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
As mentioned earlier, starting a dropshipping business is relatively easy,in this section I will lay out some simple steps on how to start your first dropshipping store. For a comprehensive guide to starting a dropshipping store, download this eBook.
Find A Product To Sell
First thing is first, you need to find a niche to sell in. Ideally, this will be a niche you are enthusiastic about and are knowledgeable in.
Take a look at the product categories on eBay, Amazon, and other similar sites and see what products you would like to sell.
I have written a whole article on how to find products to sell online,it includes niche research and what tools and services to use so that you find a profitable product to sell. You can read the article here.
To find a product to sell online, I suggest you research the following sites;
- Amazons Best Seller Rank (BSR)
- eBay Most watched products
- Online gift shops like firebox.com and notonthehighstreet.com
- Consumer trend websites
Also, I suggest using these tools for further research and analysis.
I go into more detail in my article on finding products to sell online.
Additional Resource – Free Guide On What To Sell Online
Find A Dropshipping Supplier
After you have decided upon a niche, it’s time to go hunting for reliable suppliers. There are multiple websites (mainly based in China) that are dedicated to supplying dropshippers (do a quick Google search). Many of them work on an eBay style rating system model.
Find products with good reviews and find experienced suppliers. Avoid suppliers with low amounts of feedback (even if their prices are lower), the risk is not worth the additional hassle when you are just starting out.
Finding a reliable supplier is one of the most time-consuming tasks but it is one you will have to treat with the utmost importance. Finding a reliable supplier could be the difference between a successful and profitable store or a failing and loss-making store.
Below are a few 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.
- Geeek Buying
- Wholesale deals
- Worldwide Brands
Choose Your eCommerce Platform
There are many good eCommerce platforms, however, I only recommend a few for dropshipping purposes.
The easiest and quickest way is to sell on another pre-existing platform like eBay or Amazon. This gives you instant access to a huge amount of customers who are ready to buy.
However, there are certain fees you will have to pay should you use these platforms. They are not huge fees but with dropshipping having small profit margins,it is something you will have to take into account.
The other way is through your own website, I believe this is the best option as you are in control and have more say in how you market and advertise your products.
You can use platforms like WordPress, Joomla, Drupal, Magento etc to build your own custom-made eCommerce store that you alone have full control of.
You can also use eCommerce platforms like Shopify, Bigcommerce, 3DCart etc and build a store on their platform, this is the route many people choose as it is easier and less hassle.
A lot of people choose to start their dropshipping business with Shopify, although I prefer WooCommerce as my preferred eCommerce platform,I do understand why people join Shopify. They have fantastic support and they have tons of resources on how to start a dropshipping business.
I would personally choose WordPress, I am familiar with the platform and I find it easy to use.
Of course whichever platform you choose, ultimately your success will come down to what you decide to sell and how effective your marketing and advertising is.
If You choose Amazon or eBay as your selling platform,t his isn’t really a problem,t he traffic is there, you just have to optimise your lists so that it gets found.
Should you choose to build your store on an independent platform, you will have to learn way a drive traffic to your store, this can be done through many avenues. For example
- SEO – Rank your store on Google (or Bing) and get free traffic
- Social Media – Facebook, Twitter, Instagram and Pinterest are all fantastic platforms for eCommerce
- YouTube – Video marketing is one of the top ways to attract visitors to your store
- Relevant niche forums – Engage with your potential customers by finding out where they hang out online
- Paid Ads – Google, Facebook, Bing all have massive advertising networks.
The trick is to master one traffic generating method and scale it up,never try to master multiple methods are once,this will most likely keep you moving from one method to another without ever generating enough traffic for your store.
Keep it simple!!
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.
For a low-cost way to start a dropshipping business, I recommend you check out my review of Oberlo and Alidropship, both companies have developed a piece of software that will help automate a lot of tasks relating to running a dropshipping business. However, they work on different platforms, Oberlo works exclusively with Shopify and Alidropsship is a WordPress plugin.