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What is Dropshipping?
Dropshipping is a retail fulfillment model where the store does not keep any products it sells. Instead, the order is sent to a third-party supplier who ships the order to the buyer. The buyer pays the retailer (e-commerce store) a retail price part of which the retailer pays the supplier as a wholesale price.
The prominent difference between a dropshipping model and standard retail is that in dropshipping the retailer does not carry the inventory. A dropship inventory is merely the supplier’s product data feed synced to the drop shipper’s e-commerce store via XML or CSV files. The best e-commerce platforms will allow you to effortlessly sync products with your supplier.
How to Build a Successful Online Dropshipping Business?
- Select a Dropshipping niche
Deciding on the niche is your first step to start a dropshipping business. A niche is a segment of the market, and the more specialised the niche, the better your dropshipping business idea. For example, servers are a niche in the broader IT products market.
Find a niche that is not already saturated. Dropshipping is getting popular, and it is becoming harder to find unsaturated niches. The good news is, there are new products and niches emerging every week! Find a niche that you are interested in to keep you motivated and help you better understand your target audience.
You also want products with higher profit margins. As a dropshipper, it takes the same amount of work to sell a $20 product or a $1000 product. Your main focus will be on customer acquisition and marketing. Go for higher-priced products which will give you good margins over selling quantities.
Factor in shipping costs while deciding on the product you want to sell. You do not want to turn away customers because of high shipping costs. Also, if the shipping cost is not high, you can offer free shipping to attract customers and absorb the shipping cost as a marketing expense.
- Perform competition research
Competitor analysis and research are the backbone of a good dropshipping business plan. You will be competing not only with other small or medium e-commerce businesses but also with retail giants. Do not make the mistake of looking for a product that has little to no competition. That is a sign that there is no demand for that particular product.
High shipping costs, supplier and/or manufacturing issues or poor profit margins could be some of the reasons why a particular product has no competition. Products that have competition mean that there is a high demand for them and the dropshipping business model is sustainable.
- Secure a supplier
For a dropshipper, their supplier is their most important business partner. Finding a reliable supplier may be the toughest part of starting your dropshipping business but one that is of utmost importance.
As a dropshipper, you rely on your suppliers to have the products in stock, to ensure quality checks and product quality, and to ship your orders on time.
A bad supplier will hamper your credibility just as much as a good one will enhance your brand value. Carry out thorough research on your suppliers, read reviews, inquire about their sourcing, delivery times etc.
- Build your e-commerce website
After you have decided on a product and found a reliable supplier, you need to start selling! The first step to building your e-commerce website is to choose the best e-commerce platform for your business. Here’s an article that will help you narrow down your choices.
Your e-commerce website is most often your first point of contact with potential customers. You want it to make a great first impression! You can choose from popular e-commerce platforms available or build an e-commerce website and brand that’s all your own. Note that most popular e-commerce platforms take a percentage of your sales or may not have features that your business may need.
For example, if you are a value-added reseller and offer IT products from multiple distributors, you may need a special e-commerce platform to address all your fundamental business processes.
Do your research properly before you start building your e-commerce website.
- Analyse and optimise
Track all of your data and metrics regularly. You need to track every single conversion to know where your customers originate from and their browsing behaviour that eventually led to a sale. This will help you to enhance what works and eliminates what doesn’t.
Set up Google Analytics, and Facebook Conversion Pixel Data, if you generate a lot of traffic through Facebook. Monitor these regularly to define patterns or observe changes in them to tweak your marketing efforts.
It Is not a ‘set-and-forget’ solution, you will have to continually analyse and optimise your advertising, test new opportunities and campaigns or tweak your current campaigns.
Features of Dropshipping
- No Inventory
This is THE major differentiator between a traditional retail business and a dropshipping business. The dropshipper does not keep any stock. There is no hassle of managing inventory, warehousing or ensuring that products are in stock.
- Easy to Start
Dropshipping as a business model has a low barrier to entry. You need to identify a product to sell and find reliable suppliers. With the number of e-commerce platforms available, all you need is a solid dropshipping business idea and the right e-commerce platform.
- Low Starting Cost
Initial costs in starting a dropshipping business are low. There are no costs associated with inventory, warehousing, packaging or retail space. This lets you focus your efforts on marketing your e-commerce store and creating a good shopping experience for your customers.
No stock and yet an extensive dropshipping inventory! As a dropshipper, you do not stock any of the products you sell. You do not have to worry about stock, warehousing etc., and yet you have access to an unlimited inventory to add to your store. You can choose from a million products to sell and test the popularity of new products without worrying about capital loss in case of failure.
Dropshipping is a lucrative business if you research well, have a solid dropshipping business idea and avoid these biggest mistakes while starting out.
Shane is an American writer for various digital news publications. After being in the eCommerce industry for more than 15 years, Shane has a good understanding of what it takes to make an eCommerce business successful. He likes to cover newsworthy events related to business management software, customer relationship management (CRM) and Quoting software and Value Added Resellers.