Over the last decade, e-commerce has become one of the most promising platforms for commercial business. Starting your own business online is a completely achievable goal that can be realized without significant investments. The most successful e-commerce businesses started with dropshipping.
What is Dropshipping?
In short, dropshipping is a business model in which a product goes through a chain consisting of three entities:
- Manufacturer
- Retailer (You)
- Buyer
In this chain, you are a dropshipper, acting as an intermediary between the manufacturer and the buyer. You don’t need to buy goods in advance and rent a warehouse to store them, spending extra money. Having received the order and full prepayment from the client, you take their extra charge and transfer the order information to a manufacturer. A manufacturer sends the goods to the buyer without indicating the company logo or other insignia. As a result, the buyer picks up the ordered products, not realizing that they received goods directly from the manufacturer.
Dropshipping minimizes risks and puts you in a fairly advantageous position. You don’t have to think over the feasibility of the purchase and try to predict demand, fearing for the amount of money invested. The transaction is executed upon the fact of the order. As you see, your role is to organize the interaction of the first and third link subjects. The difference between the purchase and retail prices is the profit you get. Typically, the markup ranges from 10 to 100%.
In the beginning, most e-commerce businessmen manage with minimal capital investments. However, along with your company’s growth, you need to implement effective marketing strategies, invest in professional Shipping Software, and hold advertising campaigns that entail additional financial costs. Such steps are an inevitable part of increasing the client base so your income.
Pros and Cons
Like any business model, dropshipping has its strengths and weaknesses. The method provides an excellent start-up opportunity for novice businessmen and grants prospects for further development – independently or within the dropshipping system.
Pros:
- Small investment. To start a business, you don’t have to rent or purchase a warehouse or office
- No additional costs or risks. You’re exempted from maintaining warehouse records, the costs of organizing a logistics system, and the need to hire additional staff
- No preliminary product purchases. Financial risks are reduced to almost zero
- You save a lot of time. No looking for a warehouse place and delivery service employees, posting products, and controlling leftovers
- Diverse product range. Since you don’t purchase items in advance, you’re not limited financially and can offer customers more choice
- Territorial independence. Without a warehouse and an office, you’re not tied to a specific location and can manage your business from anywhere with a stable internet connection
- Stable incomes. With established suppliers contacts, competent marketing actions, and optimal margins, you can expect good liquidity
Cons:
- Increased responsibility to the buyer. In the course of each transaction, you take risks by ordering a “pig in a poke.” You don’t control the delivery and (most of the time) don’t have the opportunity to re-evaluate the products, packaging, so cannot be sure of the quality of the delivered goods
- The likelihood of encountering a dishonest partner. Be aware of one-day firms and scammers sending poor-quality goods to the client or don’t send it at all
- Difficulties in cooperation with foreign suppliers. You are dependent on partners. You entrust delivery issues to the manufacturer, but the responsibility to the client lies with you. Cooperating with foreign companies, you should expect significantly increased delivery times. Besides, you have to pay taxes for products transported across the border.
- High competition. Given the cogent pros, there are many dropshipping-based online stores. To beat the competition and attract more customers, you are forced to set a lower margin
Dropshipping Tips
Any business model has its beaten path. You don’t have to limit yourself, but the mentioned tips will always keep you afloat.
- Decide on a niche and assortment
- Take care of the online store design
- Find the proper dropshipping supplier
- Constantly promote the website, hold advertising campaigns
- Try to track the availability of the main commodity units in the supplier’s warehouse
- Promptly send orders information to the partner company
- Reimbursing a consumer for a defective or damaged product is better than losing trust and undermining the company’s reputation
- Make timely claims to the partner in case of violation of the terms of the contract
The Next Step: Business Expansion, Shipping Software, and Own Manufacturing
Imagine you have built a successful e-commerce business. The next step is to expand your business based on your knowledge. You already know your client base, their wishes, and desires. Remember a chain consisting of three entities? Manufacturer – Retailer (You) – Buyer. You need to replace the manufacturer’s part. Manufacturer (usually) produces and delivers. You don’t have to produce goods, but you need to buy goods in advance and deliver them. In a big scale business, it will greatly save your costs.
Novice can’t predict the product demand, so evaluate the scale of the warehouse needed. You, as an owner of an already successful business, definitely can. What is more challenging is to tune up a delivery system. You will need to have professional Shipping Software and rent or buy vehicles. Also, hiring delivery staff have some law nuances you need to consider.
Dare to produce the goods you are offering? Well, it’s the best future-proof scenario. Having all processed under control, you are on the way to becoming a market giant. Of course, manufacturing is a whole new type of doing business, but there is nothing impossible.
Conclusions
The absence of an entry barrier attracts more and more entrepreneurs to dropshipping. But you shouldn’t consider drop shipping as an easy money-making deal. To achieve good results, you must work hard to attract customers, focus on promoting the store, and develop an effective marketing strategy.
This simple and secure trading method is a great option for starting and testing new horizons in the field of e-commerce, an impetus for the subsequent development of a profitable branched business.
