What is dropshipping?

Dropshipping has emerged as a popular ecommerce model that allows aspiring entrepreneurs to start an online venture without many of the burdens of traditional retail. As with most things ecommerce, it has both positives and drawbacks. In this guide, we’ll walk you through the basics of dropshipping, how to get started with this model, and its pros and cons.

What is dropshipping?

Dropshipping is an ecommerce method where a business can sell products without holding any inventory. In the dropshipping model, the store doesn’t own or stock the items it sells. Instead, when a product is sold, the business purchases the item from a third party and has it shipped directly to the customer.

This means that a business can start selling with minimal initial costs, as the business doesn’t need to pay until a purchase is made. 

What are the benefits of dropshipping? 

Dropshipping has some clear-cut benefits, especially for those just starting out in ecommerce.

Low initial investment

The risk factor in dropshipping is lower compared to traditional retail. As a dropshipper, you only need to purchase products once a sale has been made, which eliminates many of the financial risks associated with holding unsold inventory. This ‘pay as you sell’ approach provides a safer entry point for budding entrepreneurs.

Test out the market

Dropshipping allows entrepreneurs to test the waters with relatively low risk. Before committing to large product quantities, you can approximate the market demand for a particular product. This flexibility lets you make stock decisions more strategically, all based on real-time feedback coming in direct from the market.

Flexibility

The flexibility that is a fundamental part of dropshipping is a significant advantage. As a dropshipping shop owner, you can easily add or remove products from your inventory without the additional task of managing physical stock. This agility lets your store swiftly adapt to changing market trends.

Location independence

One of the liberating aspects of dropshipping is its compatibility with a location-independent lifestyle. With a stable internet connection, you can manage and operate your dropshipping business from virtually anywhere in the world. This flexibility opens opportunities for a global customer base.

Wide product range

Dropshipping empowers entrepreneurs to offer diverse products without the burden of managing a large inventory. This variety allows you to cater to different customer preferences and explore various niches, allowing you room to explore potential new avenues for profitability.

What are the drawbacks of dropshipping?

Although dropshipping has clear benefits, it’s important to note that this model also has a significant share of risks to consider. Understanding these drawbacks is crucial for entrepreneurs considering this business model.

Low profit margins

A notable downside to dropshipping is the typically lower profit margins than traditional retail. As dropshippers purchase products individually or in lower volumes, they often get a higher per-unit than wholesale buyers. This increased cost can eat into potential profits. Success in dropshipping often relies on high sales volume to compensate for the slimmer overall margins.

Dependence on suppliers

The success of a dropshipping venture is closely tied to the reliability and quality of its suppliers. Your business is vulnerable to disruptions if suppliers run out of stock or deliver subpar products. Such issues can tarnish your reputation and erode customer trust in your brand.

Vulnerable to bad actors in the supply chain

Dropshipping exposes businesses to the risks associated with a supply chain that is fully out of its control. This could include bad practices by suppliers, such as providing incorrect product specifications, manipulating order quantities, or engaging in unethical pricing strategies. Dealing with unreliable actors can result in receiving poor-quality or knock-off products, or simply brands different from what was ordered. Protecting your business against these occurrences becomes challenging in this model.

Shipping issues

Since you don’t control the shipping process, there can be delays or issues with product delivery. If the dropshipping suppliers are located overseas, the lack of a local warehouse could be keenly felt by customers due to extended shipping times. This can impact customer satisfaction and lead to negative reviews, creating another potential threat to the business.

Brand control

Maintaining control over branding and customer experience can be challenging in dropshipping. Since businesses aren’t physically handling the products, ensuring consistent brand representation becomes more complicated and can negatively impact how customers perceive the brand.

Intense competition and harder to market

The popularity of dropshipping has resulted in a saturated market with fierce competition. Differentiating from competitors can be challenging, especially when selling similar products. This can make customer acquisition even more challenging than for traditional ecommerce businesses. Effective marketing becomes crucial, requiring innovative strategies to stand out in a crowded marketplace.

Get started dropshipping in 5 steps

If you’re feeling motivated about dropshipping after understanding the benefits and drawbacks, it’s time to learn how to start your new venture as quickly and strategically as possible. We’ve broken it down into five straightforward steps – make sure you think through each part as you begin on your journey!

1. Identify your niche and your products

Before setting up a dropshipping business, it’s crucial to identify your niche and the specific products you want to sell. Research market trends, evaluate your interests, and consider target audience preferences. A focused niche allows you to tailor your offerings and direct your marketing efforts.

2. Find a supplier

The foundation of successful dropshipping lies in creating strong partnerships with reliable suppliers. Dropshippers need to carefully research and identify suppliers with a reputation for quality, reliability, and efficient order fulfilment. Consider factors such as product variety, shipping times, and customer reviews to ensure a positive supplier relationship.

3. Choose a web hosting provider for your shop

Selecting the right website hosting provider is a significant step in building a successful dropshipping site. Look for a reliable and user-friendly ecommerce platform that aligns with your business needs and makes it easy for you to set up a website with a shop. 

4. Add your products

Once your platform is set up, it’s time to populate your online store with carefully curated products. Pay attention to product descriptions, high-quality images, and competitive pricing. Implement user-friendly navigation to enhance the shopping experience and encourage conversions. Ensure that your product pages convey trust and credibility.

5. Start shipping – and don’t forget your marketing!

Once you’ve set up your store and listed your products, it’s time to shift your focus to marketing and order fulfilment. Develop a robust marketing strategy that includes digital channels such as social media, search engine optimisation (SEO), and paid advertising. At the same time, work to coordinate with your suppliers continuously to make sure your shipping processes are running smoothly and providing timely and reliable delivery to your customers.

Is dropshipping for you?

While the dropshipping model presents great opportunities, it may not fit everyone perfectly. Evaluating your knowledge, preferences, and business aspirations before giving yourself the best basis to thrive with this model is important.

Dropshipping requires a degree of resourcefulness that might be slightly beyond traditional ecommerce setups. You will need to work hard to identify profitable niches and implement effective marketing strategies to stand out in a saturated market with limited branding possibilities.

As reliable suppliers are critical to the success of a dropshipping business, it would be helpful to have a basic understanding of the supply chain and what makes a dependable supplier. Developing strong relationships with your suppliers ensures all your processes run smoothly and efficiently.

Finally, some knowledge of digital marketing is key as it can be a primary way to become competitive and stand above other dropshippers. Suppose you are comfortable using social media, running promotions on various channels, and exploring different options for marketing. In that case, you’ll have a valuable skill set for promoting your products and driving traffic to your online store.  

Dip your toes into ecommerce with dropshipping

Dropshipping can be seen as an easier gateway to ecommerce and online entrepreneurship. With its low barrier to entry and limited investment required, it offers a unique set of advantages and challenges. Success in dropshipping requires a blend of planning, resourcefulness, and a customer-centric approach.