The rise of ecommerce has brought new ways for people to have an online business. Some stores make products; others sell wholesale items. Some stockpile inventory; others partner with a third-party logistics company to simplify things.
Beyond these methods, another recent trend has gained popularity amongst those who sell online: dropshipping. This method functions as a simple entry point to the ecommerce industry, but that doesn’t mean it comes easily.
We’ve put together this beginner’s guide to dropshipping to help you discover some of the benefits, challenges, and best practices that come with this business model
What is Dropshipping?
Let’s get this out of the way quickly: dropshipping is not some magic formula that will lead to abundant success and incredible wealth with little to no effort. Some brands see it as a get-rich-quick-scheme and become disappointed when they realize the reality.
Here’s the truth:
Dropshipping is a fulfillment strategy that enables you never to touch a piece of inventory. A customer orders the product from your store, and you pass that sale to a third-party seller who ships the product to the original customer. The dropshipping store essentially functions as a middle-man between the customer and the product.
You could see why people think of it as a get-rich-quick scheme. You sell someone’s products for a higher price and keep the difference. Easy money, right?
Dropshipping still requires you to think strategically about your ecommerce business. You still have to:
- Market the products
- Build a solid customer base
- Find shipping suppliers
- Manage day-to-day activities
Dropshipping will not give you a carefree, easy path to riches. But using the model as part of your larger business strategy can help you build a successful ecommerce store.
Benefits of Dropshipping
Dropshipping ecommerce brought in an estimated $128.6 billion worldwide in 2020. By 2026, forecasters predict the industry will grow to $476.1 billion.
Growth like that doesn’t just happen. There are good reasons brands have chosen to go in this direction, and we’ll outline some of the key benefits below.
A dropshipping store will not accrue the exact costs that come with other types of online stores. The method allows you to minimize expenses like:
- Product research and development
- Inventory investments
- Warehousing or storage
The freedom from these costs makes it easier to enter the market with less capital. Instead of worrying about these items, you can focus your spending on things that help grow your business, like your marketing strategy or your technology.
Simple Inventory Management
Having no inventory to worry about is one of the biggest draws to the dropshipping business model. You have no need to worry about a pile of boxes in the corner of your office or managing a vast warehouse full of products to sell.
Instead, you get to use the inventory of your third-party retailer. You’ll pay the shipping costs, but you won’t have to handle the product yourself.
Such minimal startup costs allow you to test the market and method with little risk. You can test the ecommerce waters a bit before diving in fully.
Diverse Product Offerings
Once you find suitable dropshipping suppliers, you can sell an array of product options through your online store. You can use this to test new product lines and attract different audiences until you find what sticks for your brand.
Challenges With the Dropshipping Business Model
Any effort to build your ecommerce store will come with some bumps. There is no perfect business model or fulfillment strategy, and dropshipping comes with its fair share of challenges and benefits.
Being the middleman doesn’t pay much in small doses. Mass-producing products run on an economy of scale, meaning you get discounted rates when you order a larger quantity. You must pay a higher price per item by ordering each item.
Dropshipping can still bring in profits, however. The reduced costs help offset the item’s price, and the opportunity to grow quickly will help you sell more products. Even if they have a smaller margin, you may have an easier time growing your purchase quantity, which can help bolster the returns.
When you operate in an industry bringing in billions of dollars worldwide, you should expect some competition. Other ecommerce stores have recognized the potential advantages as well, and they want the same thing you do. Knowing how you will stand out from the crowd will help you have success even in a crowded market.
Limited Control Over the Process
Running a dropshipping store does come with some risks. While you don’t have to worry about the financial risk associated with starting, you will have to consider your chosen suppliers. You end up pretty much at their mercy when it comes to:
- Supply chain
- Product quality
- Shipping speed
- Return policies
This makes it even more important to work with trusted suppliers, so you know your customers will always have positive experiences.
Conflicting Brand Priorities
Dropshipping involves a few overlapping brands. Your store functions as the leading brand to engage the customer, but you also have to consider your supplier’s brand.
The products will have that brand’s logo on the box. That’s what the customers will see and remember most, and they might forget about the shopping experience you brought them. To counter that, you’ll have to create incredible experiences on your end to find other ways to build loyalty with customers.
Best Practices for Dropshipping
Finding success in dropshipping takes dedicated effort. You won’t experience instant riches, but you can create a well-operating, money-making business by following a few best practices.
Do the Research
You’ll need to know the industry well to separate yourself from your competitors. Doing market research early on to find the right ecommerce platform, niche, products, customers, suppliers, and other foundational elements will help set your company up for success before you even start selling.
Find Reliable Suppliers
Part of your success will depend on the success of your partnerships. Unreliable suppliers will lead to unhappy customers, so ensure you get the right ones. Some suppliers may charge drop shipping fees, but you may want to pay a little extra if you find the right ones. It could end up saving you a ton of headaches.
Remember You’re Still Running an Online Store
Some days won’t feel like you run an ecommerce store. You won’t have to check product quality or deal with packaging and shipping boxes. You might even feel tempted to let the company run itself.
Doing that, though, would be a wrong move.
You can’t have a successful dropshipping store if you don’t take the job seriously. The work you put in early on will shape the future of the business. Anyone wanting to build this business should prepare to put the work in, especially at the start.
Use the Right Software
Running a great digital business requires excellent digital tools. Dropshipping is no exception. You’ll want to automate many processes so your store can run smoothly 24/7, mainly if you sell products on multiple channels. (Which we highly recommend.)
High-end dropshipping software like StoreAutomator helps you simplify complex processes like:
- Supplier Management
- Product Information Management
- Order Management/Orchestration/Splitting
- Fulfillment Management/Tracking
- Accounting Management
If you’re looking to start dropshipping and want a reliable tool to help you get the ball rolling, feel free to book a demo with our team of experts. Our platform makes it easy to integrate with your suppliers, manage your orders, and please your customers. Doing so will free you up to grow your business and your profits.