What is Dropshipping and how does it work?
The word dropshipping is not a new term for many online entrepreneurs. For the newbies, this is a business model where the store owner sells products to the buyer without stocking the products in his or her own warehouse. You are wondering how this takes place right? This how the model works, the store owner is the retailer. He lists the products on a website or any sales channel like Facebook and Instagram. When a person is interested in the products and buys it, the store then orders the same product from a 3rd party and has it shipped to the customer, following each and every process of the fulfillment ensuring the product reaches the customer successfully.
Benefits Of Dropshipping Business Model
#Dropshipping is easy to start.
While starting an E-commerce business can be very hard because of the need of a
- A warehouse to store your products
- Inventory management resources
- Employees to help run the business
- Handling returns and inbound shipments, etc
with a dropshipping startup, you don’t need any of that. With just a laptop or smartphone and some software programs, you can start your business comfortably.
#Dropshipping requires minimum startup costs
Since the dropshipping business requires so little, you will not need much money starting. All you’ll need to start are just hosting (not needed for Shopify), a domain name, an e-commerce platform, and some tools
If you are creating the store with WordPress, I recommend using WPEngine because they offer very great support for WordPress sites hosted on their platform with a price starting from $25 per month.
For the platform you will use to create your store I recommend shopify. They offer you a 90 day free trial and their support is very good whether you are starting or established e-commerce business.
#Dropshipping business is flexible
Of all the benefits, the flexibility of work seems to be the best reason for starting a dropshipping right now. It gives an opportunity to be your own boss, setting your own rules, working from where you want as long as you can run your business.
#Wide range of products to sell
Remember when I said that you don’t need to pre-purchase and stock your own products? That comes with a benefit. You can have an array of products on your store and have the ability to add and remove the products depending on how they are selling. Of course, you’ll find some products in your store that are not earning profit.
#Easy to scale and manage
One of the good sides of dropshipping is that the investment costs do not rise very much as your business grows. With this, you can easily keep growing at a pretty fast rate and a small team. You will be able to manage almost everything by yourself. You will only to put some more work into marketing and sales to increase your earnings. To make management simpler there are a couple of tools that many drop shippers have claimed to increase productivity towards their businesses. (check them out)
Downsides of dropshipping
#Low profit margins
Before you start a dropshipping business, you have to be aware that selling some products will bring you low profits. You will likely meet this disadvantage when you are selling products in highly competitive niches like Beauty and makeup, Fashion and Apparel and Shoes.
Dropshipping products in these niches will require you to sell them for lower prices in order to fight for customers’ attention in your store resulting in lower profits. I am not discouraging you from selling in these niches though. If you believe in yourself to beat the big players then you can enter the market.
#Customer service could become challenging
Since you are just a storefront, your interaction with the customers may be limited. When something goes wrong it will be difficult to get in control. This is the moment that a customer will blame you for something that is not your fault and you will have to accept responsibility for the mistake anyway. To minimize these occurrences, you will want to avoid mediocre and low-quality suppliers who will frustrate you with issues like :
- Low-quality packaging
- Carelessly handled shipments
- Ordered products disappearance
When you find yourself in a case of supplier error, take responsibility and apologize to your customer. This will help very much avoid low ratings and bad feedback from the customer. Good Rating and feedback will attract more customers.
#Inventory issues may arise
This might happen especially when you are sourcing your products from many suppliers. The supplier fulfills orders to customers of different retailers. If this is the case then the inventory keeps changing. While there are ways you can better sync for your store’s inventory with your suppliers, these solutions sometimes fail to work seamlessly and suppliers don’t always support the required technology.
#Order shipment can become complex
If you are selling multiple products, you might be working with multiple suppliers and of course, your products will be sourced differently. This will increase your shipping costs because each supplier could be using different shipping solutions. It is also worth knowing that suppliers use different structures in place for processing and billing. Since you will have to interact with your suppliers, it can become tricky.
Are you suitable for dropshipping business?
So far it’s obvious that some people won’t be able to run a dropshipping business. If you are just looking for a stress-free, get-rich-quick scheme, or if you are willing to leave your day-to-day job, then you can approach dropshipping as a side hustle. However, my recommendation is to approach it as a full-time business and work on it until you succeed. Most online retail brands started just as you are trying to. A good example is Gymashark which was started by Ben Francis. He started his successful business as a side hustle but when he saw it was growing, he dropped out of college and quit his delivery job to focus on building his brand. Today gymshark is a famous name among workout and fitness enthusiasts.
Before going further to set up a dropshipping store, there are some important things you’ll need to know including:
Understanding The Supply Chain And Fulfillment Process
The supply chain refers to how a product moves from the manufacturer to the customer. You, as the storefront, are the retailer. The supply chain works as follows:
The manufacturer creates the product and sells it in bulk to a whole seller. The wholesaler then sells the products to the retailers who sell the products to the public. Note that the wholesaler can list his products on a directory website like aliexpress.
The one cool thing about being a retailer (selling from a wholesaler) is that you get to set your own price. You will the products on your store with the price you want and then pay the supplier his demanding price.
Setting very high prices which are unrealistic will make buyers to avoid buying from and even give negative reviews about your store online. Make sure your prices are captivating and buyers want to buy the product from you again and again.
Now that you have known what dropshipping business is and how it works, let us know how you choose your niche and the products that you are going to sell.
How To Choose A dropshipping Niche
The whole journey starts with choosing the right niche products you are going to sell. This can seem to be very simple and not worthy of putting into consideration. Ignoring this step is wrong and can make you fail. You will want to pick a niche that’s profitable and that does not high competition. This does not mean that you should go for niche products that people are not buying. Some niches don’t have people selling products in them because they either have low-profit margins or people are not purchasing the products.
Here are the factors
Here are the factors to consider while determining whether a niche is is suitable for choosing:
- Level of competition
- Demand of the products in that niche
The best dropshipping niche will have low to medium competition and a high demand. Popularity of the products under it should also be on the rise. You can use google search or any other search engine to get a list of different niches. But if you want a simpler way to find a list of niches to choose from, Oberlo already did that for you. Here is their opinion on the niches that have had a steady rise in the last 4 years.
I hope you have chosen some niches that you now want to select one of them. Have you already listed them? If you haven’t please do so now because it is important. If you have, let me help you to choose the niche that you will succeed in.
First of all, ask your self the following questions and answer them correctly
- What things among the ones I have will people be interested in mostly?
- What needs in people’s lives will these products satisfy?
- Which niches have their products selling most?
- With which niches will it be easy to find products?
- What is the amount of people selling products in these niches? And how good are their products?
- Are the people selling products in this niche doing it wrongly in terms of customer satisfaction?
You can involve your friends in answering the questions. Let them tell you the products they may be interested in. Alternatively, you can use social media and forum sites. Join group discussions and try to learn what people want. You can also use youtube to make the decision by finding YouTubers with a high number of subscribers and engagement. Then watch and figure out what niches the YouTubers are making content on.
If you have already chosen a niche let me help you in choosing the right dropshipping products in your niche.
How To choose the best Dropshipping Products (2020)
The most common mistake many people make when they reach this step is picking products based on their personal interest, not putting into consideration important things like demand, the prices, and ease of shipping. These are very important things to consider and that is why I’ve decided to talk about them.
The three factors are used to answer the question, “What do the best dropshipping products have?”
Now prepare another list of products you want to sell in the niche you have chosen. The next step is to carry out thorough research and decide on the best product(s) you are going to list on your online store. With the research, you can use tools like google keywords or google trends. Google trends will help you find if the product is trending or no one is interested in it and whether it is rising in popularity or losing popularity and their keyword planner. On how to do so, ahrefs wrote an article explaining in depth.(check the article)
Additionally, you can use these data to find the best products for selling.
This is simply the amount of money you can the product for. Choosing the retail price will depend on the actual amount you are buying the product from your supplier. It is recommended that you choose products that are not past 200 dollars and also not below 15 dollars. The reasons why I consider this to be the sweetest spot are:
- Refunds are disappointing when you are selling products above 200 dollars.
- Products above 200 dollars are difficult to sell for high-profit margins.
- Products in this spot are affordable and therefore will sell at high volumes.
- Since they sell for profit this will give you an opportunity to get more customer feedback which is important for credibility.
Setting a profit margin is also important. Considering that your profit margin will cater for marketing budget and all other expenses that go into making a sale, packaging and shipping costs, your profit should not be too high to chase away customers and also not too low. A profit margin of about 30% is the best.
#Bulk of the product
The bigger and heavier the product you are selling, the higher the shipping costs. If your supplier is from China, you can choose epacket shipping which will allow you to ship from China to more than 30 countries faster. As of 2020, epacket is shipping to the following countries:
#The product itself
You want to avoid products that are easily broken or damaged because they can be delivered to your customer in a damaged condition. You will need to consider quality packaging while dropshipping products like electronics. when a customer receives broken stuff will return them back to you and demand a refund. He or she may also give back rating for your business.
Avoid these mistakes when choosing a dropshipping product:
- Choosing imitation products. Selling counterfeit products can seem to be a good idea to many starters thinking that there is already a huge market for the product. Avoid doing this because you may find yourself in problems and harm your business.
2. Choosing a product with so many people selling it already. You’ve found a top-selling product that many people have listed on Amazon and eBay. You shouldn’t go for these products because you are just entering the market and you don’t have huge traffic compared to those guys already selling them. Look for products with high demand and low competition.
3. Choosing branded products. You can decide to sell products from big brands as they are in demand and popular. Some of these products are however, very expensive. For you to sell them, you will need to higher their prices by very low margins.
After finding the right product(s) to sell, you now need to brand your business. A brand is not just a nice logo. Your brand is your business’ identity and therefore very important.
Branding your dropshipping business.
If are just starting on a tight budget, you don’t need to hire professionals and spend a lot of money. But if you have some people visiting your store, you then need serious branding to retain your customers. For starters you need:
- Create a professional logo.
- Create a standout slogan and tagline.
- Design attractive and quality products.
- Create a beautiful website with awesome themes.
- Create a branded email signature.
Tip: When creating an email signature, remember to:
- Keep it simple
- Use colors
- Don’t add unnecessary information
- Add your professional photo
- Include your business logo
- Include social media icons
- Add a call-to-action
- Use a design viewable on mobile devices
You can use the following online tools for branding your online store. They are free!
#For logo design, use canva (Click to check canva)
#For Slogan and tagline, use Oberlo slogan generator (Click to check Oberlo)
#Hubspot email signature template creator (Click here)
The next step to starting your own dropshipping business is finding suppliers for your store who will fulfill the orders placed by your customers. Fulfilling orders is a crucial part of an e-commerce business. Imagine that a person has purchased a product from your online store and then she fails to receive it. You will be considered a fraud and will land in legal issues. Therefore taking a study in finding and working with suppliers is so important. Here’s