Understand Dropshipping – What is Dropshipping & How Does it Work?
- Bilal Uddin
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What is dropshipping?
Dropshipping is an ecommerce order fulfillment business model in which the retailer does not need to store any inventory, the customer’s order forwarded to the supplier, and the supplier dispatch the product directly to the customer address.
In this model, the dropshipper does not pre-own any products, which means the seller does not have to manage or store any inventory. Just direct the orders to the supplier to deliver the product. The customers remain unaware of the real manufacture or sender of the products; the suppliers make it appear as if the product entirely belongs to the seller.
How Does Dropshipping Work?
Let’s understand the process of dropshipping to know how does it work:
1- The seller created an online ecommerce store related to a particular niche (pet store, jewelry store, etc.).
2- Find out the supplier to source the product for the store (Aliexpress, Alibaba, or US-based suppliers).
3- Add the product images and product descriptions to list them for sale.
4- Generate traffic to the online store by social media advertisement, Google ads, or SEO.
5- When a customer buys the products, forward it to the suppliers with the customer’s information.
6- Pays the supplier upfront and receive the payment from the customers.
That’s how the dropshipping cycle works!
Some essential players determine the success of the dropshipping business that are ‘the niche’ and ‘the supplier.’ To achieve higher profits and taste success in dropshipping business, you must find a profitable niche then a suitable supplier that can provide the trending products at a reasonable price with reasonable delivery time.
So, the first thing to do here is to find a profitable dropshipping niche, then find the best dropshipping products after that find the best dropshipping supplier to source your product.
Is dropshipping dead?
Simple answer: No, dropshipping is not dead and it still is a viable and profitable business model.
The reason this question arises because every year’s bulk of newbies penetrate in this business model without having proper dropshipping training that leads them to incur losses pretty soon.
Many gurus delineate dropshipping as a part job that can help you to earn millions in no time. That is so not the case, dropshippers needs some top-notch product hunting skills and social media marketing expertise to generate great profit.
I would suggest educating yourself and learning skills before entering in dropshipping business rather than just taking an aimless shot and start stating dropshipping as a dead business.
Learn How to Start a Dropshipping Business.
Is dropshipping worth it?
Dropshipping is definitely worth it. It is one of the easiest gateways to penetrate in ecommerce business without as low as a $500 investment.
However, I must say, it is not everyone’s cup of tea. It needs skills and helps from experts to generate profits.
Therefore, you’d better understand the benefits and disadvantages of dropshipping to know why or why not you should choose dropshipping.
Advantages and Disadvantages of Dropshipping?
Dropshipping is the next go-to ecommerce business model that seems pretty straightforward to start for earning some quick bucks with minimal investment; however, it is just half the picture.
This business needs full-time dedication, investment, and digital marketing acumens to generate some good revenue. Many newbie dropshippers just failed once and declared ‘dropshipping is dead.’
So, before putting all your bet on the dropshipping business, just find out whether dropshipping is the best suited for you or not.
Dropshipping is one of the most assessable ecommerce business models that can be started with minimal investment, and you do not need to be technically expert in website development or ecommerce business. The first-timers can quickly enter this business without any legal obligations and can test multiple business tactics as it gives complete freedom to play it your way.
So, here are some of the reasons that make dropshipping business perfect for you.
1 – Easy to Setup with Less Investment
Dropshipping business does not require any business mentor, venture capital, or legal obligations to start. Even you do not need to be an experienced entrepreneur or any prior business knowledge. You can excel in your skills midway in the business. With the basic concept of product upload and Facebook advertisement, you can setup a dropshipping business with as low as $500.
As said earlier, it does not require large business setups such as inventory management or shipping. Your supplier will take care of those things. That gives you ample time to get things going and experiment with new marketing tactics in your business freely.
2 – Fast Scaling
Dropshipping works well when you target a specific niche and build a robust niche-centric community. Dropshipping does not require any substantial diversification in business that gives you great opportunities to scale up the business by putting efforts in marketing, business automation, and stretch product offering.
You can quickly get to know your niche audience and offering them more problem-solving products and manage to grow your business steadily.
3 – Flexibility
This is one of the most significant merits of starting a dropshipping business. Flexibility is overrated in the ecommerce business; you need to keep close to the warehouse, deal with packaging and shipments, take care of refunds and returns, and manage inventory. However, dropshipping business eliminates all these major ecommerce functions that allow the dropshipper to run their businesses anywhere from the globe.
It gives you the complete freedom to handle your business activities anywhere with just a laptop and internet. If you want to be one of those entrepreneurs who travel continuously and manage thier business activities while resting beach, then dropshipping is the business for you.
4 – Lower Risk
Less capital lesser risk. The biggest risk of any business is the loss of capital in case of failure. As dropshipping does not need a large investment, it can be started by saving money from part-time jobs. So, in the worst-case scenario, if you do not get the desired results from your dropshipping business, then you can shut it down without incurring much loss.
5- Quick Return on Investment
Reaching break-even in the biggest concern of every entrepreneur to calculate the estimated time for the return on investment. The best part about the dropshipping business is that the ROI is the quickest. In our case, we generated over $14k in revenue in just 30 days with our brand new dropshipping business.
The setup cost of dropshipping is next to none, significant cost incurs in the marketing of the products, and if you succeed in targeting the right audience, then you can generate hundreds of thousands of revenue in no time.
Every coin has two sides, and the same goes for dropshipping businesses. Many gurus and self-proclaimed dropshipping experts only show the brighter side of this business model and keep the newbie dropshippers in the dark. They could not actually understand what is dropshipping.
Here I am mentioning some dark side of dropshipping that helps you to decide either you should go for dropshipping business or not.
1 – Depency on Supplier/ No Inventory Control
The best part about dropshipping is also its worst enemy. In most businesses, usually customer the king; however, in the dropshipping business supplier is the king. One of the heated question newbie asked is how to find the best supplier for a dropshipping business. The shipments of products, quality of inventory, and on-time fulfillment none of these are in your hands.
Also, you need to continually be in contact with your supplier to make sure inventory is in-stock. Any mistake from the supplier’s hands will dent your dropship business.
We always recommend creating a strong relationship with your supplier and keep two to three in contact in case one get rogue.
Learn How to Select the Best Supplier for Dropshipping Business.
2- Profit Margin Might Be Lower
Well, it depends on the niche and products you are selling. You can never know how much money you can make from dropshipping unless you started it.
We recommend choosing the dropshipping product that you can sell for at least 3-5 times its cost; however, it is not easy to find those products. The dropshippers get an average 15-20% profit margin, which is almost half of the ecommerce profit margin, which is 40%. It means if you manage to earn $10k in revenue, you will end up having $1500-2000 in profits.
Nonetheless, nothing is definite. Many successful dropshippers manages to take thier profit margin up to 50-60% by selling unique and trending products in thier niche-based dropshipping store.
3- Massive Competition
The low entry barriers and high popularity make dropshipping extremely competitive. It takes grueling research to find some niche that is profitable and less competitive, which makes it extremely tough to gain a competitive advantage in any segment. The rising competition makes it more difficult to crack an exclusive deal with the suppliers.
To dodge this competition, you need to go down the funnel and make a find sub-niches within a niche to create an eccentric store to sell exclusive products.
Get 720+ Evergreen & Profitable Ecommerce Niche
4- No Branding
Create an online brand is crucial in ecommerce business to get returning and loyal customers who prefer to buy from their favorite branded store. Dropshippers just take the product from the supplier and sell it further, which makes it nearly impossible to impose the branding in this process.
Only a handful of suppliers allow you to customize the product as per your demand, but mostly you cannot perform branding in dropshipping business.
5- Shipping Intricacy
When you add multiple categories of products that are sourced from different suppliers, it creates a lot of mess in managing the shipment that affects the shipping cost that ultimately cuts down your profits and increases the calculation complexity.
For example, if your customer orders two different products from your store that have been shipped from two different suppliers. Then you have to pay different shipping fees to each supplier; however, it is just one shipment for your customer, so you cannot transfer these costs in your retail price, which will undoubtedly impact your profit margin.
4 Mistakes To Avoid in Dropshipping
Many newbies enter dropshipping with enthusiasm and exit it in no time after making some basic drop shipping mistake that could have easily been avoided.
So, these are some of the common mistakes that newbie makes when they start a dropshipping business.
1- Creating a Generic Store
Selling everything does not work in the dropshipping model. When dropshippers create a specific niche based store, it builds authority in that segment. Most newbies started the store niche-specific. However, they soon began to drift off from the core category and listing everything that is trending.
For example, if you created a store for fitness stuff, then you should be listing all the products related to fitness. If you start listing any other trending products that are not associated with the fitness niche, then you are most probably going to lose your potential target audience.
2- Choosing the Wrong Supplier
Product quality and timely shipment are the two most important pillars that determine the success of the dropshipping business, and these both responsibility falls on the shoulder of your supplier.
The supplier is your partner in the dropshipping business. If you fail to choose a reputable supplier, then your business is undoubtedly going to take a nosedive.
A rookie supplier can cost you in shipment delays and bad quality products that would result in losing customers. Always validate suppliers by the orders they have fulfilled before selecting one for your business.
3- Not Getting Along with The Suppliers
Communication possesses the supreme significance in the dropshipping business. The chain of communication in dropshipper, customers, and suppliers should be crystal clear.
Dropshipper usually takes care of the customers, but what they forgot is to keep the same effective communication with the supplier. A little hobnob with suppliers gets you some great deal in negotiation, such as free shipping or delivery at a better price.
4- Miss Trending Dropshipping Products
What product you are selling is the most crucial success factor. Nothings could go worse than missing the trends of products. You need to keep an eye in your market and develop a vision to understand what’s going to be a hot product in the market.
Check out 91 Trending Products of 2021.
We hope that now you probably understand what is dropshipping. In our personal opinion, dropshipping is one of the best ecommerce business models to start with minimal investment and understand every aspect of ecommerce business.
There are other business models as well that profoundly relate to dropshipping, including print on demand and private label products, but to start as a beginner dropshipping is the ideal platform to start.
To understand more about what is dropshipping then do check out the following posts:
How to find the country-specific product for dropshipping
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