Starting your own business has never been easier, but competition has never been tougher.
With the rise of e-commerce and digital platforms, entrepreneurs are increasingly turning to drop shipping as a viable business model. However, the latest reports indicate that 20% of businesses fail in their first year alone, highlighting the importance of strategic planning and execution.
Dropshipping allows you to sell products directly from suppliers to customers without having to store or ship items yourself. This simplified process significantly reduces overhead costs and operational complexities, enabling you to focus on marketing and customer service. In addition, dropshipping software makes it easier to manage operations, automate processes, and enhance overall efficiency.
However, to stand out in this competitive landscape, it's essential to navigate this space with a well-thought-out strategy. This guide will walk you through the essential steps to launch a successful dropshipping business, helping you overcome the challenges and seize the opportunities.
In a more conventional retail business, you'd first have to purchase a suitable amount of inventory from your supplier. You'd then have to find somewhere to store all this inventory (warehousing). Once you set up your store, you'd then wait for customers to order these products.
Once they do, you package the individual items, process the payment, and ship the orders to the individual customers. You may also need to absorb the cost of any unsold inventory. That's how most traditional businesses work.
Dropshipping turns this conventional model on its head.
Dropshipping is a retail fulfillment method in which you don't have to buy any inventory upfront, you don't have to be responsible for storing all the product, and you don't have to package and ship the actual goods to your customers either. Instead, when you receive an order, the supplier ships the product to the customer directly.
Your risk is almost nonexistent, and the upside is tremendous because you have near-limitless scalability and earning potential. So, how do you do it?
Note: Looking for some dropshipping tips? We can help!
As a dropshipper, you act as the middleman between suppliers and customers, selling products without the need to hold inventory. Here's how you can get started:
Finding a supplier for a more traditional business can feel daunting. What if you add in the extra requirement of supporting dropshipping, too? And what if you want to sell a variety of different products from multiple suppliers? Are you setting yourself up for one big headache? Not at all. Again, it's actually a lot easier than you might think.
Just as online ad networks have dramatically simplified and streamlined the process for online publishers, the same is true when it comes to supporting your dropshipping business, too. You no longer have to deal with separate suppliers on an individual basis across a myriad of websites and contracts. Instead, you can connect with a comprehensive e-commerce tool where you can shop around for the right supplier(s).
Just as you would refer to the rating systems on online marketplaces like eBay and Amazon to gauge the quality and trustworthiness of a seller, you find a similar kind of rating system on an e-commerce tool such as Oberlo. As you browse through all the different products available, you'll also see ratings for the suppliers. And Oberlo verifies these sellers. They're carefully vetted and monitored to ensure you only work with suppliers who have proven performance and consistently ship their orders on time.
Remember that your reputation is intimately linked to customers' experience receiving their orders from these suppliers. You only want to work with reliable and trustworthy suppliers.
Of course, it's not just about finding the right suppliers. You have to choose the right products too. This will depend heavily on the industry or niche that you're trying to approach. Your mileage will vary, understandably, but many online e-commerce stores perform better when they focus their branding on a particular niche rather than trying to sell everything under the sun.
This is where you can leverage some of your own industry knowledge and expertise. If you're already very passionate about skincare and cosmetics, then it makes sense that your dropshipping business may focus on this segment of the market, too. At the same time, you have a myriad of other considerations that can come into play.
For example, do you want to focus on selling more unique products that aren't as commonly found elsewhere? This could help you carve out a specific niche, but it also means that you may also have to deal with more customer education and there will be fewer suppliers who offer those products.
On the other hand, you might choose to focus on products that are more readily available. This likely means that you'll have a greater number of suppliers that can fulfill your needs, and your customers should be more familiar with the products. However, you may need to work harder to differentiate your online store from competitors, adding your own value or competing in other ways.
Whatever the case, this is one of the key ways that working with a platform like Oberlo can be so helpful. You have access to so many verified suppliers across so many industries that you are much more nimble and agile. You can more easily adapt to market conditions, and you can more easily adjust your business strategy to maximize your profits. and you can look through the in-depth product statistics to make data-driven decisions.
There are several misconceptions about all sorts of online businesses, many of which are related to a lack of technical expertise and other barriers to entry. Many people think they can't build their own online store because they assume they don't know how to code such a complex website. The thing is that they don't need to know a single line of code to do it.
Increasingly, you'll find a myriad of options for click-and-drag or point-and-click type site builders. It's all very visual, in a WYSIWYG (what you see is what you get) kind of way, making it easy to add, remove, move, and change the various page elements.
Each platform has its key advantages and disadvantages, but they're remarkably easy to use. Shopify and Wix are popular examples of online website builders that don't require much (if any) technical knowledge at all. You could also consider a solution like using an e-commerce platform plugin for WordPress.
On the surface, these site builders may look like you can only use them to sell your own products from your own warehouse. That's not at all the case. When you work with the right dropshipping suppliers, integration is a breeze. You can usually import product images, descriptions, specs, and more with just a few clicks of the mouse.
The obvious statement is that you can set your prices manually for all your products after working out the kind of profit margin that you'd like to see on each sale. This may not be a problem if you only sell a handful of items, but it becomes remarkably problematic after you have more than just a few. Imagine selling hundreds or thousands of items and going through those price lists one by one.
There is a reason so many third-party sellers on Amazon, for example, utilize advanced algorithms to set their prices automatically. The same can be true for dropshipping businesses, too. You can create your own custom pricing rules based on a myriad of potential factors and inputs so that you effectively price your products in bulk. These pricing automations eliminate the guesswork and alleviate unnecessary logistics.
It goes without saying that you'll find some really big names in this space, just as you would with more traditional brick-and-mortar businesses. While names like PayPal may dominate this space and are understandably very familiar, they may not necessarily be the best payment gateway solution, particularly if you'd like to work with foreign currency and overseas banking.
A website called Money Transfer Comparison named its three top recommended payment options for online sellers in 2019. They are WorldFirst, OFX, and Moneycorp. Some of their key advantages are outlined above, including the significantly lower foreign exchange markups. This is useful not only for accepting payments from customers but also for sending those payments to overseas suppliers.
You'll notice, for instance, that Moneycorp only charges up to 0.75% in foreign exchange markup. By comparison, if you use the Amazon Global Seller Program with the default configuration, you can expect to pay up to 4% of your total sales in foreign exchange fees. That comes right out of your bottom line!
The sky's the limit! At least in theory. Since you don't need to invest in warehousing space or in inventory right off the bat, your startup and operational costs as a drop shipping business are minimal. Overhead is kept low because you really only have to pay the suppliers when your customers actually order the products.
At its most basic level, the formula for calculating your profit works like this:
Traffic x Conversion Rate x Average Order x Margin = Profit
So, let's say that your online store gets 10,000 visitors a month; they convert at a rate of 5 percent; your average order is $100, and you get a 20 percent margin on those sales. These are all assumptions, of course, so the actual numbers will vary. Working through the formula, we get:
10,000 x 0.05 x $100 x 0.20 = $10,000
Based on these numbers, you can generate a monthly profit of $10,000 before factoring in your operational costs like web hosting, payment processing, and online services. Not bad at all, especially with relatively modest traffic. Of course, if you can increase any of those four factors, your profits can increase accordingly, too.
When venturing into the world of dropshipping, it's crucial to be aware of common pitfalls that can impede your success, such as:
If you don't want to build a dropshipping business from scratch, you also have the option to buy an existing dropshipping store. However, it's important to evaluate several critical factors to ensure you're making a sound investment:
Dropshipping really can be a turnkey business when you work with the right platforms and services. They can take care of all the technical requirements and many of the logistics so you can focus on growing your business.
Learn more about the best practices in online selling by using omnichannel marketing.
This article was originally published in 2019. It has been updated with new information.
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