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Published: 14th May 2021

Dropshipping 101

Written by : eCAI Admin
Read Time : 2 Min| 797

Dropshipping 101

 

If you have been active in the ecommerce space for some time now, the term ‘dropshipping’ may have come across your radar. In this blog, we'll delve into what exactly is dropshipping, its pros and cons, how to get started and if it is a viable source of revenue for you and your business.

To begin, let's define it. Dropshipping is viewed as a retail fulfillment  means of ecommerce where you do not stock any inventory. Therefore you act as the link between the manufacturer and the customer. When a customer places an order for a product listed on your website you consequently order that product from the third party seller. The supplier prepares and ships the product to the customer in question. Essentially, you act as the middleman in dropshipping.

 

Source: Oberlo.com

 

Now, you may be wondering how do you make money with dropshipping? Well, for the most part, you can purchase inventory at wholesale prices from the manufacturer and then sell each item with a higher margin to make up your profits. The difference in price is usually minimal to encourage consumers to buy from your store. Therefore, it may take time to accumulate a significant profit for your dropshipping efforts.

Pros of Dropshipping

1)Low Risk: Easily the most attractive feature of dropshipping is the fact that you do not require spending hundreds and thousands on stock as the manufacturer deals with the inventory itself. Once a customer buys from your business only then do you need to spend money on fulfilling that order. Therefore dropshipping requires little to no investment and is easy to get started.

2) Flexibility: With dropshipping you are not restricted to a defined location. You can sell from and to anywhere in the world. Additionally, you can choose to sell any products of your choice if you are able to find a manufacturer who supplies them. Given such flexibility, dropshipping is not a so-called ‘9 to 5 job’ but still requires sufficient time invested to reap the rewards.

3) Less formalities: Because the manufacturer deals with all the supplying and shipping of the products this takes a lot of the potential problems with logistics away from you. If you can source a reliable and efficient third party to distribute your stock then you are aligned to create a successful dropshipping strategy. With the extra time you have, more hours can be spent on marketing the business and creating a seamless website for customers.


Cons of Dropshipping

1) Low margins: As mentioned previously, it can prove difficult to make reasonable profits on dropshipping. It may take months, even years to see high margins in such a competitive and niche space. This is something you need to be aware of with dropshipping. It may be marketed as a sort of get rich quick scheme, however it should be viewed as a difficult channel to maintain long term. Additionally, to receive more sales you may need to sell your products on Amazon or Ebay to gain traction. Note that these websites have even less room for profits.

2) Inventory difficulties: Due to the process of dropshipping, you have little to no involvement in the running of fulfilment or distribution for your products and services. This comes with many potential issues arising. The warehouses you are purchasing from probably deal with hundreds of other retailers on a daily basis. Furthermore, there is the possibility of stock being misplaced or damaged, leaving you in a tricky situation.

Also, for instance if you deal with several suppliers for different products, shipping times may vary depending on the country and party you're purchasing from. All these possible scenarios could create anger and frustration among customers who have not been satisfied with their orders.

Ultimately, it is best practice to carry out thorough research to identify the best suppliers to cater for your business needs and more importantly to maintain a healthy relationship with your customers. This will ensure that satisfied customers will recommend your service to friends and family, helping to accelerate sales and business growth.

3) Limited Branding: Dropshipping doesn’t provide you with much of an insight in the design of the products you sell. As a result, marketing the products in the most eye-catching way possible is crucial to your success in dropshipping. Discovering a means of differentiation is key as there may be direct competition with other retailers selling the same products as you. By offering unbeatable customer service and a friendly website experience, there is a greater likelihood of winning over the customers loyalty.

 

Costs: The following are some of the expeneses entailed while operating a dropshipping businss:

a) Online Store: Using an ecommerce platform such as Shopify, Majento or WooCommerce allows prospective customers to purchase goods from your site. Prices range from $0 to $250 per month depending on the entent of ecommerce features you're willing to use. 

b) Domain name: This ranges from $5 to $20 per year.

c) Marketing: This is where the bulk of your finances will be spent if you are serious about dropshipping. Paid advertsing will allow you to reinforce your brands name and target a specific audience. Organic reach is not as successful in dropshipping due to its competitive nature. Some capital should be invested on improving your website and social channels to gain attraction. 

d) Supplier fees: Some suppliers may charge to avail of their services. However, the cost could prove impactful in the long run if they are reliable and trustworthy in the fulfilment and shipping stages. 

 

Hopefully the process of dropshipping is more understandable to you now. It can be a tiresome, slow journey to begin but may lead to prosperous opportunities for your business. The success will be seen however in the careful planning and consideration to avoid a myriad of issues arising with customers. Conducting research into the best suppliers and ecommerce tools is paramount to operating an efficient dropshipping business. In conclusion, if done correctly, dropshipping may just be the ecommerce model for you.

 

 

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