The power of the internet can be utilized to make money with minimal upfront costs in dropshipping. It depends if there is still opportunity to make money with this business model and whether it is worth getting involved.
What is Dropshipping?
Dropshipping is an eCommerce model where order fulfillment is outsourced to a supplier or fulfillment partner, allowing businesses to keep overhead costs low by not maintaining inventory. Retailers typically sell products manufactured, packaged, and branded by another company. Dropshippers can sell through a B2B eCommerce platform or their own independent website.
Many dropshippers prefer established platforms because they are trusted by search engines, making it easier to attract traffic and drive sales. From clothing to car parts, dropshipping enables the sale of virtually any product, as long as a reliable supplier is found to fulfill the orders.
Advantages of Dropshipping:
Dropshipping has became popular among entrepreneurs because the benefits provided by it. The reason for its popularity include:
Affordable to Start:
One of the most appealing aspects of dropshipping is its low startup cost. Since you don't need to invest in inventory and can rely on third-party companies to manage stock, you can start selling with minimal financial investment. Some eCommerce marketplaces allow you to sell for free and only charge commission on your sales. While it's possible to start with no initial investment, it's advisable to invest in essentials like a reliable computer and internet connection. Additionally, purchasing product samples from your supplier ensures the quality meets your expectations.
Simple Setup Process:
Setting up a dropshipping business is straightforward and accessible. You just need to select a niche, choose products, find a trustworthy supplier, set up an online store, and start selling. By outsourcing fulfillment and shipping, you can avoid the complexities of handling logistics, making the whole process easier and more efficient.
No Inventory Management:
Inventory management can be tedious and time-consuming. It requires constant monitoring and organization, especially when you're handling physical products. With dropshipping, your fulfillment partners take care of all inventory management, saving you from these tasks and allowing you to focus on growing your business.
Effortless Product Testing:
In traditional eCommerce, testing new products involves risk and investment. However, with dropshipping, you can experiment with new products without much risk. You only need to check if your supplier offers the product or find a new one who does, and add it to your store. This allows you to test a wide range of products without significant upfront costs.
No Physical Location Needed:
Since dropshipping doesn’t require holding inventory, you don’t need a physical location like a warehouse. You can run your business from anywhere—your home, a small office, or even while traveling—saving on rent, utilities, and warehouse expenses.
Low Risk:
Dropshipping carries a low level of risk because you don't make a substantial upfront investment. If your sales don’t meet expectations or you decide to exit the business, you only lose the time you've invested.
Potential for Passive Income:
Once set up correctly, a dropshipping business can generate passive income. Automating order fulfillment and outsourcing tasks like customer service to a virtual assistant can allow your business to run on autopilot, especially if you work with reliable suppliers who fulfill their part of the deal.
Easy to Scale:
Scaling a dropshipping business is simple since you don’t need to invest in larger physical spaces, extra staff, or inventory. With the right fulfillment partner, you can quickly scale your business by increasing your marketing efforts or adding more products to your offerings.
Disadvantages of Dropshipping:
Some of the disadvantages of Dropshipping include:
Difficult to build a brand:
Your customers will not have much contact with your brand after the initial order, especially if you are selling on a large eCommerce marketplace as your order is manufactured and fulfilled by a third-party company. Your customers may go directly to that brand's shop if they want to make another purchase since the products delivered to them will likely have name and logo of another brand on them.
Although, you can still make money without having a brand, but you will still have to build from the ground up if you want to take on future projects or endeavors under the same brand name.
Limited control over the customer experience:
You have limited control over the customer experience since you are not fulfilling orders. Shipments may come with with damaged packaging or missing items or items may get delayed beyond their target arrival, all of which are in the hands of supplier. However, you can choose a reliable supplier that you can count on to do the job properly. It is advisable to look into the reviews and testimonials for different suppliers so that you can select a right suppler by seeing how well they have worked with other dropshippers.
No wholesale discounts:
The suppliers do not give dropshippers wholesale rates since they pay for the warehouse, labor, and other expenses that go into order fulfillment management. Also, their minimum order quantity may not be purchased by a dropshipper who is experimenting with the business model or new products, over the course of their relationship. The dropshipper will have to bear all these costs since the supplier don't which will raise the cost of per unit, potentially closer to retail rates than to wholesale rates.
Highly competitive:
There are many dropshipping businesses since there is a low barrier to get started with dropshipping. There is very high competition in this market as some retailers may have very similar ideas as yours. It is easier to rise above the competition if you get creative with how and where you present your products.
Profit margins are relatively low:
Starting a dropshipping business is quite easy since the hard part of the job is handled by your fulfillment partners. However, dropshippers don't get wholesale rates when suppliers are taking care of fulfillment because of additional fees that is carried out by the supplier from their end of the deal. The profit margins significantly decreases as compared to standard eCommerce fulfillment because of these elevated per-unit costs.
Suppliers can drop off:
There is always a possibility that suppliers may go out of business or may simply stop carrying the products you need. This can cause major issues for your business if you don’t plan properly. You must have backup options in place to handle this situation.
Dropshipping Well-Suited For Whom?
The pros of dropshipping generally outweigh the cons for some entrepreneurs. It is perfect for some unique types of entrepreneurs as this business model is unique. Particularly, it is well-suited for digital nomads, or people who travel around the world and work exclusively online. They find the dropshipping model valuable and profitable because it is sustainable for their 'on-the-go' lifestyles.
New entrepreneurs can use this business model to learn how to run a basic business when trying to establish in digital marketing. Entrepreneurs who need a way to make some money to invest in other business ventures can also use this model.
Dropshipping is not suitable for those entrepreneurs who want to manufacture and sell their own products or build a their own brand. It is also not a great option if you are looking to make huge profit because even though it is relatively easy to make money, but the profit margins are not much.
Tips for Success in Dropshipping:
Dropshipping can be profitable when approached with a proper strategy and backed by hard work. A few best practices that have helped others find success in this business include:
Keep it simple:
It is important to keep it simple when you are getting started with dropshipping and build as you go, especially if you are new to entrepreneurship. You should start with one supplier and maybe even one product. More can be added as things progress and when you become more comfortable.
Partner with reliable suppliers:
Partner with reliable suppliers means paying them a larger cut. But, you need to keep the operation of all areas in check to the best of your ability, if you want your business to do well. Always choose a supplier who has similar values to yours as there is a greater chance that their operations will be as expected by you in all respect when your values are aligned. For example, if you value customer services, a supplier that also values this should be chosen.
Prioritize customer service:
Providing great customer service can help building customer loyalty. Phone line or email address can be used for customers to express their needs, file complaints, or report issues. Hire somebody who can do this for you if you aren't able to stay on top of these lines of communication.
Your customer support representatives should be well-informed about your products as well as processes and have phenomenal people skills. They should be able to find an answer fast if they don't know the answer to a question. You set your business up for success when customer services is made a priority.
Choose a hot product:
You can jump on trends without assuming the risk in dropshipping which is the main advantage of this model. Find a supplier and add the product to your dropshipping store if it is currently in trend. Demand analysis and scheduling tools or Google Trends can be used to see what people are looking for.
Always test your products:
Make sure to test the product every time you add a new product to your shop. You should order a unit for yourself so that you can see how it looks and feels in real life. These test units can also be used to take photos for your product listings and create promotional content.
Prepare to take the blame:
You can't just pass the blame onto the supplier if something goes wrong with an order. It is your responsibility to own up to it and make things right with the client, even if it was not your fault. Your brand may absorb the shock of a bad customer experience. Ask your supplier to repay you for it was his fault. However, you should do this in private and never share these details with the customer.
Leverage generic items:
A high-quality, generic version of the product is recommended to sell if you can find it. Most of the time the same generic brands is carried by multiple suppliers. So, you always have backup options to keep that product 'in stock' on your dropshipping store if one supplier runs out.
Get smart with routing orders:
Convenience is one of the advantages of online shopping for customers. More profit can be made by by perfecting the art of speedy shipping. Getting smart with routing orders is one way to reduce your delivery times and make your customers happy. You need to to choose suppliers who can fill orders at the pace you need them and also should be centrally located to your shipping zones You can also work with multiple suppliers for customers in different regions to make shipping faster.
