Dropshipping is an online retail method where the store acts as a middleman between suppliers (who hold the inventory), sellers, and customers. Here, the seller’s role is limited to marketing and sales, without handling inventory, packaging, or shipping.
The success of this model hinges on several factors: identifying a niche market, strategic investment in digital marketing, establishing clear communication with suppliers and customers, and leveraging data analysis to cater to the needs of the target audience.
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How does it work?
In the dropshipping business model, how revenue is generated is the difference between the amount you pay for the product and the final price paid by the buyer. To understand how it works, let’s see in detail what the logistics chain is in this infographic:
What is the Achilles heel of dropshipping? Find authentic wholesalers, suppliers who serve as allies to build and maintain the reputation needed for your online store to thrive.
Benefits
Low capital requirement: By not having to store your store’s products or dealing with packaging and shipping costs, you can start with little money. There are even industry experts who claim that monthly expenses can be below $ 100. It can be said that the most significant capital spent is the time you will invest in determining your niche, choosing products, suppliers, and configuring your store or uploading products and their descriptions.
Easy to start:
It’s easy when you find suppliers and have a clear niche to try. Your efforts will be focused on building an excellent Minimum Viable Product (a store that is good and safe enough to leave) and promoting it. It is recommended to start with a single supplier and see how it works.
Low costs:
You can start with little money as you don’t have to pay for storage, packaging costs, all the resources related to stock management, and accounting. As for advertising, you can try to invest a few dollars (starting at $ 40 a week) in social networks like Facebook and Instagram, the most significant advantage of which is the level of advertising targeting, to validate whether people are willing to buy what you offer.
Flexibility:
Being a service that does not have a physical presence, it has the flexibility to choose the location in which it wants to work. Also, the fact that you can experiment without having to risk buying, allows you to make quick decisions and switch from product to form of promotion, as your customers’ behavior gives you more information.
Diversity of offers: If you were the manufacturer of a product, this would complicate the diversification of your merchandise. However, in this case, as you only manage a list of products, you can have several brands and suppliers that meet the needs of your target audience.
Scalability:
If you had a shoe factory, you would sell online in one city, and when you wanted to send it to another, the expansion would involve proportional costs. On the other hand, when providing the dropshipping service, you can go to more regions, as long as you coordinate well with your suppliers, keeping operating costs low.
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Disadvantages
Low margins:
There is high competition in the market, which generates a price war. The solution is to find a suitable market niche and focus on developing a competitive advantage other than price.
Inventory instability:
As it depends on several suppliers, if one of them is out of stock, you must quickly change the offer in your store. Otherwise, it may lose credibility.
Shipping complexity:
Having multiple suppliers, shipping costs can vary, and this can be complex to deal with the end consumer.
Numerous factors out of control:
Any error in shipping or product affects the reputation of your online store, not the supplier. So, once again, the key to the sustainability of this e-commerce model is to find suitable suppliers.
Returns:
One of the main obstacles when using dropshipping is returns, as suppliers rarely agree to accept returns and, even if they do, you generally do not receive a notification when they receive the item as a store.
Refunds:
Dealing with returns is not easy because suppliers are often opposed to issuing refunds. They probably justify that the order has already been published or that they offer the option to resubmit. The risks increase proportionally with the increase in sales.
If you are willing to try for yourself and draw your conclusions, you must know that the most important thing to start with is the definition of the niche, while looking for authentic wholesalers.
Starting a Dropshipping Business
Choosing products to sell:
Study what are the best selling products in the most popular markets. It is recommended that you check the Amazon Best Sellers section, which is updated every hour. This global market has a direct presence in the United States, the United Kingdom, Germany, France, Italy, Spain, Japan, Canada, and China, and serves customers in most countries worldwide.
Investigate the trends of growing industries in the local market:
By having an online business, you can reach places where it would be physically demanding for you, each country has a different market and regulatory characteristics. If you want to start, do it at a fair, you know.
Think about logistics:
Find out what are the characteristics of your country’s logistics services and what are the costs associated with packaging and shipping. To start, it is advisable, to begin with, smaller products and, with sales growth, you can negotiate better prices later.
Look for products that are less likely to be returned:
Since shipping is a complex issue, having products with low return rates can avoid many headaches.
High margins:
It is not mandatory, but it is a smart choice to discard products with shallow margins.
Think of products that require replacement or repetitive purchase:
It is known that large technology companies, for example, generate more revenue from accessories than from more expensive products.
Think of popular products, but not easy to find. Products you can offer with added value in the online experience. Which products can be more enjoyable to buy online than physically?
Consider the potential for press coverage:
Is there a product that can be new and capture media attention?
Use the information about Google’s most wanted: If you’re going to sell online, one of the most reliable channels to find your store will be Google. It has very relevant information about what is most sought by people on the Internet. There are two tools to do this: one is Google Trends that shows search trends, and the other is the Google Adwords keyword planner.
Do a quick test and see the results:
In the business, customer validation exceeds all market projections. So, spend some time trying to find out if there is an interested group of people who want to buy your products.
Check social media trends for the products you’ve restricted, is there a buzz around them? What are people asking about these products specifically?
How to find the right wholesalers?
Marketplaces:
Alibaba, Aliexpress, and a massive catalog of wholesalers and products to choose from, making it significantly easier to find the right products to sell.
Search Google:
Currently, the dropshipping model is well known; there is a lot of information on the Internet, so you can search directly for wholesalers who distribute the products you want to sell.
Keep in mind that the credibility and level of excellence of these are not necessarily reflected in your web pages, since, in general, they are not focused on that. So be patient and don’t trust the first page that appears in your search.
Contact the manufacturers directly: you can search the manufacturers of the products you want to offer and request information from the wholesalers with whom they work. Repeat this, and after contacting 5 to 10 manufacturers, you can find out who the accessible wholesalers are in that market.
Investigate the competition:
Also, you can order a competitive product that you think uses dropshipping and, when the product arrives, you can trace the original shipping address to find the supplier.
Sign up for a directory: Another way is to search online directories and filter out useless information to make authentic wholesalers visible.
Test wholesalers
Now, before taking a risk and placing a large order, you can take a test and see in practice how good or bad the service offered by the supplier is.
Signs of good suppliers
They boast proficient sales executives, prompt communication, and streamlined procedures. Picture yourself defending these suppliers and handling customer grievances. In such potentially intricate scenarios, you need a dependable and agile individual who can swiftly resolve issues with minimal bureaucracy.
They refrain from imposing monthly fees. Unlike certain vendors who demand a fixed monthly sum just to engage in business, legitimate wholesalers typically eschew such charges.
They leverage integrated technology. While not standard among wholesalers, this feature consistently enhances operational efficiency—examples include real-time inventory tracking and online catalogs.
