Dropshipping is not exactly a brand new concept. The business model has been around for decades even before the arrival of the internet. Some enterprising people would put up ads in local newspapers, in the radio, or on television informing consumers that they are selling this or that product. But they don't actually own or have these products on hand. If a customer calls to buy a product, what these entrepreneurs do is get in touch with a supplier or a manufacturer, buy the product, and instruct the supplier to ship the product directly to the customer. The entrepreneurs make money on the difference between the product's advertised price and the supplier's price.
This is basically the precursor to todafs version of dropshipping. The internet has completely revolutionized the business model. It made it very easy to move products from anywhere in the world. All you need to do is set up a website, install a piece of dropshipping software, and you are good to go. You can literally do everything from the comfort of your home. You don't hold any inventory. You don't do the shipping. Your responsibilities only involve running the website and making deals with suppliers and manufacturers.
The online dropshipping model rode on the back of online retail sites. Wien the internet first came about, most people used it merely for research and entertainment. Then businesses and enterprising individuals saw the internet's potential as a marketplace for products and services. Ecommerce quickly boomed and grew at a very fast pace. Businesses would build websites and sell their products and services there. For a while, ecommerce only had people and businesses selling their own products and services. But there soon came a shift when ecommerce concepts like affiliate marketing were introduced. People who don't have their own products and services now have the chance to make money through ecommerce.
In a way, online dropshipping is an offshoot of affiliate marketing. You are basically promoting and selling someone else's products. However, in the dropshipping model, you have the option of rebranding the products as if they are your own. You can make a deal with a supplier or manufacturer who produces the products then marks them with your customized labels. You purchase the products at cost basis (i.e. original cost) then resell them with a marked up price (i.e. original cost + your profit). In short, as a dropshipper, you are not a product developer or manufacturer. You are merely a marketer.
As I've mentioned earlier, online dropshipping has revolutionized online commerce. And it continues to evolve as we speak. In fact, dropshipping has become so big that it can be aptly considered as an industry on its own. Online dropshipping registers billions of sales a year. This will only grow in the coming years as more and more people get involved in the business. Almost every product today can be sold using the dropshipping model. You just have to find and approach the right suppliers and manufacturers.
It also does not matter where you are located. As long as you have a reliable internet connection, you can build and run an online dropshipping operation. You can be in Antarctica and still run a successful dropshipping business that ships products from China to the United States. Or you could be vacationing in Thailand and still run a business that dropships products from Brazil to Australia. My point here is that this business model offers time and location freedom. You can run your business from anywhere and at any time.
Another good reason why now is the time to be involved in dropshipping is the availability of tools and resources that make the process so much easier. In the early days, online entrepreneurs had to build everything from scratch. This meant that you had to be a programmer or you needed to hire a team of programmers to help you set up your website. Today, you can build a fully-functioning dropshipping website in minutes by just clicking on a few buttons and following step-by step, beginner friendly instructions. There are all sorts of software that you can download and install on your dropshipping website. Some of these software programs automate your website so that you don't have to do anything else. The website will run itself with you doing very minimal work. This is one of the reasons why this business model was awarded a simplicity and passivity score of 80% in the book Passive Income Ideas: 5Q_Ways To Make Money Online Analyzed.
Before we proceed to the next chapter, let's make sure that you fully understand how online dropshipping works. Basically, here are the main steps involved in dropshipping:
Step 1: You build a website that's specifically designed for dropshipping.
Step 2: You get into a deal with a supplier or manufacturer to produce the products you are going to sell.
Step 3: Promote the products on your website.
Step 4: If someone orders a product from your website, you order the product from your supplier or manufacturer. •
Step 5. Your supplier is automatically informed about the order.
Step 6: Your supplier or manufacturer ships the product to the buyer.
Step 7: Rinse and repeat.
Benefits of dropshipping
Drop shipping is a fast-growing industry because of its many benefits. Here are a few examples:
1. Less Capital
As stated in the first chapter, drop shipping companies have no need to handle and store inventory for their business. Hence, there is no need for a huge amount of capital. This is the biggest advantage of this kind of business model because it does not require the outflow of money just to buy inventory.
Traditionally, business owners need to spend thousands of dollars on inventory prior to jump-starting their business. With drop shipping, these business owners can put their money into something else aside from inventory like the development of a professional website.
2. Purchase upon making a sale
With drop shipping, merchants will only need to purchase their inventory whenever they make a sale to their customers. This means that a business owner does not even have to spend his own money to buy inventory. It is actually possible to put up this business with very little amount of money because the customers will technically be the one paying for the inventory from the suppliers.
3. Easy to Start
Anyone can start a drop shipping company even in the comforts of their home. Aside from the very small amount of money needed to put up a drop shipping business, this business model is easy to start. All you have to do is find a reliable supplier with a great product that can be sold to the market. The key here is to know who to make business with and what products to sell.
4. Low Business Risk
There is significantly lower business risk when putting up a drop shipping company. Since there is no need to spend thousands of dollars into inventory, you will not be stuck with loads of unsold inventory in case the business does not succeed.
Have you ever watched the Pursuit to Happiness? Will Smith's character was very optimistic about his new business venture. However, since his product was not in demand in the medical industry, he had trouble selling it. Aside from that, he bought the entire inventory beforehand. So, when he could not sell his goods, he ran out of available money that could have been used for other essentials. With drop shipping, you will not have to worry about getting into a situation similar to that of Will Smith's character in the movie.
5. Low Overhead
Aside from low capital requirement, you will no longer need to spend much on overhead because you will not need to manage loads of inventory. In fact, a huge number of drop shipping companies are actually managed by owners through their homes with only a laptop. Drop shippers that work from home end up spending just roughly $100 a month on overhead.
Obviously, the amount of overhead will eventually grow as your company grows but this is relatively lower compared to other brick and mortar or traditional business models.
6. Wide Array of Products
The sky is the limit in terms of what you want to sell in your drop shipping business. You can actually sell a wide variety of products because you do not have to pre-purchase all of them for resale. As long as your supplier has a particular item in stock, you can also list that up in your inventory for your customers. In a sense, you are just going to be a very effective intermediary for the supplier.
7. Flexible Area Location
As long as you have internet connection, you can put up your own drop shipping company anywhere you want to. You can even just setup your laptop next to your bed and start this business without changing out of your pajamas. As long as you find reliable suppliers and you can communicate with customers easily, you can successfully manage this type of business.
8. Easy Work Scale
With drop shipping, business owners can easily scale their workload because most of the leveraging will be done by the drop shipping suppliers. You will only need to take in customer orders and suppliers will bear all the additional processes needed to fulfill that particular order. Hence, you can actually expand your business with very little incremental work.
In cases of customer dispute, you will definitely have to put more work that is related with customer service. However, you have to keep in mind that this kind of problems can be avoided if you personally know your suppliers as well as the quality of products that they can put out.
These are only a few of the most common reasons why this type of business model is growing. All of these benefits make drop shipping very attractive to businesspersons. However, this does not mean that drop shipping does not come with a price.
Dropshipping success codex
The world of business has taken many turns and has manifested in different forms. Much of what we refer to as buying and selling today has gone through lots and lots of development and growth, having passed through the hands and ideas of different people and cultures. Business is more or less a very integral part of every man's day to day life, notwithstanding facts that may surround him being oblivious to it or merely nonchalant.
On a rapid rate, business has taken over world economy to the extent that no living being can virtually thrive or survive without it. It has been a means of livelihood for each person, despite the scale or nature, the starting point or the point of being and what human beings may comfortably refer to as "success rate. " Much of what we see today as it has to do with financial and economic growth and development is a result of the steady flow of trade, transactions and the amassing of revenues. The first thing a man has on his mind is how he can make what he does to yield fruits and use those nuts to produce more and more harvests; this is what business is all about. Business is business, regardless of where it was established or how the establishment came to be. As there are different business ideas, there just as well various forms of activity.
Much of what we know as the marketplaces and their varieties today are the handiwork of people who have once or twice on their roads to financial liberation and empowerment, taken up the task of delving into one business niche or the order.
These business nooks are majored in based on a scale of different preferences, as it pertains the foreseen profits and the platform of clientele. Most businesspersons chose the kind of business they are operating and slaying in today just because it seemed less stressful and less capital demanding.
This also stretches out to other business tycoons who learned a trade or two just because they found interest in how rewarding they heard it was. This is not to posit that the one motive behind starting a business is more substantial or better than the other or that the resolve or morale behind the industry is of different kinds and different success rates. Mostly, every business idea and motivation thereof is very significant to the entire thriving and success of the company.
Different businesses, having different background orientations and morale have been successful in their ways, nevertheless. What this means is that it does not matter what made one to start a business or what one spent to do so. It matters not also what kind of business a particular person runs, as it has to do with the type of goods sold or services rendered. It equally does not matter to whom these products are sold or where the sales are.
Though all of these little considerations may become significant in some case scenarios, what has proven to be the backbone and lifeblood of business is how it is generally and continuously being run with basic and innovative ideas to reach not just one but all spheres of all marketplaces despite what the charts or stocks may claim.
The true essence of business is how the main ideas are run day by day to make the company better and to reach a more populated and patronizing list of clientele. This is by far the foremost thing one should consider before starting a business. Capital may be challenging, and the stocks may be scary, but the right resolve of a company is what keeps the life flowing through it and the income coming through the other way.
As a result of these diverse essential backgrounds, many business ideas and techniques have come into the marketplaces. Having found out the high demands of capital and the other considerations, and seeing the need to reevaluate and be skillful with approaches to marketing and sales, a lot of people have come up with a leeway out of the maze.
The first thing that might come to the understanding of one's mind upon hearing this is probably a sort of shady business with ghost protocols and classified operations. Not a chance. Think again. Over time, as a result of what is called innovation, people have seen the need to broaden their scopes because they merely want to engage in something "different." As simple as the desire, it has yet led to the most complex of endeavors in the world of trade.
This industrious, innovative and consumer intensive business is called dropshipping. It may sound confusing and complexly bewildering at first, but the reality is that it is as real as other business approaches, and entirely some investors are dealing in the niche.
Dropshipping has found its way into world business through one medium or the other, and as we see every day, it has come to stay. The first thing to know about a company is how it works. Understanding the pros and cons immediately follows. But the first real deal is knowing what it is that dropshipping is and what the niche promises.
According to Wikipedia, dropshipping is a method of supply chain management which does not necessarily involve the retailer having to keep stock of goods. But instead, including the transferring of the customers' orders directly to the manufacturer, another retailer or a wholesaler, who then takes the job of processing the request and shipping the goods to the customers.
Furthermore, as in retail businesses, much of the retailers make their profits mainly on the difference between the wholesale and the retail price. However, some of the retailers have been able to earn an agreed percentage or the total of the sales in a matter of commission, which is paid by the wholesaler to the retailer as yet another form of transaction. This definition identifies a chain of three persons, starting from the manufacturer or the wholesaler or the retailer to the dropshipping retailer or agent or dropshipper and down to the customer.
As is apparent, everything starts with an order, continues with a transfer of request and ends with a processing and delivery/shipment of the order from the first man in the chain of the business to the last man.
Straight vs blind Dropshipping
Straight dropshipping involves the supplier having to promote their websites. This kind of dropshipping is important when you have to sell a product that you do not want to offer any customer support for. This means that any warrant will have to be taken directly with the supplier and not the dropshipper. In this case, the supplier will have his/her branding on the packaging of the product. This kind of dropshipping is more hassle-free as the supplier tends to be more involved in the whole process.
This is the more common of the two types of dropshipping. In this kind of dropshipping, the dropshipper does not provide their details, but directly ships products to the customer's address. This form of dropshipping is called blind dropshipping because both the customer and the supplier have no direct connection. Usually, when the product is shipped, the customer will think it's the dropshipper who shipped it from their warehouse. The dropshipper, in this case, deals directly with the customer's question, queries, and returns.
After looking at the main types of dropshipping it will be a disservice to the reader not to focus on other forms of dropshipping. When I say other forms of dropshipping I am talking about the main methods. Here will be looking at the broad types of dropshipping and their advantages. This includes popular dropshipping methods that involve Amazon, eBay, and Aliexpress.
Pros & Cons of Dropshipping
Pros of Dropshipping
There are plenty of benefits to this dropshipping business model. These are:
It is extremely easy to set up. Unlike setting up a brick-and-mortar business space, this retail model only involves just three steps which is i) finding the supplier ii) setting up a good website and once that is done iii) selling your products and services
This model is easy to understand and implement especially for a new coming into the e-commerce industry
To set up your business with the dropship model, the cost involved is literally next to nothing. Unlike in traditional business models where the major costs go into the setting and running of the operations, in dropshipping this step is eliminated and all the cost you need to think of is the applications you need to run your website, domain registration, hosting as well as themes you use - which is not much.
There are no unreasonably high overhead costs involved. The merchant or business owner can do away with renting or buying warehouses to store their products and also do away with utility bills that come with it. The costs of managing the website are they need to worry about.
Dropshipping risks are significantly lower because there is little to no pressure about selling inventory.
This type of business model can be run from anyvvhere meaning the business owner or merchant's location independent. There is no warehouse, no sales location, no offices, not much employees and no hassles.
There is little to absolutely no commitment to a physical space requirement which means the business owner can run their business by the beach, in their home, while flying on the plane. All you need is an internet connection and your laptop, iPad, tablet or any device you can access the internet with.
You can sell just about anything over the internet and there's a dropship supplier for almost anything out there. Either sell only one product, or a mix of products - it is entirely up to you. Just find your niche and the right dropship supplier you need.
You will have more time and resources to look into scaling your business. With traditional business models, the more you profit, the more work you have to put in and the more you need to invest in the resource section. Of course, even with the dropshipping model, you need to put in some investment but not to a huge amount. Dropshipping enables you to send more orders to your supplier, from here on you let them handle everything else while all you need to do is earn profits.
Dropshipping also reduces losses on damaged goods. Shipment is directly from supplier to customer and because there are fewer shipment steps involved, the risk of the items being damaged is also reduced.
Cons of Dropshipping
Where there are pros, there are also cons even when it comes to dropshipping. Here are some of them:
You will receive slightly lower profit margins compared to sourcing from a manufacturer or a wholesaler. Dropship suppliers will charge you higher prices depending on your niche, requirements, and location and this will cut into your profit margins.
You must bear complete liability if anything goes wrong, even if it is the supplier's fault. The customer purchases the product from your site- the merchant's website. In the event, something happens or if the supplier doesn't keep their end of the bargain or messes up, it is still the merchant's fault. Your customers will contact you because you are the face of the brand. Therefore, it is extremely important to hire the right dropship supplier.
You have lower control over the creative process. Your customers will have lesser satisfaction with your product because you will not be able to determine personalized packaging or the branding of the shipped products- this is dependent on the supplier. You have less control over how your product is presented during the fulfillment and delivery process as this is the supplier's job to ship the products to the customers. However, having the right supplier and establishing a good relationship with them will give you better control as some suppliers will go the extra mile in ensuring your creative process is delivered through the product. However, this may cost more.
There may be more issues especially when it comes to shipping. Selling multiple products is a good idea as it can increase sales and make you profit, however, it can also pose a problem if the merchant has too many suppliers to deal with for each product they sell. Also, different suppliers will change different shipping costs as this would depend on where they are located and what kind of product you have.
The competition in dropshipping retail is extremely high due to the attractiveness and the popularity of this business model. Unless the merchant caters to an extremely specific niche, the competition is detrimental.
It is hard to keep track of the inventory from the supplier. Due to miscommunications due to cancellations and having backorders. However, with new software coming in and improved communication abilities, this matter can be solved. Of course, this software also comes with a price and may also increase your overhead costs.