Many entrepreneurs who wish to start an ecommerce business drop the idea because of the troubles and expenses in managing an inventory. And it’s true. Managing an inventory requires manpower, finances and efficiency.
To combat all such problems there’s a solution and it is called Dropshipping.
With dropshipping, you can sell any type of physical goods without an inventory and earn decent profits from it. And yes, without the need for an inventory, now you can start your business in under $250 dollars. Sounds unbelievable. Read my post: Can you start an ecommerce business without money?
What is dropshipping?
Dropshipping is a business model or a way of doing business wherein you don’t have to manage an inventory. All you need to do is to partner with multiple dropshipping companies, sell their products online, take orders on your website and pass it on to your dropshipping partner.
The company will then process the order and ship the product to the customer on your behalf. You pay the dropshipping company the agreed wholesale price. You’re free to decide on your store price and thereby your profit margins.
To dropship, you need to –
- Create an online store
- Partner with a or multiple dropshipping companies. Some companies have zero sign-up cost while most charge a sign-up cost
- Sync your billing system with your partner’s system
- Market your store
- Get sales and pass it on to your partner
That’s it. Your ecommerce business is ready.
Every business model has its pros and cons. And so is with dropshipping.
Here are Pros and Cons of dropshipping:
Benefits of dropshipping
- No need to manage an inventory
- You can start your business with low capital
- No need for a shipping partner
- Great flexibility in choosing the location as well as shipping areas
- Low manpower requirement
- No need of a customer support team
- You can dedicatedly focus on marketing and drive sales
Limitations of dropshipping
- Margins are on a lower side
- No control over delivery
- No control over product quality
- Not a scalable business model due to low margins
- Your store’s reputation is now tied with that of your dropshipping partner
Like every business model, dropshipping has its share of limitations. But it solves the problem of managing an inventory. Also, it brings down the barrier of starting an ecommerce business by considerably reducing the capital required to start a business.
Convinced? Yes? OK then let’s move on to how to start a successful ecommerce business with dropshipping?
Choosing Products to Sell
What to sell in my store? Clothes? Gadgets? Furniture? Toys? Dropshipping may have eliminated the need for an inventory. But you have to cross one hurdle- what to sell? And it’s the hardest part. Many entrepreneurs spend months deciding the product to sell while others keep changing product categories in their store.
Here are a few consideration on deciding what to sell in your store-
- Demand: Look for products that have high demand. Demand raises from non-availability. So choose products which are not available in high street stores.
- Competition: Take the first mover advantage by entering new space.
- Profit Margins: Earnings on branded items will be lower but they are easier to sell. So check the business sustainability of your business on margin potential.
- Buyer Consideration: Expensive products have higher buyer consideration and hence higher buyer cycle.
- Marketing: Product promotion will be your responsibility. Some products need aggressive promotion while others less. So choose products which you can market within available resources.
Building An Online Store
The second step is to build an online store. You have many ecommerce platforms like Shopify, BigCommerce etc., wherein you can build a store in a few hours. They have monthly subscription plans with a 14-day free trial period. So it’s easy on the pocket as well. I have discussed the topic in detail here. Read my post at –
To choose the right ecommerce platform for your business, read my previous posts:
- Shopify Review: 10 Key Things With Honest Pros & Cons
- Ultimate Bigcommerce Review: 10 things you must know before buying
- Ultimate Volusion Review: 10 Key Things To Know Before You Buy
- Shopify vs BigCommerce comparison: Making the right choice
- Ultimate Guide: How to choose the best eCommerce platform?
Find Good Dropshipping Partner(s)
There are many businesses, manufacturers as well as wholesalers, engaged in dropshipping businesses. And that’s good news for you as you have plenty to choose from. Here are some of the ways to find a dropshipping partner for you:
- Use Shopify as Platform: Shopify has made dropshipping very easy. It has an exclusive tie-up with Oberlo. So if you build your store on Shopify platform then you can use Oberlo application and import products directly to your online store and sell it. Read Oberlo Dropshipping FAQ to know more about dropshipping with Shopify and Oberlo.
- For Other Platforms: In case, you have built or are building your store on other platforms then check with them on their support for dropshipping business. Most platforms have apps from dropshipping companies which you can install and sync it with your store.
- Access Dropshipping Directories: Directories have a huge list of suppliers, manufacturers, and wholesalers etc., who are engaged in the business of dropshipping. There are many popular directories, here’s my list of best 7 dropship directories. Most of these directories will charge you a subscription cost for giving access to their list but it saves a lot of time and is worth the money paid.
- Attend Events Related To Dropshipping: Dropshipping is the buzzword in online business these days and there are many trade shows and events organize around it. Attend events and shows organized in your city. You will get a chance to meet a lot of people engaged in the business.
How To Choose The Right Dropshipping Partner For Your Business?
The reputation of your business and its success is now tied to the efficiency of your dropshipping partner. You need a reliable, trustworthy and efficient partner for your success. Here are a few things to consider while you decide on the partner:
Systems and Technology: Faster delivery is a prerequisite for success in ecommerce. You can earn premium price if you deliver faster, mostly the next day. And speed comes with robust systems powered by technology. Your partner must have technology and systems that not only helps you import its products to your store but also gives you real-time data on inventory status, automatic syncing of order process from your store and uninterrupted information relay on delivery status.
Shipping Time: Another key consideration. How long will it take for your partner to deliver orders in your area of operations? Does it have its warehouse in one location or has it in many locations across the country? All this is important to make shipments deliver faster.
Expert Staff: As your partner will be responsible for shipping and customer support, it needs well-experienced staff to ensure satisfaction of your customers. So check on the quality and quantity of its staff. Enquire, if your partner can give dedicated staff for your business?
Reputation: Go for established ones as you build your business. The profit margins may be lower with leading drop shipping companies but they deliver on their promises and have sound processes. This will help you boost your customer satisfaction and establish your store.
Challenges which come along with Dropshipping
Dropshipping as a system has been a saviour for many ecommerce businesses both big and small. But ask a seasoned ecommerce entrepreneur who has used dropshipping for any length of time you will hear dropshipping for its own share of troubles and challenges.
Not all dropshippers do business with the level of integrity and commitment you run your business on. You might find that few dropshippers are plain bad at communication or delivery accuracy. The dropshipper with the right inventory might fall back on delivery and vice versa. Luckily you can weed out good dropshippers from the bad ones.
- Check for reviews of dropshipper online
- Ask the dropshipper for referral contact numbers
- Test relationships before you scale. Test the dropshipper for a small assignment and then give bigger assignments as they prove their value and service
- Separate Class A drop shippers from the rest based on fees, minimum order, industry knowledge, support staff, responsiveness to email orders, and availability of data feeds.
Handling Returns And Delivery Is A Hassle
Sometimes your brand can take a hit if the drop shipper delivers a wrong order to the customer. The customer might take to social media and harm your brand for no mistake of yours. It may also happen that you offer free returns to your customer but the drop shipper might not be comfortable with the idea of taking a used product.
The best solution to solve such disagreements is to have a clearly documented service level agreement which foresees all future problems. You should even update the SLA with new learnings you have gained by working with your dropshippers and customers. A good SLA document will have clear terms of returns, refunds, delivery accuracy, delivery time, damaged goods and communication protocol which both your drop shipper and you agree upon.
You Can’t Compete On Price Well
All the convenience you get because of outsourcing fulfilment and inventory comes at a cost. Dropshippers offer a price which is usually above the wholesale price. This depletes your margin as compared to competitors who maintain their own inventory.
- You might have to sell the product at a higher price than your competition or compromise on margins to stay competitive.
- The other workaround is to get volume discounts from your dropshippers. Pick your top performing products and see how you can sell the most of it and ask your dropshipper to give you a deeper discount.
Shipping Costs Are Higher
If your customer orders your products which needs to be sourced from 2 or more dropshippers then you have to pay for shipping costs to each dropshipper while you are expected to offer free shipping to your end customer. This makes it extremely difficult for you to get decent margins on products.
- Offer free shipping to the customer only when she reaches a minimum order value.
- Use one dropship distributor. This will ensure low shipping costs but you will have to compromise on the breadth of products provided.
Your Customer Service Is Out Of Your Hand
Your customers expect you to solve their problems when your dropshipper screws up the delivery. With products sourcing from multiple dropshippers, it is quite possible for few of them to under deliver on their promise once in a while. This is completely out of your hand.
- Keep inventory of your most popular products to control customer service
- Work only with A class dropshippers
- Streamline communication with a multi-channel inventory sync tool
Difficult To Sell Products You Haven’t Seen
When you are using dropshipper highly likely that you haven’t seen and felt the products yourself. It is difficult to sell products which you haven’t seen. Product photography, content and customer support is best possible when you have seen or used the product yourself. This is usually not possible when you are working with a dropshipper.
You can solve this problem to a certain extent by asking your supplier to send few samples to get a better understanding of the product. You can even buy out a sample of each product you plan to sell if borrowing is not possible. This way you can provide your customer better content to make decisions on.
Inventory Sync Across All Dropshippers
Most dropshippers don’t update their inventory numbers. Few update the numbers using a product feed upload but the numbers are usually not real time. When such a lapse happens possibility of a product being out of stock when a customer places an order is possible. This is terrible user experience for the end user and damages brand reputation.
What are the dropshipping challenges you are facing currently? Mention it in the comments section below.
Tips For Success In Dropshipping
- Choose a good partner: Do business with someone who is reliable, efficient and have good business ethics.
- Own up to partner’s mistakes: Things can go wrong in the business. Delayed delivery, wrong orders etc., can happen. Don’t blame it on your partner. Talk to your customer and own it. Remember, she is your customer, not your partner’s.
- Promise what you can deliver: Don’t promise what your dropshipping partner cannot deliver. Remember, you have a limited role in the process. So be honest with your customers.
- Keep improving your store: Start with a basic store to kick-start your business. But, with time, keep improving it. Use good product images and description. Here are few useful resources:
- Promote your online store: Good marketing will drive traffic to your business and get you sales. So get a good understanding of ecommerce marketing. Make use of both free and paid methods. Spend good resources on marketing your store. Leverage SEO, blogs, Ads, social media etc., to reach out to your audience.
Here are a few of my posts on ecommerce marketing:
- One Page Ecommerce Marketing Plan
- How To Build A Powerful Email Marketing Strategy For E-Commerce?
- Get More Sales With A Powerful Ecommerce Content Marketing Strategy
- Ecommerce SEO: The Only Guide You Will Ever NeedHow To Leverage Instagram To Drive Your Ecommerce Success?
- How to Guide on Facebook marketing for eCommerce success.
- Twitter Marketing For Ecommerce Sites: A Definitive Guide
- The Ultimate Guide To Pinterest Marketing For Ecommerce Sites
- Ecommerce Marketing Analytics: The Only Guide You Will Ever Need