What is dropshipping and how do you start it?
Dropshipping is still an important topic in e-commerce circles. But what exactly does this term mean, how to start dropshipping, and what kind of dropship service providers are there? In this article, we will clarify these questions so that you can decide whether you should use this distribution option for your online store.
What is Dropshipping?
Let’s start with the definition…
Dropshipping is a type of online commerce in which online merchants offer products in their stores without even having them in stock themselves.
And how does that work?
If a customer orders such a product in the store, the store owner does not ship the product himself, but orders the product (automatically) directly from the manufacturer or wholesaler, then who sends it directly to the customer.
The Dropshipper therefore (usually) has no physical contact with the product.
Therefore, this e-commerce strategy is in direct contrast to the classic retail trade, where the goods are ordered in large quantities, stored, and then shipped to the customers.
At first sounds like a perfect merchandise strategy, but…
Should you use dropshipping in your online store?
After you know what this distribution method is about and how it differs from traditional retail, you might ask yourself if you should use it for your online store.
As with any other business model, there are advantages and disadvantages.
The advantages of dropshipping
Particularly for entrepreneurs, which begin straight only with E-Commerce, dropshipping saves some advantages.
One of the biggest plus points is clearly the factor of the small starting capital, which is needed for the start.
As already mentioned, with this business model no products have to be bought and stored in advance.
In total, there are three parties involved in this distribution model:
The end customer buys a product in an online or offline store and does not know whether the delivery is drop-shipped or not.
At no point does he know who the wholesaler is, as he only has contact with the middleman.
The salesperson manages the store and tries to attract as many potential customers as possible.
When he received the order, he will contact the dropshipping wholesaler and send him the order and customer details.
His profit on this transaction is the difference between the amount the wholesaler charges him for the product and the amount he charges his customer.
The dropshipping provider who receives the order packages it and sends it directly to the end customer.
There is (usually) no reference to the wholesaler on the packaging, but only the seller’s brand, if any.
The wholesaler takes care of all formalities related to shipping formalities, customs, and distribution costs.
In short: As soon as the end customer has ordered and paid for the product in the online store, the Dropshipper buys the product from the manufacturer or wholesaler and specifies the end customer as the recipient.
The big advantage here is that the product does not first pass through the hands of the store operator, and the goods do not have to be purchased and stored in large quantities.
Dropshippers do not have to worry about surplus products that simply cannot be sold and then gather dust in the warehouse.
Because of the low initial cost, the Dropship model is a convenient way to test new products or test the e-commerce water before jumping in completely.
Another advantage offered by the Dropshipping solution is that a much larger range of products can be offered, as goods do not have to be stored in a costly way.
Likewise, the absence of a warehouse allows you to manage the Dropship store from anywhere in the world – all you need is an internet connection.
But even though this business model offers some excellent advantages, there are of course also disadvantages that need to be considered…
The disadvantages of Dropshipping
This is by far one of the biggest disadvantages of this e-commerce model:
You can have little influence on customer satisfaction!
It doesn’t matter how good and user-friendly the online store is if the wholesaler doesn’t send the parcel on time, the shipping takes too long, the product is damaged or, in the worst case, the parcel doesn’t arrive at all, you’re allowed to spoon out the soup. Alone.
Similarly, solving the problem is much more difficult if you don’t know where the delivery is currently stuck and the wholesaler cannot be reached.
Often the easiest option is to refund the money and accept this setback.
The thing with e-commerce: is there are always problems, one way or another.
Therefore, you should not discourage potential problems with your customers when you are in
want to be successful in e-commerce.
Because complications related to shipping or your customers cannot be avoided, even with the classic e-commerce model, where the goods are stored in the warehouse.
The transport factor is, therefore – to a large extent – not in your hands, but unfortunately, this comes with another drawback.
If you offer products from different manufacturers and wholesalers, it can quickly happen that the shipping costs add up if a customer orders more than one product.
You can now either charge the customer for the increased shipping costs (and therefore most likely lose them) or just settle for it and pay the increased shipping costs.
This brings us to the next, perhaps most important, downside: The low margin issue.
In Kylie Jenner’s cosmetics store, for example, you’ll find a makeup kit for $ 360 – the purchase price from Alibaba is around $ 15.
Of course, you can also try to sell products with a large profit margin and make a high profit.
However, this only works in very rare cases, as dropshippers have at least a million followers on Instagram.
There will often be enough competition to sell the same product for a much lower price and thereby convince potential customers of its value.
In order not to get into a price war, you have no choice but to claim a less competitive market or invest time and money in marketing and branding to build a brand. with loyal customers.
So you have to differentiate yourself from the competition if there is one.
One way to do this is to tell a story or improve your website ranking.
In what areas can dropshipping be used?
This method of selling is possible for almost all types of businesses. Here are some ideas:
In an online store, this selling method is used the most because it is a very good option for e-commerce businesses where the necessary processes are greatly simplified.
Also, by synchronizing the online store with the dropshipping service provider, manual labor is kept to a minimum.
In an online store, this sales method is used the most, as it is a very good option for e-commerce businesses, where the necessary processes are greatly simplified.
In addition, the automatic synchronization of the online store with the dropshipping service provider reduces manual work to a minimum.
With electronic marketplaces (such as Amazon or eBay), this strategy is also used by a large number of online traders.
Online marketplaces have the advantage of huge customer frequency, which ensures that the products can be seen by a large number of buyers.
However, it also has the drawback of playing on foreign territory. In your own e-commerce, you can set your own rules, but in an e-market, you have to stick to what is given.
For example, if you are selling on Amazon, it is likely that you will be prohibited from selling certain products, depending on the product category or the country where you want to sell them.
Tip: Of course, you have to keep in mind that marketplaces are not free. You will need to pay a commission or even an additional monthly fee for the sale.
Offline in fixed-line retail: more and more traditional stores deliver their products to your doorstep.
Instead of having all the products in stock, there are display or catalog items that are then ordered and shipped by the dropship supplier.
For example, a furniture store might display a lamp or a sofa but does not need to have them in stock. This saves high storage expenses and avoids shipping massive goods like these.
How to get started with Dropshipping
After knowing the main advantages and disadvantages, have you decided to start with dropshipping?
It’s good to know :
Make sure the product you want to sell doesn’t violate existing copyright laws!
Even though it seems easy and profitable to sell products that have your finger on the pulse (e.g. Game of Thrones mugs, Star Wars clothing, Super Bowl Merch), you risk a warning and other unpleasant consequences…
It should always be the first step: Find a product and the right supplier. What seems easy at first can be a big challenge.
Once you have completed your research and chosen a product, you should contact the manufacturer or supplier.
Even if the manufacturer only sells the product in large quantities, in most cases you will receive a list of wholesalers who offer the product or send you a sample.
Contact the wholesalers on this list and find out who is most suitable for your project.
If you are looking for inspiration for products that you can deliver direct, there are several sellers and markets for them.
A few are free, but most are paid
Wholesale Central is a free example.
Examples of paid marketplaces are SaleHoo ($ 67 per year) and Worldwide Brands ($ 299 for a lifetime membership).
Another alternative is BigBuy, which is also active in the German market.
Trade shows are also held at the manufacturer’s booth, another way to gather product ideas and make important dropshipping partnerships.
It is definitely worth exchanging ideas with other online retailers whether or not they are dropshippers – whether at a trade show, networking events, internet forums, or Facebook groups. relevant.
Dropshipping Tip: Before you sell the product in your online store, you need to make sure it delivers on what it promises!
Order one for yourself and try it out. Thus, you avoid unhappy customers. You can also produce better product images and videos.
Nonetheless, you should continue to research, educate yourself on new product trends, and try new marketing strategies (e.g. influencer marketing).
Equally important as the above-mentioned topics are the cooperation and exchange with the wholesaler or manufacturer of your Dropship products.
Ask questions and try to find out as much as possible about the product in order to stay ahead of your competition and possibly get preferential treatment in case of bottlenecks.
In some cases, it is also worth visiting the production site to get a feel for the manufacturer and the people behind the product.
What should you watch out for in a dropshipping supplier?
The first decision you need to make after choosing this business model is to choose a good supplier.
After all, it is the supplier who ultimately decides whether the business succeeds or fails, as it is largely up to the wholesaler to determine whether products arrive on time and in good condition…
In the following, we have put together some aspects that should be considered when choosing a good dropshipping supplier:
1. A complete catalog with constant innovations
There are dropshipping suppliers that specialize in certain industries and others that offer a more comprehensive catalog.
Depending on what you want to sell, you can choose one or the other.
If you choose a wholesaler whose catalog includes all types of products, your business will be much more scalable:
As soon as you want to sell a new category of products, you no longer need to turn to new suppliers.
Besides the diversity of products, it is important to choose a company that recognizes the latest trends and constantly updates its catalog.
Much of the internet sales rely on products and viral feeds that can appear as quickly as they disappear. Just think of the spinning craze!
So it can be important to have a dropshipping service provider who is ready to deal with these temporary trends.
2. Different timing options
One of the main factors to consider when working with a dropshipping service provider is the timing options that are offered.
Because there are many aspects that must be synchronized (orders, catalog, inventory, carriers, etc.).
The most rudimentary method is with CSV files, but it involves more effort and manual work, which many salespeople want to spare.
This is why some drop service providers offer other options: Options that require some technical knowledge (eg an API to automate synchronization) to already existing and synchronized dropshipping workshops.
3. Accessible customer service
Make sure your supplier offers the right terms and is transparent about responding to incidents, shipping faulty products, or dealing with returns and canceled orders.
It is also great that the customer service is multilingual and can offer you personalized service.
4. Multiple shipping options
Dropshipping makes internationalizing a business much easier than with a traditional sales method.
If you have a delivery service provider that covers deliveries to different countries, you just have to worry about sales, and geography is not an issue.
So we advise you to look for a dropshipping service provider that has agreements with different carriers, allowing you to sell to many different countries.
Keep in mind, however, that selling to a new country also requires work on your part:
You need to translate your website and define a business strategy geared towards a different culture!
5. Provide good customer support
Returns are an essential part of e-commerce and it is important to plan ahead.
If there is a problem with a customer’s order, it is important that your supplier offers you a timely solution.
Look for a supplier who covers this aspect satisfactorily so that your customer doesn’t get the wrong idea and you have to treat them as little as possible.
Drop-shipping has its pros and cons, but at the same time, it has huge potential to attract a large number of customers, generate a solid turnover, and allow your own store to grow.
For newcomers to the world of e-commerce, in particular, this is a great way to get a first-hand experience. The current most proven method of gaining new customers and letting your own store grow (whether through dropship or the classic e-commerce model) is Facebook advertising.