Have you ever thought about launching your business on the Internet but do you feel limited by not having your own store or enough money to invest in the purchase of inventory?
Today we will talk about a very interesting sales system that hundreds of entrepreneurs already use, and that will allow you to launch your business idea with very low capital investment. It is called drop shipping or drop shipment and is an excellent way to start e-commerce taking few risks.
In this article, we cover the steps required to start and flourish in a dropshipping business.
What is dropshipping?
The dropshipping or “triangulation of shipments” is a model of online retail sales in which the products or items that we distribute to our final customers are not stored in our inventory but are purchased from a third party (the wholesaler or dropshipper) who Ship the goods directly.
In this business model, the retailer is only an intermediary who never sees or manipulates the product but purchases it directly from the inventory of his supplier, who completes the orders. Your profit as a retailer consists of a commission on the final price of the supplier or dropshipper. So you do not need to store or invest in having your own stock, just manage orders through your online store and start generating profits.
Do you dare to know a little more? Next, we will talk about the advantages and disadvantages of this online sales system.
Advantages and disadvantages of the dropshipping method
We will begin by first seeing the benefits of selling online using dropshipping:
It requires less capital to start: inventory investment is one of the largest items of expenditure when starting an online business.
However, with the dropshipping method, you do not have to buy the products unless you have already sold and received the payment from the customer, thus eliminating the risk of investing in items that you may never sell.
You will also save all the expenses involved in storing in the product, distribution, provisioning, maintenance of facilities … Many entrepreneurs who start a dropshipping business manage it from a home office or from any place where there is an Internet connection.
Although expenses may increase over time, they will always be lower than those of a traditional business.
You save time in organizational management: some common tasks such as organizing the stock, labeling, packing and preparing packages for shipment, are a great investment of time.
With dropshipping, this does not happen. We also do not have to deal with returns problems since our supplier deals with these issues.
Have a wide catalog of products: as you do not need to buy the items you are going to sell in advance, you can add new products to your catalog as long as your suppliers have them in stock, at no additional cost.
It’s not always easy to guess what customers want, so trying new products without investing is a competitive advantage.
Compared to traditional e-commerce businesses, businesses that use drop shipping are easily scalable. They allow us to expand with fewer costs and have a whole open horizon for the sale of products.
All these advantages make dropshipping a very attractive business for those who start online sales, however, it also has its drawbacks that should be known from the beginning to avoid unpleasant surprises:
b) Low-profit margin:
It is the biggest disadvantage of operating in such a competitive niche. Because it is so easy to get started and fixed costs are minimal, many merchants create their online store and sell their products with a very low-profit margin to get more conversions.
In most cases, these merchants do not invest too much in updating their store or in offering good customer service, but that will not prevent visitors from comparing their prices with yours.
Ten years ago this sales technique was much more profitable, but competitiveness among retailers and the growth of marketplaces like Amazon makes it difficult to get an acceptable profit margin. Hence the great importance of choosing a profitable niche from the beginning and offer added value (detailed product information, offers, personalized attention, etc.)
c) Lack of quality control:
the quality of the products may be worse than expected or that does not correspond to what is indicated on the web. Keep in mind that if customers are not satisfied with their order, they will blame your business and not the supplier.
To control the rate of returns and other problems associated with product quality, investigate your dropshipper first and work only with manufacturers that have a good reputation.
If the items are not very expensive, try to make a trial order to decide whether or not to include it in your catalog.
d) Problems with inventory control:
If you have all the products you sell in stock, it is easy to know which items are available and which ones have been sold out. However, when we work with several suppliers that in turn have agreements with many merchants, the inventory changes day by day.
For this reason, it is important that our dropshippers have an automated system that instantly updates the status of all the products in their stock. It is also convenient to review the conditions of the service and verify that our supplier notifies us when a certain product is used up.
e) Problems with order processing:
Many times the retailer has several dropshipping providers and they have different requirements for order processing or different shipping rates. This can complicate things a lot.
For example, imagine that your customer orders three items, but each one belongs to a different supplier. As a result, you would have to pay each of the shipping costs separately (thus adding a very high amount). Then we must decide whether to assume part of the costs and reduce our profits or not and risk losing a recurring customer.
Let’s not forget that shipping costs are one of the main reasons for abandoning the shopping cart.
Less control over the customer experience:
As much as you strive to get traffic and offer a good after-sales service, much of the business success depends on the commitment and seriousness of your drop shipping provider. There is no way to know if an order has arrived on time and sometimes we only realize the problems when a customer calls to complain or complaint. Then we will have to pass your question or complaint to our provider and often the matter will take some time to resolve.
A bad experience of our customers will have a direct impact on the reputation of the retailer’s store (even if the supplier is responsible). Although it is inevitable that sometimes mistakes occur, it should be you who apologizes.
Try to avoid bad dropshippers from the beginning as they will produce countless headaches: lost orders, damaged shipments when using poor quality packages … Although they have very competitive prices, over time it will not have been worth it.
In short, the dropshipping sales system has indisputable advantages but also some inconveniences and problems that you should know how to handle if they arise. Many of these obstacles can be avoided or resolved with proper planning.
Next, we will tell you how to develop a profitable dropshipping business from scratch.
A Step-by-step Guide to Starting a Dropshipping Business
If you have reached this point, you may still be interested in starting a business using the dropshipping sales system.
As we already mentioned, good planning is key.
Before thinking about the benefits of your business, you should make sure to follow the next steps.
1) Search for a profitable business niche
Have you already thought about what products you are going to sell in your store?
One of the biggest mistakes that entrepreneurs who start in e-commerce using dropshipping makes are choosing items based on their personal interests and tastes.
To build a profitable dropshipping business, you must first conduct a market study. You want to know why?
When you manufacture and distribute your own product, your competition is less because you offer something exclusive and this also allows you to charge a premium price.
However, if you plan to sell using dropshipping, the products in your inventory are not unique, your competitors also have access to them. This lack of exclusivity sometimes makes merchants look for a competitive advantage by selling at the lowest price. This commercial model with such small profit margins is destined to fail.
To set the price of the items in your store you have to calculate the budget invested in marketing actions and the time spent on pre-sales work. In general, the greater the market saturation, the more investment in advertising and more work is needed to position our business on the Internet and attract traffic to our online store.
For this reason, it is best to choose from the beginning a market niche that does not have much competition and where there is a need to cover.
And how to measure the demand for a product on the Internet? There are some free Google tools that allow us to calculate the volume of searches by keywords.
One of the best known is the Keyword Planner. It tells us how much competition a keyword has and how many people search for that word or phrase each month. This will clarify if the items you intend to sell with dropshipping has real demand and cover a market need.
On the other hand, the fact that a keyword is highly sought after can also be a sign of high competitiveness. Google Keyword Planner will also show you more complete combinations of terms and searches performed by users. These searches are commonly known as “long tail.”
Long-tail variations are very useful to get qualified traffic when the keywords of our business niche have very high competitiveness.
The other tool (also free) that we want to talk about in this section is Google Trends.
Google Trends offers us in certain aspects more detailed information than the Keyword Planner.
One of the most interesting functions is that it allows us to analyze search trends of a keyword over time, that is if the queries made on a keyword in a certain time segment are increasing or decreasing.
It also allows us to analyze which related searches are the most popular. Do you have doubts about which smartphone brand to sell in your store? Google Trends will tell you which of them are experiencing greater growth in terms of searches in recent months.
Another useful function is to geographically locate the terms that people are looking for. So you will know where the potential customers of your niche are. If you are trying to decide between several suppliers, you may want to partner with one that is close to most of your customers.
In addition, Google Trends allows you to understand the seasonality of your niche. This is something of vital importance to offer the best selling products at a certain time of the year.
Some items have very seasonal demand, their searches skyrocket in certain months of the year but are not stable over time. If we focus our business only on them, we will be overestimating the volume of demand.
Using Google Trends and the Keyword Planner will help us avoid mistakes when defining our market niche and choosing which products we are going to sell using dropshipping. It also allows us to reduce the budget allocated in advertising and the resources used in marketing strategies.
We must be cautious when analyzing this data. If there is too much competition, we may have trouble positioning ourselves and generating traffic to our site.
On the other hand, a very low search percentage may indicate that the product in question has a very little market and this may affect your sales volume.
With this in mind, to build a profitable business with dropshipping, it is best to choose products that have an acceptable demand, optimize the SEO of our store to improve search engine positioning and try to offer customers added value over the product to differentiate ourselves from our competitors and get more sales.
As a general rule, lower-priced accessories have higher profit margins.
A good way to reduce competitiveness in your niche is to offer products that are difficult to find in an area but are searching on the Internet.
Small items are less expensive to ship to your customers. The smaller they are, the lower the shipping costs.
Research and gather as much information as possible about each of the products you will sell. Think about whether or not they fit the interests and needs of your potential clients. It is the best way to ensure sales.
2) Search your dropshipping providers and start negotiations
If you already know what products you are going to sell, it will be much easier for you to find the suppliers you are going to work with.
a) How to find a legitimate supplier/wholesaler?
You can use different strategies, although some are more effective than others.
One of the easiest ways to quickly locate wholesale suppliers is to call the manufacturer of the products you wish to sell directly and ask for a list of their distributors. Once you have this list, you can start contacting them to ask if they offer to dropship.
If so, you can start negotiations and investigate the best quality-price products within your niche.
They are a good way to contact the manufacturers and wholesalers of our niche.
In addition, in this way, we will know firsthand the products that we plan to sell in our store and build relationships in our sector (networking). If you have time and money to attend, don’t think about it.
It is another method to find dropshipping providers when we cannot move from one site to another. Although it seems simple, if we use this technique we must investigate a lot and be cautious to avoid falling into scams. It performs a broad search on the Internet. Do not judge the reliability of a wholesaler by designing your website. It is known that many quality dropshippers have websites with a frightening appearance.
Unfortunately, most legitimate providers do not have great marketing skills. Many of them are not even well positioned in search engines, so it can be difficult to find them. Some entrepreneurs use the directories of wholesale suppliers to speed up the search (Worldwide, Brands, Doba, SaleHoo, etc.). Most of them are paid, but they offer us security as they carry out a research process to make sure that the wholesalers included in their list are genuine.
These directories are one more possibility to take into account, but of course, you can also initiate an investigation on your own on the Internet and contact the dropshippers directly. If you do it this way you should be careful and collect all the necessary information. You should assess aspects such as good customer service, good logistics (order processing and tracking) or that your sales platform updates inventory in real-time.
3) Create your sales channel for dropshipping
Once you have closed negotiations with your supplier, you must choose a sales platform for your business.
Here a range of possibilities opens up and it is convenient to make good decisions from the beginning since what you choose will influence the future of your business.
Is it better to sell in our own store or join large marketplaces like Amazon or eBay?
Everything has its advantages and disadvantages. Getting started with Amazon or eBay is very simple, you just have to create an account, wait for the approval and start uploading your products. You also have the advantage that these platforms already have many online buyers, since they are very robust markets. This way you can save a lot of budgets that otherwise you should invest in marketing issues to improve SEO and get more traffic.
So far everything seems advantages, but the truth is that selling on Amazon or eBay also has its drawbacks. As you can imagine, it is necessary to pay for publication fees that are quite variable.
If we add to that the fact that in dropshipping the profit margins are already low and that your products are shown next to those of the competition (you only have exclusivity in the space of your store), this will cause us to end up winning so little that our business is not profitable. The war of sales at the lowest price added to the payment of publication fees leaves us little benefit.
On the other hand, you would also give up personalization. Product listings should be made based on a template, the possibilities in terms of design and corporate image are quite limited, etc.
But, probably, the biggest disadvantage is that in this type of services there is no long-term connection with the client. Your communication with customers is considerably restricted, as are the marketing strategies that you can implement or use the data. All this is an impediment for your brand to get engagement and to retain your buyers.
Undoubtedly Amazon and eBay have their points in favor, but it all depends on the degree of freedom you want to have and how you plan your business in the future.
If you order the development of your own online store in WordPress or Prestashop, you will have to make an initial investment in your dropshipping business.
In addition, you will be responsible for generating qualified web traffic to your site, launching different marketing campaigns, working SEO and sometimes resorting to paid advertising.
But, on the other hand, when you start selling you will save the rates to third parties and have all the control over the sale of the products: you can customize the appearance of a certain section of your store, include all the information you want and go testing new things to increase your profit margin.
In short, you will be building a real business to build customer loyalty.
In addition, one option does not exclude the other and you can sell some items on eBay or Amazon while promoting your online store. In fact, many retailers follow this strategy.
4) Marketing strategies to boost your dropshipping business
Once you have the product catalog of your inventory and the online store in operation, the time has come to promote your business. You may already have many ideas in mind: writing articles, giving away a product, etc.
You need to implement several strategies by stages. Dropshipping businesses should be promoted like any other E-commerce with some variations.
What should we consider?
Add value to your product: it is the best way to differentiate yourself from the competition and build customer loyalty. How to get it? Offer useful content for your buyers: complete guides, detailed videos showing how the product works, etc.
Create detailed descriptions of the products and whenever possible, use your own photographs.
It is recommended that you keep a blog section within your store. So you can position yourself better by the keywords of your niche, offer more information about the products you sell, advertise promotions, etc.
Work your business SEO:
It is essential to attract traffic to your store, thus gaining visibility and more conversions. You should pay attention to the technical aspects of your site (loading speed, usability, accessibility from mobile devices), content marketing, link building strategies, etc.
Create a subscriber list:
Your subscriber list is the customer portfolio of your business and one of the best ways to get future sales. These users who leave us their data to receive information are known in marketing as “leads” or “prospects.” They are your potential customers. You should strive to segment this list and offer personalized newsletters, with offers and news about products that are of interest.
Do not forget about social networks:
They can be used to publicize your business on the Internet at a low cost. Social networks have a great reach when it comes to new viral content and provide us with constant feedback (opinions and ratings of our customers). Do not leave the management of social networks in the hands of inexperienced people. It is best to hire the services of a Community Manager or do some digital marketing course to learn how to use them professionally.
It is an option that you should not rule out while positioning and SEO do not pay off.
5) Start selling
The biggest challenge of managing a dropshipping business is managing an inventory when we have multiple suppliers. Some services such as Ordoro and eCommHub can help you with synchronization as long as your dropshippers offer real-time data loading, but this is not always the case. Sometimes you will have to check the long-term availability of the items you plan to sell.
You should also worry about the security of your store, especially in relation to the data of your customers. It incorporates secure payment systems such as Paypal or Stripe. If you store credit card data you must comply with all types of compliance standards, PCI (Payment Card Industry) security audits, etc.
Finally, you should keep in mind that even the best suppliers make mistakes: lost packages, defective items, etc.
To solve these problems you cannot simply blame your provider. The client doesn’t even know that the dropshipper exists. Apologize and tell the customer that you are doing everything possible to solve it. Then contact your provider to try to resolve the incident (either by submitting a new item or reimbursing part or all of the amount).
You must have a Return Policy in your store that you have written taking into account the previous negotiations with your suppliers.
Usually, the procedure is as follows:
- Your client contacts to request the return.
- You request an RMA (Return Merchandise Authorization) number to return the merchandise to your supplier.
- Your customer mails the merchandise to the supplier, noting the RMA number at the address.
- The supplier returns your money for the amount of the wholesaler.
- You return to the customer the total money he paid for his purchase.
Remember that all these aspects must be previously agreed with your dropshipper since you must always take care of your problems with your clients.
In conclusion, dropshipping is a very interesting option if you plan to start a business on the Internet but do not have much capital to start.
Of course, if you want it to be profitable you must work hard to promote your store, update the inventory, communicate with your suppliers and build loyalty to your customers.
Remember that it is a very competitive business model but with previous research and planning work, we can overcome many of its drawbacks and make dropshipping a viable business opportunity.