What is dropshipping? How do you get started with this online business model,is it profitable to start a dropshipping business? These are some of the questions I will be answering in this article.
The world of eCommerce is growing at an exponential rate,according to eMarketer, eCommerce sales will rise to nearly $3 trillion by the end of 2018 and account for over 11% of all retail sales. This growth has opened up new avenues for entrepreneurs to start an online business.
Whilst eCommerce is booming, it can be expensive to start a traditional eCommerce business, buying inventory in bulk,storage fees and delivery charges can add up and eat into your profit margins. This is where dropshipping comes in, without any of the mentioned expenses, you can start a dropshipping business on a shoestring budget.
Dropshipping is a very popular eCommerce fulfilment method with some reports saying that it may be used by almost 33% of all eCommerce operations.
What Is Dropshipping?
Before I go on and explain in detail how the dropshipping model works,I must warn you about a couple of things about this business model.
Because the model looks really simple (and it is once you work everything out)unfortunately it is one of those things that has been twisted and warped by get rich quick merchants into a thing that is now synonymous with false promises of internet riches.
Many unscrupulous people have tried to market the business model as a “get rich quick” scheme that allows people to make millions while working from anywhere in the world and without much effort.
Yes, you can make a very good living from this business model but like everything in life,it takes hard work and effort to see success. It will not happen overnight and anyone with that mindset are bound to fail.
Dropshipping is not some kind of golden goose that will make you an internet millionaire within a matter of months. It’s a business model like any other that will require you to put in a lot of work to make it a success.
But if you do, it can be very profitable indeed.
Today we are going to dispel the “get rich quick” myths that surround dropshipping and talk a little bit about what it is, why it’s good, and how it works.
We’re going to conclude with a short (but comprehensive) guide that will give you some actionable advice on how to start your own dropshipping business.
Let’s get started.
The Dropshipping Business Model
The concept behind dropshipping is reasonably simple. It’s not exactly new, and it’s not exactly rocket science, but it is quite clever.
In a traditional store, the store owner usually keeps stock in their warehouse. When someone orders something the store owner packages it up and delivers it to the customer.
In a dropshipping store, the owner doesn’t store any inventory that they are selling
In fact, in most cases a dropshipping store owner never even touches the stock they are selling. The storage and delivery are taken care of by the supplier/manufacturer of the product.
The process looks a little bit like this.
- A customer places their order on ExampleShop.com
- The owner of ExampleShop.com receives payment from the customer and purchases the item from the supplier
- The supplier directly ships the item to the customer
- The owner keeps the difference between what they paid the supplier and what the customer paid them
What Makes Dropshipping A Good Business Model?
So as you can see, dropshipping isn’t exactly a super secret advanced business model. The store owner essentially becomes a middleman between the customer and the supplier.
There are several obvious (and a few not so obvious) benefits to doing business this way.
Minimal Investment Required
This is one of the biggest benefits of running a dropshipping store. It’s also one of the biggest reasons the business model was jumped on by snake oil salesmen selling it as a get rich quick scheme.
Dropshipping stores don’t require anywhere near as much capital to set up as traditional stores that hold their own stock.
The beauty of dropshipping is that suppliers can (and do) sell items in individual quantities. You only order exactly the amount you need from the supplier, and you only order it after a customer has already paid you.
This essentially means you need no start-up capital to invest in stock (you’ll have other expenses though).
In addition to not having to pay for any stock upfront, your overheads will be much lower compared to a traditional online store. You’re not going to have to pay for a warehouse to store your stock (which means you save on rent and utilities). All you need is a laptop,a good internet connection and web hosting.
I was hesitant to write this point down as a benefit, it’s what the snake oil “get rich quick” scammers like to trick people with. But it’s true that if you have a successful dropshipping business you can run it from anywhere in the world.
Many people become “digital nomads” with their dropshipping businesses and travel the world while earning their income online.
Perhaps the most exciting thing about dropshipping is the scalable nature of the business model. Traditionally scaling up a normal online store is a big decision that needs a huge amount of planning.
You need to consider additional warehouse costs, inventory costs, and possibly even hiring people to help you run the day to day logistics.
With a dropshipping business, you don’t need to worry about any of this. All your running costs are basically outsourced to the supplier. They have the warehouses, they have the staff, and they do the shipping.
To scale up a dropshipping business, all you need to do is add more products to your website, sit back, and relax.
What Are The Problems With Dropshipping?
At this point in the article, it all probably sounds a little bit too good to be true. However, there are several downsides to dropshipping that the “get rich quick” scammers won’t tell you about.
None of these downsides prevents dropshipping from being a legitimate business model, but it’s important that you are aware of them before you dive into it.
Although suppliers will give you a discount,it will never be as large a discount you would get should you buy in bulk. Usually, you will get a discount of 15-20%, if you bring in a lot of sales,the supplier may increase the discount.
The profit margins are lower than your traditional stock and ship eCommerce methods,however, this is offset by the fact you have less work to do and low overheads plus once you find a winning product and you can start to scale and grow your business.
However, I must also add that profit margins can be exceptionally high if you decide to source your products from overseas (like China) like many dropshippers now do. So, profit margins can be both high and low depending on where you source your products from.
The most important component of a successful dropshipping business is finding a reliable supplier (which is more difficult than it sounds).
Your suppliers are going to be responsible for ensuring your customers get exactly what they ordered (within a reasonable timeframe). The performance of your supplier will directly affect the reputation of your store. The customer usually has no idea it’s the supplier shipping the products instead of you.
If a supplier ships the wrong item (or a defective item), if they have delays, or if anything else happens – it’s going to make you look bad.
You’re going to have to do a lot of emailing and admin every time something goes wrong. When you consider the thin profit margins this quickly becomes something that is not going to be worth your while.
Take the time to ensure your supplier knows what they are doing before you even consider listing their products on your website.
How To Start Your First Dropshipping Store
First thing is first, you need to find a product to sell, one that is profitable and ideal for dropshipping. This is the most important part of your dropshipping business, identify a product that has a hungry audience, if you can do that, you will be on your way to success.
This is also a time-consuming task, fortunately, there are several places we can look for some inspiration.
So, for a dropshipping business, below is the criteria I follow when doing product research;
- The product should be lightweight.
- No electronic or mechanical products.
- The product should not break easily.
- Should not be too expensive.
- People will buy on impulse.
This is my favourite research method and I use it before anything else, keyword research is an essential part of your research phase and will help you decide if a product has enough market demand for it to be profitable.
I have access to a few premium keyword tools but for this article, I will use Ubersuggest, this is a free keyword research tool from Neil Patel and will provide enough data to help you get started.
One of my passions is Golf, I love watching it and so I decided to do some digging into this niche and see if I could find a product to sell.
So after a bit of research, I found that the search term ‘Golf Gifts’ gets over 14,000 searches per month. The term also gets a massive spike during the Christmas period, however, the search volume over 12 months suggests there is a demand for golf gifts all year round.
After searching through some of the top web results, I noticed that many of the stores were selling personalised golf gifts.
Here are some of the products ideas I came across for golf gifts
- Golf cufflinks
- Personalised gloves
- Personalised golf balls
- Personalised scorecard holder
Of course, you will have different interests but I hope you get an idea of how to come up with product ideas through keyword research.
Apart from keyword research, I also take some ideas from the following sites:
- Amazons Best Seller Rank (BSR)
- eBay Most watched products
- Online gift shops like firebox.com and notonthehighstreet.com
- Consumer trend websites
Remember, to follow the criteria for choosing a dropshipping product, so for example, while I was checking through the best selling items on Amazon, I found the product below that ticks all the boxes.
The price for RFID blocking wallets range between $9.99 – $39.99 on Amazon, on Aliexpress I found similar wallets for less than $5.
Say you mark up the price by 200% and sell it for $15 and shipping with ePacket is $1, that is still a $9 profit!! Sell 10 a day (conservative estimate) and you are close to making $100 per day.
Even if you run Facebook ads and pay around $1-$2 for a paying customer, you are still making $8-$7 per order.
I will give you one more example of how to find good products to dropship. One site I visit regularly for product ideas is notonthehighstreet.com.
As the name suggests, you will not find items listed on that website on any of the popular eCommerce sites. Many of their products are personalised gifts.
Personalised gifts are very popular and one of the most popular occasions for such gifts is for weddings.
A gift idea that caught my eye was wedding guest books, prices started at $52 ( I have converted it from GBP).
For a similar item on Aliexpress, the price is between $16.14 and $18.99, shipping is free for this item.
If you priced this item at $35, you would still be pocketing $16 per order and wedding gifts are a huge niche and sell all year round.
One other place you can brainstorm for product ideas is on the Shopify marketplace, this is where people put up their eCommerce store up for sale.
It’s a good place to get an idea of what kind of products people are actually dropshipping and making money.
The website is called exchangemarketplace.com and it will provide you with another option for product research
Additional Resource – Free Guide On What To Sell Online
Find A Dropshipping Supplier Through Aliexpress
After you have decided upon a niche, it’s time to go hunting for reliable suppliers. Finding reliable suppliers can be hard, fortunately, through Aliexpress it is made easier.
Aliexpress has thousands of verified suppliers and they are all rated by their clients and you can use these ratings to choose a reliable supplier.
Suppliers on Aliexpress are rated on three points;
- Correct Items
- Shipping Times
Each is scored out of 5 and they are given an overall mark out of 100.
My advice would be to find suppliers that have the following;
- In business for 3+ years
- Lots of feedback on your particular product
- Overall rating of 95+
Avoid suppliers with low amounts of feedback (even if their prices are lower) and low overall rating, the risk is not worth the additional hassle when you are just starting out.
If for some reason you cannot find a supplier on Aliexpress I have listed a few more sites where they either provide listings for dropshipping suppliers or offer the service themselves, some of these sites will require a fee to access their directory.
Sign Up For A Shopify Account
Now that you have chosen your niche, its time to sign up for an eCommerce platform, you have many choices here but I recommend Shopify.
They are the leading eCommerce platform for dropshipping, there is a fantastic support structure and they provide lots of free resources to help you with your eCommerce business.
Some of these free resources include the following
- Dropshipping 101
- Shopify Academy
- What to sell online
- Facebook advertising Course
- Google shopping Course
Signing up for a Shopify account a very straightforward, the video below takes you through the process.
Choosing A Domain Name
Although you do not have to do this now, I would highly advise you to purchase a relevant domain name for your eCommerce site.
I usually purchase my domain names from Namecheap, they are as their name suggests, cheap and you receive 1 year free of WHOIS protection.
It is very important that your store looks professional, otherwise, it will be hard to build a brand and distinguish yourself from the thousands of other dropshipping websites.
For some inspiration on well designed Shopify stores, check out the Shopify Marketplace. You can also get some niche ideas from many of these successful stores.
Adding products into your store is made easy with Oberlo.
Oberlo is the no.1 Shopify dropshipping app and since it was purchased by Shopify last year, it comes with every Shopify account. Oberlo will make running your dropshipping store much easier and I do recommend you make use of it. You can read my review of Oberlo here and find out more about it.
The basic functions of Oberlo include the following;
- One click import
- One click order processing
- List of Oberlo verified suppliers
- Pricing automation
- Order tracking
- Detailed sales statistics
The video below shows just how easy it is to add a product to your store.
So there you have it, an honest guide to dropshipping without all the hype. Dropshipping can be a lucrative business for people who put in the time and effort and do not give up easily.
I must re-iterate never fall for get rich quick schemes that make it seem dropshipping is easy and will make you rich with little effort.
There are tons of resources that will help you get started with dropshipping, you really do not need to pay a huge sum of money to learn how to start a dropshipping business
There are way too many so-called ‘gurus’ who sell you a dream but leave you hanging when you buy their course,there are legitimate courses but be aware of the ones that charge a lot and make it seem easy. Those are the ones to avoid.
In this article, I have shown you how to start a dropshipping business with Shopify and Oberlo.
If you are not comfortable using the Shopify platform, I recommend using WordPress and WooCommerce along with Alidropship, Alidropship is a WordPress plugin that works in similar fashion to Oberlo and comes with many of the same features.