Do you want to start a dropshipping company? To get started, here’s what you need to know.
Dropshipping is a retail delivery system in which a store does not hold stock of the products it sells. When a store uses the dropshipping model to sell a product, it buys the item from a third party and delivers it directly to the consumer. As a consequence, the vendor is relieved of direct inventory handling.
The most significant distinction between dropshipping and traditional retail is that the selling merchant does not own or store inventory. Instead, the seller fulfills orders by purchasing stock from a third party—usually a wholesaler or manufacturer—as required.
How does dropshipping work on Shopify?
Two of the most popular ways to dropship on Shopify are to use supplier databases to find a supplier in North America or elsewhere globally or to use a Shopify app that links you and your store to thousands of suppliers.
For the latter, we suggest Oberlo, a Shopify marketplace that assists small business owners in finding goods to sell. With Oberlo, you can search AliExpress and import items that pique your interest to Oberlo—which is linked to your Shopify store—with a single click.
You’ll be able to fulfill a customer’s order in the Oberlo app after they’ve purchased a product. Oberlo, fortunately, automates this operation. All you have to do as the store owner is double-check the information and press the “order” button. The product is then delivered directly from the AliExpress supplier to the consumer, located anywhere in the world.
Benefits of dropshipping
Dropshipping is a great business model to start with for aspiring entrepreneurs because it is easy. Dropshipping helps you quickly test various business strategies with little risk, allowing you to learn a lot about picking and selling in-demand goods. Here are a few more reasons why drop shipping has become so common.
1. Less capital is required
The most apparent benefit of dropshipping is that it helps you start an e-commerce company without spending thousands of dollars in inventory upfront. Historically, retailers have had to lock up large sums of money to purchase inventory.
You don’t have to buy a product if you’ve already made a sale and been paid by the customer with the dropshipping model. It’s possible to start sourcing goods and begin a profitable dropshipping company with very little money if you don’t have a lot of inventory upfront. Unlike a typical retail company, there is less risk involved in starting a dropshipping store since you are not dedicated to selling out any inventory purchased upfront.
2. Easy to get started
When you don’t have to deal with physical goods, running an e-commerce company is much simpler. You won’t have to think about any of the following with dropshipping:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
3. Low overhead
Your operating costs are minimal because you don’t have to worry about buying inventory or maintaining a warehouse. In reality, many active dropshipping companies are run from home, needing nothing more than a laptop and a few recurring expenses to run. These costs will likely rise as the company expands, but they will still be low compared to traditional brick-and-mortar companies.
4. Flexible location
A dropshipping business can be run from almost anywhere that has access to the internet. You can operate and handle your company as long as you can interact effectively with suppliers and customers.
5. Wide selection of products to sell
You can deliver a wide variety of trending goods to your future buyers, and you don’t have to pre-purchase the things you sell. If your suppliers have an item in stock, you can list it for free on your online store.
6. Easier to test
Dropshipping is an effective distribution tool for opening a new store and testing consumers’ appetite for new product types, such as shoes or entirely new product lines. The critical advantage of dropshipping is the opportunity to list and eventually sell items before making a significant investment in inventory.
7. Easier to scale
If you get three times the amount of orders in a typical retail company, you’ll need to do three times the job. The majority of the work to process additional charges will be carried out by dropshipping vendors, allowing you to expand with fewer growing pains and less gradual work.
Sales growth will always require more work, especially in customer service, but dropshipping businesses scale much better than traditional e-commerce businesses.
Disadvantages of dropshipping
Dropshipping is a very appealing model for those getting started with an online shop or for anyone looking to broaden their current product offerings for all of the reasons we listed. Dropshipping, like any other strategy, has its drawbacks. Convenience and versatility, in general, come at a cost. Here are a few flaws in thinking about.
1. Low margins
The most critical drawback of working in a highly competitive dropshipping vertical is poor margins. Many rival retailers would set up shops and sell goods at rock-bottom prices to raise sales because it is so easy to get started, and the operating costs are so low. They can continue to run on minuscule margins because they put so little money into the company, to begin with.
These sellers typically have low-quality websites and little (if any) customer support, which you can use to set yourself apart. Customers will also compare their prices to yours, however. The future profit margins in a niche would be harmed rapidly due to the increasingly fierce competition. Fortunately, you can alleviate a lot of this issue by choosing a dropshipping-friendly niche or vertical.
2. Inventory issues
It’s pretty easy to keep track of which goods are in and out of stock if you stock all of your stuff. However, inventory will regularly shift when you’re sourcing from several warehouses that are also fulfilling other merchants’ orders. Fortunately, there are a few apps that allow you to sync with suppliers these days. Drop shippers should be able to “pass along” orders to suppliers with a few clicks and should be able to see how much inventory the supplier has in real-time.
When a supplier’s stock runs out, Oberlo allows merchants to take automated measures. When a product is no longer available, you can automatically unpublish it or keep it published but set the quantity to zero.
3. Shipping complexities
The items on your online store will be sourced from various drop shippers if you work with several suppliers, as most drop shippers do. This adds to the expense of shipping.
Assume a customer orders three products, each of which is available only from a different supplier. For delivering each item to the customer, you’ll incur three other shipping charges, so it’s probably not a good idea to pass these costs on to the customer. Even when including these charges makes sense, automating the calculations can be difficult.
4. Supplier errors
Have you ever been blamed for something that wasn’t your fault, so you had no choice but to accept responsibility?
Even the best dropshipping suppliers make mistakes when it comes to fulfilling orders, which you must accept responsibility for and apologize for. And mediocre and low-quality suppliers can frustrate you endlessly with lost products, botched shipments, and insufficient packaging, all of which can damage your company’s credibility.
5. Limited customization and branding
Dropshipping, unlike custom-made or print-on-demand products, gives you no control over the product itself. Usually, the supplier designs and brands the drop-shipped product.
While certain suppliers can accommodate the company’s product changes, the supplier always has the most control over it. Any modifications or enhancements to the product itself usually necessitate a minimum order quantity for the producer to be viable and affordable.
Common questions about dropshipping
We’ll go through all of the steps to starting a successful dropshipping company in the rest of this book. But before we go any further, let’s answer a few frequently asked questions about dropshipping and how it works.
How much do I need to invest in starting dropshipping?
While it’s difficult to estimate exact costs for any given company, there are a few things that any drop shipping company would need to purchase to get started. Here’s a short rundown of the essential costs.
Estimated cost: ~$29/month
To create and host your online shop, you’ll need to find an e-commerce platform or website builder. We strongly advise you to open a Shopify store. You’ll be able to source items from the Oberlo marketplace quickly, and you’ll have access to our entire library of themes and free branding resources to help you get your company up and running quickly.
Estimated cost: $5-20/year
Without your domain name, it’s difficult to gain consumer trust. Although there are various top-level domains to choose from (e.g., example. shop, example. co), if one is open, we suggest searching for a.com that suits your brand. To get started, use our domain name generator, or learn more about how to come up with a memorable business name.
Estimated cost: Varies
While dropshipping allows you to have a low level of involvement in managing your overall product catalog, you should set aside money and time to test the items you intend to sell. If you don’t, you risk listing a product with too many flaws or faults, resulting in dissatisfied customers and a lot of time spent dealing with returns.
Estimated cost: Scales with your business; we suggest starting with at least $500.
Every e-commerce company should look for ways to lower their average cost per customer by using organic channels such as content marketing, SEO, and word-of-mouth. However, for most product-based companies, advertisement is typically an important channel to get started. Search engine marketing (SEM), display advertising, social media ads, and smartphone ads are the most popular platforms.
How do drop shippers make money?
Dropshipping companies serve as product curators, choosing the best mix of items to deliver to consumers. Know that marketing is a time and money commitment that you make to help potential customers identify, assess, and buy the right product. You’ll also need to factor in the expense of delivering customer service if a product or delivery problem arises. Last but not least, there’s the original price at which your supplier sells the item.
Dropshipping companies mark up individual goods in return for delivery to cover all of these expenses. Dropshipping stores drive extra profits that the supplier would otherwise miss out on, which is why manufacturers are happy with drop shippers selling their goods for them. It’s a good idea to figure out how much it costs you to “acquire” a customer and price your goods accordingly to make a profit with your dropshipping company.
Is dropshipping a legitimate business?
Dropshipping is simply a fulfillment model that many global retailers use, and it is entirely legal. Customer satisfaction and creating a brand that resonates with the right audience are still critical to long-term success in any industry.
This question is often asked because people don’t understand how dropshipping works. The majority of retail stores do not sell items that they directly produce. Dropshipping transforms this curated approach into a distribution model suitable for an online store.
Of course, there are the more basic things you must do in order to run your company lawfully. To make sure you’re doing business lawfully in your area, consult a lawyer who specializes in these areas.
How much do drop shippers make on average?
The average monthly income varies from niche to niche and target market to target market. Seasonal shifts, industry dynamics, the marketing plan, and other considerations are all taken into consideration. Drop shippers usually make 10-40% profit on each sale, bringing in about $1000-$50,000 per month.
So, is dropshipping worth it in 2020?
Dropshipping isn’t a perfect, stress-free way to start an online company; as we’ve already stated—hard work is still needed when starting a business. The model has some distinct benefits, but it also has a host of inherent complexities that must be addressed.
In subsequent chapters, we’ll look at these issues and how to solve them better. The good news is that most of these roadblocks can be overcome with careful planning and thought, and they won’t keep you from developing a thriving, profitable dropshipping company.