People think that online businesses need a large upfront investment and commitment to suppliers. Sometimes, you have to figure out a way to handle several responsibilities at once. These factors are important to any business venture, but what if there’s a way to make things easier?
What if someone offered to handle your orders and manage your inventory at the same time?
Sourcing and inventory management are all made simple thanks to dropshipping. Learn how to kickstart your business through this innovative business model below.
Dropshipping is a type of retail business model in which you partner with a third party, who can be a wholesaler or a manufacturer. The third party creates, stores, packages, and delivers the products to your customers. This way, you don’t have to handle inventory at all.
As many as 22% to 33% of ecommerce entrepreneurs have adapted dropshipping as a means of order fulfillment. A large percentage of them started out in the United States, until dropshipping companies emerged in China during 2006.
But dropshipping isn’t just for small businesses. The big players have taken advantage of the dropshipping model as a means to expand their product catalogue as well. Among them are big industry names like Zappos, Amazon, and AliExpress.
To better illustrate the dropshipping process, let’s assume the role of the merchant — an online store named Clothes Shop. We partner with a manufacturing company — Wholesale Accessories — to dropship our products.
1. Customer places an order on Clothes Shop
- John Doe needs a new pair of shoes. He completes an online order on Clothes Shop and gets an automated confirmation via email or SMS.
- Clothes Shop also receives a confirmation of the order along with the money deposited into their bank account.
2. Clothes Shop forwards the order to Wholesale Accessories
- Clothes Shop may forward the email order confirmation to Wholesale Accessories through two methods. One, they do it manually to a sales representative. Two, they use an XML import module that synchronizes with their online store.
- Wholesale Accessories confirms if the ordered product is in stock.
- Clothes Shop then pays wholesale, shipping, and processing fees to Wholesale Accessories.
3. Wholesale Accessories ships the order to John Doe
- Once the order processing is complete, Wholesale Accessories packs and ships the item to John Doe.
- The item is shipped by Wholesale Accessories with Clothes Shop’s logo appearing on the invoice and packaging.
- Clothes Shop earns profit from the difference between John Doe’s paying price and the total bill paid to Wholesale Accessories.
Though they do most of the work, the manufacturer isn’t visible to the customer throughout the entire process. Marketing and branding — such as social media promotion and website development — is all in the hands of the merchant.
So what can I get from dropshipping?
Startup businesses have adapted dropshipping as a gateway to the world of ecommerce. What are the benefits can your company get from this business model?
Launching a dropshipping business is the most affordable way to start selling online. Since you won’t need to choke up thousands for inventory or shipping, your hard earned money (and effort!) can go to marketing materials and other hosting fees.
For every single cent you earn using traditional business methods, you’ll have to work thrice as hard for it. This is not an easy feat when you consider limited resources. With dropshipping, the hard work is carried out by manufacturers, allowing you to grow your business without the burden of increasing your workload.
In the surface, dropshipping sounds like an untrustworthy method to run a business, but it’s not when you know who to partner with. The whole purpose of dropshipping is to merge most of your business processes in one place. This gives you more time to focus on marketing your products instead of worrying about inventory problems.
Dropshipping businesses can be managed anywhere stable internet connection is available. For digital nomads and home-based entrepreneurs, this is one way to earn more profit.
The dropship industry was created to provide a stable channel between retailers and suppliers, while preventing inventory problems at the same time.
Disadvantages of dropshipping
Like every business model, dropshipping has its share of complications too. For instance, the growing popularity means that newer and more inexperienced merchants may need to keep up. Not to mention, there are many scammers out there looking to take advantage of first-timers.
Other risks include shipment mistakes, miscommunication, and inventory issues. Profit margins are also slim when it comes to dropshipping as well, so don’t expect this to be a method to help you get rich overnight.
Before jumping into dropshipping bandwagon, it is important to weigh in your options first.
Entrepreneurs looking to venture to ecommerce can use dropshipping as a beginning step. Though it requires limited funds, you still need to prepare resources to move your business forward.
Here are a few things to get you started.
#1: Prepare an ecommerce website
In this tech-driven society, putting up an ecommerce website gives your customers a convenient way to buy your products.
Your first option for putting up a website is to hire a web designer and developer. But since we’re aiming to reduce costs here, consider using a website builder. With ready-made templates and drag-and-drop functions, website builders make creating websites easier — even without coding skills.
Make sure your ecommerce website has the following:
- Easy navigation. If you’re selling products, the first thing you want to do is to quickly redirect the shopper to what he or she is looking for. If visitors find it hard to navigate your site, that may translate to a loss in sales.
- Brand logo. Corporate logos serve as business cards for startup shops. As the most visible presence of the company, a logo needs to be designed in a way that is relevant to your brand or industry.
- Detailed product descriptions. Clear and accurate descriptions have a great effect on the buyer’s decision to purchase or not. Include a FAQ or comments section to help build your customer’s trust.
- Shopping cart. An ecommerce site without a shopping cart still manages to get the job done, but not as efficiently as you’d like. Shopping carts give customers the ease of removing and adding items. And when you decide to offer promo codes, your customers will have a place to input them.
- Social media links. As many as 52% of consumer’s online and offline purchases come from social media channels. With that said, earn more customers by being active on social media. Make sure to add social media buttons to your website so your customers know where to contact you.
#2: Choose products to dropship
Deciding on a product to sell can feel overwhelming, especially when you’re not well-versed with the ecommerce industry yet. Take a look at the criteria for the best products to dropship:
Popular products that are easier to dropship
Note that trending products are either really easy or really difficult to sell. Products that are currently on everyone’s radar are a challenge for entrepreneurs with no marketing skills. Also, the stiff competition compels you to lower your prices, resulting in a slimmer profit margin.
To win the market over, the product you sell must be unique to your store. You can achieve this by means of pricing, selection, availability and marketing.
As a business owner, you’re always looking to fill the void in the market. Consider what is missing in the marketplace and what drives paying consumers. Then, carve out a niche.
Running a niche dropshipping store is perfect for first-time entrepreneurs, as it allows you to narrow down your audience. A smaller audience is easier to reach, so it requires less marketing costs and efforts.
There are less popular products that have high sales potential due to a demand by consumers in a niche market. Here are some examples:
- Healthy food and drinks
- Smart backpacks
- Detox tea
- Coconut oil based products
Dropshipping to a specific niche doesn’t mean that you can’t branch out later. If anything else, niche products actually pave the way for business growth. When you find success with a certain niche market, you can start adding related products that you think can appeal to your current customers.
Lightweight, easy-to-deliver items
Products that are small and lightweight are ideal for online stores, since you won’t have to worry too much about high shipping costs.
Another risk you can avoid with smaller, more durable items is returns. Big and heavy items like glass chandeliers often end up breaking in transit, marking them as tougher items to sell.
You’d be surprised to find how many everyday items are banned in certain countries. So before targeting a certain country or region, read all about their local laws first. For example, electronic cigarettes may sound like a trendy item to sell due to its growing popularity. But, the product is currently banned in several countries like Thailand, UAE, Malaysia, and Singapore.
Another legal factor to look into is intellectual property law. Copyright infringement and other violations of intellectual property rights may result into hefty fines. So, it is important to be informed of your legal limitations and whether you could be violating the law ahead.
#3 Partner with a trustworthy supplier
The wrong supplier can wreck your entire business plan in an instant. So when approaching this step, make sure you take your time and weigh out your options. Note the supplier’s response time and how accurate they reply to your inquiries. If they are not on par with your standards, then don’t hesitate to move on to the next prospect.
Consider these other tips:
- Browse online review sites. Check Trustpilot, Yelp, Google My Business, Facebook Review, Glassdoor, and other trusted online review sites for honest opinions about your suppliers.
- Check business licenses. Governments provide businesses permits to operate. When the supplier is unable to provide one, it may be a huge risk to continue doing business with them.
- Ask for a sample. You may have to pay for a sample but it is well worth the investment. When you have a physical copy of the products you sell, check its quality and ensure that your customers are getting what they paying for.
- Don’t settle for the cheapest option. Suppliers offering the lowest priced item always seems like the obvious choice. But for most cases, quality tends to go down with prices. If you see one supplier selling the same item at a significantly lower price, this could mean that the quality of the products is likely compromised.
- Watch out for ongoing fees. A legit supplier will never require ongoing fees just to work with them.
#4 Create a customer acquisition plan
Creating a website and deciding on products to sell are just the tip of the iceberg — you’ll need to start selling to keep your business afloat.
The good news is, since the many aspects of dropshipping are already taken care of, you have more time and energy to focus on marketing your business.
Other than a functioning website, a well-designed logo, and creative graphics, there are several ways to acquire customers.
Flex targeting on Facebook is one effective marketing tool that helps you narrow down your market in just a few clicks. This feature works by scaling profiles on the social network through the ‘Detailed Targeting’ option. For example, you can gain leverage for your pet supply business by targeting users whose interests are pets and animals.
Flex targeting is the fastest way to generate sales and revenue. But in the long run, you’ll have to pivot towards more aggressive marketing strategies, such as SEO and email marketing.
#5 Choose your payment gateway
Southeast Asia has a diverse list of payment gateways that allow you to receive payments. Note that each service offered varies, with some payment gateways more tailored to specific business needs.
If you’re looking to market throughout Europe, America, and the rest of the world, PayPal is the best payment method for you. Consider other online payment solutions, like MOLplay (Malaysia), Alipay (for Singapore and Hong Kong), and Dragonpay (Philippines).
Make sure to configure your chosen payment gateway onto your online store.
#6 Track your growth
An analytics system is an indispensable tool for you to access the information you need to improve your business.
There is a long list of customer engagement metrics that an analytics system can keep track of. But the five most important ones for your online business are:
- Cost per acquisition. This is the total cost of advertising needed to convert one person from a visitor to a client.
- Conversion rate. This shows the percentage of site visitors who go on to become paying customers.
- Funnel abandonment. This is the most common metric tracked in ecommerce. It calculates the percentage of users who don’t proceed with a transaction.
- Customer lifetime value. This is the predicted net profit credited to an existing customer.
- Average order value. This tracks the average amount spent per order on the website or mobile application.
Tools are available to help you get a better understanding of these items. By far the most popular web analytics tool among marketers is Google Analytics. Its extensive features allow you to efficiently monitor customer on-site behaviour.
Dropshipping is a fast-growing sector in the online marketplace. It remains to be the most straightforward way to access inventory without warehousing any of your own. Anyone with a computer and internet connection can start profiting off a dropshipping venture — no technical experience required.