There are streams of income to be made through various online channels. You have the comfort of doing online surveys, data entry jobs, transcription, and more. But these channels do not have the assurance of giving you financial freedom. You will have to keep your existing job or find some other productive work that can help you fulfill your day-to-day needs. On the other hand, there are some business options that have the potential of making you rich and earn consistent income. They require learning, hard work, dedication, and patience to taste success. One of them is Dropshipping. Dropshipping has been around for many years in different forms but with the evolvement of e-commerce, it has become an interesting topic among many enthusiasts. Want to know more about what is Dropshipping business?
I will tell you all about dropshipping in this article. You will find out what is dropshipping, how does it work, and what are the pros and cons of doing it. So, let’s get started.
What is Dropshipping business?
Dropshipping is an order fulfillment system where the dropshipper does not own a warehouse stocked with goods.
In the dropshipping business, the dropshipper does not have products in stock but when there is an order from the store, the person transfers the sales order to a third party, who is the supplier, who then delivers the order to the customer.
In a nutshell, dropshipping is about selling other people’s products for a profit margin.
How does Dropshipping business work?
Three factors complete the dropshipping business circle. They are the retailer, the supplier, and the customer.
- The retailer – This is the store owner, who is also the dropshipper. The person owns an e-commerce store where customers order products. The retailer keeps no stock or owns a warehouse.
- The supplier – The supplier or wholesaler is the person that fulfills the order by sending the product ordered in the retailer’s store to the customer. The retailer passes the order to the supplier to fulfil it while the retailer makes a little profit from the sale.
- The customer – When the customer makes an order from the retailer’s website, a notification is sent to the customer. The order is directed to the supplier after the retailer must have paid the supplier to deliver the item to the customer.
What is e-commerce and how does it work?
E-commerce is a business model that involves the buying and selling of products or services over the internet.
The transfer of money and data is part of the process of completing the sales.
E-commerce works the same way the offline store works. The difference is that the transaction is not physical. The processes can be divided into three components:
- Receiving orders
- Processing order information
Receiving orders – This is the first step where a customer places an order through the e-commerce website.
Processing order information – This is the second step. It entails obtaining information on the order placed by a customer to start processing the order.
Shipping – This is the last step where the order is shipped to the destination of the customer.
Difference between Dropshipping and e-commerce
While dropshipping is a part of the e-commerce business, it must be noted that the process of order fulfillment is quite different.
In an e-commerce business, the store owner stocks the goods and delivers the items directly to the customer or through a shipping company while in dropshipping, the store owner does not store any goods but relies on the supplier to deliver the order.
In dropshipping, the shipping part does not concern the dropshipper. It is the supplier that takes care of shipping after it must have been paid for by the retailer or the online store owner.
What to look for in a Dropshipping company?
There are three things you must look out for in a dropshipping company.
They are quality products; timely order fulfillment and order return fulfillment.
- Quality products – What makes or mars a dropshipping company is the products. Companies that sell substandard products won’t go far. Many dropshipping companies have a quality control department that ensures that all the products shipped are of high quality.
- Timely delivery – The timely delivery of orders excites customers a lot and delays can discourage customers from repeated purchases. Before choosing a dropshipping company, ensure that they deliver promptly. If they promise three days, they must not fail. Their words should be their bond.
- Order return fulfillment – You should be able to return an order that fell short of the requirement. It would amount to a waste of money if a dropshipping company does not accept returned orders. So, be meticulous about this. Look for a dropshipping company that accepts returned orders.
What are the requirements /pre-requisites to start a dropshipping business?
Before starting a dropshipping business, there are five factors you must take into consideration.
These considerations are:
- Choosing the right dropshipping niche
- Finding credible dropship manufacturer or supplier
- Going for the sales tax ID
- Choosing the right selling platform: building your e-commerce website
- Putting in place the right customer acquisition strategy
1. Choosing the right dropshipping niche
Finding the right niche is the first step to starting a dropshipping business.
What is a niche?
A niche is a subcategory of a particular category. For instance, clothing is a category, choosing women’s clothing is a niche. In electronics, the smartphone is a niche.
Choosing the right niche would determine the success of any dropshipping business. Pick a niche that can give you up to a 40% profit margin after deducting the cost of shipping and taxes.
2. Finding a credible dropship supplier or manufacturer
The next thing is to look for a credible and dependable supplier or manufacturer that dropship. Oberlo, Alibaba, or AliExpress are some of the platforms where you can find credible suppliers or manufacturers.
3. Going for the sales tax ID
In some countries like the United States and Canada, you need a sales tax ID. It is also called a resale certificate or vendor’s license in other countries.
Sales tax is a tax that is imposed on all physical products sold to consumers. It is about 6% of the price of the product sold.
4. Choosing the right selling platform: building your e-commerce website
The next thing is to build your e-commerce website. You can outsource it if you cannot build it yourself. But there are easier ways to build websites nowadays using WordPress and WooCommerce. Building it yourself cuts a lot of costs.
Another option is to start your dropshipping business by selling products on marketplaces like Amazon and eBay.
5. Start promoting your platform
If you choose to build your website, you have to start promoting it to get traffic and find customers to make purchases.
Some of the strategies include social media ads, e-mail marketing, and offline methods like the printing of flyers and posters.
How do Dropshippers make money?
Dropshippers make money by keeping the difference between the supplier’s price and the actual amount the product is sold to the customer.
For instance, if a customer orders a smartphone for $150; the price of the phone maybe $80 from the supplier’s side, what is left is the drop shipper’s profit after deducting shipping cost and taxes.
Who is Dropshipping suitable for?
Dropshipping is suitable for anyone who wants to make money online. It is best suited for people who are good at product research, have a technical background in websites (recommended but not a must), and entrepreneurs.
Can you make money with Dropshipping?
Yes, you can make money with dropshipping. The best way to make money with dropshipping is to find a niche that can give you up to a 40% profit margin.
Make sure you are not falling for dropshipping under the influence of other’s success. Follow the blueprint of doing dropshipping business and there is no turning away from the income-potential fact it carries.
Is Dropshipping legit globally?
Dropshipping is a global retail business. So, it is legit in many countries of the world.
Pros of doing Dropshipping business
- Little or no start-up cost – Many dropshipping platforms offer free training and membership plans to help you start an e-commerce store. Your effort is to choose the right one.
- No stock-keeping – No headaches of finding or adjusting your own place for warehousing of goods compared to having a physical store.
- No shipping worries – No goods to store, no need of thinking about delivering them to your customers, no need to pay for anything.
- Low overhead cost – You don’t have much to bear apart from the membership cost and dropshipping fee if any (depending on the dropshipping platform or supplier you work with)
- There is a wide range of products to sell – You can sell almost anything. With the growing shift towards the online purchase, dropshipping/e-commerce is at the heart of online shopping.
Cons of doing Dropshipping business
- Low-profit margin – The profits purely depend on the type of products and suppliers you work with and it keeps fluctuating.
- Highly competitive – There are thousands of people, platforms, and products already in this business. The competition is very high and it really needs learning, patience, and persistence to achieve success.
- Supply errors – Your business may get impacted owing to your supplier’s mistakes. It could be packaging, delivery TAT, or wrong product supply, you will have to bear the brunt of a bad reputation
- Late delivery by suppliers – This is very often. Thanks to high volume and competition there are numerous instances of late deliveries that overall lead to dissatisfaction of customers.
- Limited branding of products – Variety comes with limitations. Since you are at will to sell anything, it reduces the branding prospects and the products you sell could be of compromised quality.
Conclusion: Is Dropshipping business recommended?
Dropshipping business is highly recommended if you are interested in selling products online. But remember, it is not a get-rich-quick business. There is no overnight success in dropshipping.
The fact that it has little or no start-up cost makes it extremely attractive. You don’t have to keep stock or inventory and shipping of items is off your shoulder. It is a business with great prospects.
One drawback is that the competition is very high. But if you find a niche that has low competition, you can succeed within a short period.