand out from the competition. Make sure your site is set up in such a way, so that customers can easily access, explore, and buy from their preferred devices.
The whole dropshipping concept relies on the supplier performing effectively and completing orders on time and efficiently. As a result, it goes without saying that picking the correct supplier is one of the most crucial steps in building a winning brand.
So, here are a few things to consider while selecting a dropship vendor :
A supplier who understands the hazards of dropshipping and how to avoid them, coupled with sales representatives who can answer any questions to put your mind at ease, will make a great team and will undoubtedly reflect highly on your business.
High-quality products produce a higher degree of satisfaction, resulting in fewer returned items and disappointed customers. Product reviews and ratings can make a big difference and increase your revenue significantly, therefore having a high-quality product is essential.
When selecting a supplier, ensure that they have the technological abilities to stay up with the trends. It would be a pity if you had to dissolve a relationship with a supplier simply because they lacked the technological expertise to assist you expand your business.
Suppliers who ship items within 24-48 hours are a customer-favorite. Long shipment delays are utterly unappealing to your customers in the times of increasing market competition. It would be best to conduct test orders with your suppliers to observe how the fast process works and have a tried-and-tested process in place rather than a random one.
Check out our blog on eBay Chrome Extension for some great tips on integrating your dropsshiping operations on eBay efforlessly.
Have you ever thought of how you would sell your items if no one is aware of them or your brand? OR, why would anyone online put their faith in your company?
That is the power of marketing; it can even persuade strangers to give you their money.
Marketing is basically a competitive field with several strategies that can be employed to properly position your company while increasing brand recognition and revenue. If your approach is well-planned, it can also assist you in screening out the competitors.
Social media is one of the most successful ways to promote, advertise, and attract customers, thus it's no surprise that social media platforms are also utilized for digital marketing.
One thing to remember when it comes to social media marketing is that content is king. No matter how large a platform is or how fantastic the product you're offering is, it's worthless unless it's backed up with outstanding content.
Email marketing can be considered as one of the most underrated marketing strategies. It can be used to keep your customers up to date on any key corporate developments such as pricing adjustments, sales, discounts, product-related content, and so on.
You can also use softwares to eliminate the trouble of sending emails to your customers by automating operations such as creating and storing templates, producing reports and analytics.
Pay-per-click ads are basically, an advertisement move in which money is exchanged for visitors to the ad-buyers website. For example - Google Ads is a very popular platform for digital advertising, which also provides analytics on how well the Ad is performing, plus, how much traffic that Ad is gaining. With the help of pay-per-click Ads, you can easily increase your brand’s popularity within a very short period.
When the sales start rolling in, you should be able to examine your performance and figure out what's working for you. It is also critical that you evaluate your acquisition expenses. Dropshipping margins can be limited unless you sell a premium product, therefore you want to be efficient and cost effective while attracting new customers.
Finally, review customer feedback and communicate with your suppliers to see how the process is going and if there are any opportunities to improve or enhance it.
The cost of building an ecommerce dropshipping business is determined by several factors - primarily the size of the supply chain, the cost of developing a website, the amount spent on marketing, among others.
Let’s have a closer look at the most important aspects influencing the cost of establishing an ecommerce dropshipping business :
When it comes to running an ecommerce business, having a website is a must.
Primarily, to tap into the ever-expanding internet market and attract the attention of the growing number of customers taking a trip to the browser, ditching malls and physical stores.
And, if you want to expand your brand to a worldwide or even national level, as well as increase your reach, an ecommerce dropshipping website will be your best bet.
So, now to develop and host your ecommerce website, you’ll need to find the right ecommerce website provider and the cost to develop such a website also depends on quite a few factors such as :
Starting from a simple design to an extravagant one, the cost will increase accordingly.
The cost of building an ecommerce dropshipping website will be influenced by the features, their functioning and also the complexity of building such features, among others. The more features and higher complexity you want to incorporate into your ecommerce dropshipping website, the higher will be the cost.
While it would take months to develop an ecommerce website from scratch, third party integrations will allow you to add features and tools quickly. But, be mindful of your budget, as the more number of integrations you’ll add, more will be the cost.
Interactive media elements will engage your customers while they shop from your website.This is a fantastic method to improve the buying experience, but it comes at a price. The more of these features you desire in your ecommerce website, the more you'll have to spend.
Aside from these characteristics, there are a variety of additional aspects that influence the cost of developing an ecommerce website. But, if you really want to bind it in a range, in most cases the cost of an ecommerce website development falls within the range of $10K to $200K and even beyond if you want a more complex and feature-rich product.
It's difficult to develop confidence within customers if you don't have your own domain name. While there are other top-level domains available, such as XXX.shop and XXX.co, we recommend searching for a ".com" that suits your brand and registering it if one is available. The approximate cost of registering a domain name will be between $5 to $20 each year.
Though dropshipping enables you to have little involvement in maintaining your whole product catalog, you need to set aside some cash and time to test out the things you plan to sell. And, if you don't, you’ll run into the danger of selling a product with too many defects or difficulties, which may lead to disappointed customers and can result in spending a lot of time dealing with returns and refunds.
So, when it comes to testing orders, the price fluctuates based on how many items you plan to sell and how much you plan to test.
Every ecommerce firm should seek strategies to minimize their estimated price of customer acquisition through organic means such as content marketing, search engine optimization, and so on. However, in order to get started, most product-based enterprises require some form of advertisement. That being said, YT ads, display advertisements, Facebook Ads, and mobile ads are the most prevalent mediums to attract customers. On that note, we recommend investing at least 500$ to begin with and have a decent growth in loyal audience.
Although the cost of beginning a dropshipping business is quite low, it is not zero. At the very least, you'll have to pay for your ecommerce website, as well as some shipping and marketing expenses.
There are several ways to support a dropshipping business. So, to name a few :
A business line of credit is basically a loan paired with a credit card that allows you to draw against a pre-sanctioned amount of money while only paying interest on the amount you take. This is ideal for dropshippers, who simply have to pay for expenditures as they arise, such as ad campaigns.
If you're having trouble getting a loan, consider utilising a business credit card. If you are eligible for a 0% promo APR business credit card, you can invest without making payments for a defined period of time. When your promotional period expires, your APR will begin at a rate that varies with the market interest rate, so check the issuer's terms and conditions for the most up-to-date APR information.
If you are unable to pay the wholesale pricing given by dropship providers, inventory financing can be a viable option for you. With inventory financing, a lender lends funding for a major amount of inventory, and the items acquired with those funds serve as security for the loan itself. As long as you make your planned payments in full and on time, the inventory is yours to do with, as you see appropriate. However, if you do not make the payment, your lender may seize your merchandise as restitution for the obligation.
Grants are basically unrestricted funds. However, in order to receive a grant, you’ll have to normally complete a lengthy application and wait a long period of time. But, if you’re seeking such opportunities, we recommend you to check out the US Small Business Innovation Research Program or the US Dept. Of Commerce.
Here are some quick solutions to some common dropshipping queries :
Dropshipping is, in fact, legal. However, depending on who your supplier is, you may be subject to further legal ramifications. That being said, some suppliers aren't as real as they say, and you don't always know where their products originate from and even more deceitful is when providers unlawfully utilise a trademarked logo or another company's intellectual property, which occurs more frequently than average.
But, whatever be the situation, as their vendor, you are inherently participating in their criminal operations.
However, this possible issue can be resolved with a dropshipping agreement contract. You can define your terms and conditions straight up with the use of a dropshipping agreement contract, and if your supplier fails to comply with them, you can take legal action. So, the next time when you choose a supplier, don’t forget to take an agreement contract with you.
Yes, once you start making sales, you'll need to register your company, but there's no rush to do so until you're making them on a regular basis. This is due to the fact that the majority of payment providers require proof of your company's qualifications and experience.
If you're keen to start a dropshipping business but don't know where to begin, here are some product dropshipping ideas :
There are other product shipping ideas as well; you can always look up whatever items are hot on Google Trends and use them in your dropshipping business.
Let’s help you incorporate dropshipping, into your existing business, so here’s a quick look at the checklist:
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Let’s have a quick recap of what we have learnt so far :
[i] Less is more, as long as you nearly master the “musts”.
[ii] Don't add to the supply chain's complexity - Function in a way that detangles (or attempts to!) detangle the existing complications
[iii] When choosing a provider, keep your requirements documented and stay firm at the fixed scope after development begins
[iv] When it comes to your website, strike a good balance between user experience and appearance. Over alignment towards either aspect will only keep you off the success your dropshipping website deserves.
[v] Make sure to highlight any of the business changes whenever they occur right at the website entry point .
Got a question unanswered regarding your dropshipping business?