What is drop shipping?
It’s a loaded question that can’t be answered in a ‘2-minute read’ brief. Well, the most prevailing clue is that drop shipping is an order fulfillment channel that’s essentially used by online retailers.
But that’s the basic part of what it entails. Drop shipping one of the most in-demand fulfillment options for budding ecommerce entrepreneurs. Retailers who choose this method don’t need to have any inventory; no stock is needed.
Rather, the drop shipper sources a product directly from a manufacturer or a supplier once the customer places an order. This might set you wondering– is such a business model profitable?
Just to kill the first glance reservations, let me briefly lay down the most recent stats:
In 2019 alone, data-driven projections show that e-commerce sales are going to represent 13.7 percent of retail transactions. The number is strikingly growing so fast.
This guide spells out all the dimensions which a potential ecommerce retailer can use to catch up on drop shipping. Before you even get glued to the fuss of becoming a drop shipping guru, you need to learn these key indicators:
- The pros and cons of drop shipping
- Best drop shipping apps
- How the drop shipping business works
- Starting a drop shipping business
- Best drop shipping sales channels
So let’s get on with it.
What’s great about drop shipping business 👍
Less capital input
Moneywise, drop shippers don’t need to strain too much. They’re more like middlemen. Since you don’t own any stock or a warehouse, it’s way easier to raise your startup costs.
For as little as $20 a month, you could run your own online store and start to push orders to your suppliers. And since you don’t need to purchase any inventory, you can shift that budget to other priorities like running ads for your products.
Needs no upfront inventory costs
Unlike traditional business practices, the best part about drop shipping is that you don’t need to have your own inventory. What you just need to substantially work on intently, is the order fulfillment process.
So long as you have an active internet connection, you can work with suppliers from all over the world. The supply chain management strategy in this business model comes with a minimal overhead cost.
Another key point is that a drop shipper, who similarly works as the middleman, has an option to add all the shipping costs to the selling price. As such, it’s easy for them to cover all the upfront expenses.
Drop shipping gives you freedom to scale
Since you need a virtual store to get things up and running, there’s absolutely no limit to the number of products you wish to sell. A drop shipper can add new products that have the inherent capacity to raise the store’s revenue.
Selling channels such as Shopify, Magneto, and BigCommerce have premium plans for store owners looking to scale up. Closely connected to the matter at hand, is the possibility to automate the marketing strategies.
With drop shipping you can easily test more products
Starting off as a small business requires you to genuinely sell products that are of standard quality.
The upside of this model is that there are tons of drop shipping suppliers from giant ecommerce powerhouses such as AliExpress, Oberlo, and Spocket. Just to get you closer to niche hunting, we’ll go a little in depth on these platforms later in this guide.
This business model allows the reseller to test new products without spending thumping figures. You can scrape off products from your pages and import new items in a flash. Different suppliers have distinctive products to help you crash your competitors and keep off saturated niches.
Easy to get started
Nearly all selling channels have low-cost plans. Take Shopify for instance; the ecommerce platforms allows the drop shipper to set up their own store using the basic plan for just $29 each month. That’s just a fraction of what storefront owners need to pay for a retail space, in comparison.
A drop shipper gets to grasp all the patterns that lead to a successful business using tutorial from the sales channels, on boarding sessions, and case studies from successful drop shipping companies.
Lower fulfillment costs
Drop shipping being an order fulfillment method happens to offer perks that are feasibly convenient for both the buyer and the e-commerce retailer. It’s even safer for the drop shipper to leave this part to the order fulfillment wizards.
Besides using suppliers to directly ship ordered products to the customers, you can better still use 3rd party fulfillment companies. We have low-cost order fulfillment companies like ShipWire, ShipBob, and ShipMonk with infrastructure to help you package, ship products, and carry out all actions guaranteed by your return policy without any hassle.
You can sell across multiple channels
Right from your ecommerce website’s overview dashboard, you can start drop shipping on dominant marketplaces that have a remarkable track record.
What’s tremendously peculiar about this program is that it maintains a fast, precise, and cost-effective shipping process for your customers. Even much better, FBA takes care of your return policy.
Both of these options let the drop shipper build seamless listings and boost sales.
What’s not great about drop shipping business 👎
A quick reality you need to intently have a hefty awakening on is that with drop shipping, you can’t set a retail price that’s wide off the supplier’s suggested amount.
That’s one of the utmost cons of drop shipping. A wholesale price would practically suffice only when goods are bought in bulk. But that’s not the apparent scenario with a typical drop shipper running an ecommerce store.
If your regular customer orders a single unit, your average profit margin becomes feeble. The only option to go around this drawback is to sell your products at higher prices.
Drop shipping in now too competitive than ever before. We can’t just brush off the fact that the barrier entry for drop shipping is pretty low.
There are so many ads popping up every single day. But that’s not the only marketing strategy to get you on top of your game. You store needs to rank better on the search engine to beat the competitors.
Besides the bulky SEO strategies, you need to invest so much time and resources building a businesslike customer experience.
Limited control over the quality of products
Your drop shipping business is prone to frustrating descripancies that could pontentially cost you chunks of money.
A supplier might ship the wrong or a damaged product to your customer. In that event, the buyer could return the item or go the chargeback way; which of course, is every drop shipper's worst nightmare.
At times, the supplier will ship the wrong quantity. Such are the snags you’re going to be slapped with while in this business model.
How to start a successful drop shipping business
To put it into perspective, this is how drop shipping works:
This business model is mostly infiltrated by online retailers. The wow factor about drop shipping is that you don’t need to have inventory somewhere in a warehouse. Rather than setting up what’s commonly known as a ‘brick and mortar’ outlet, a drop shipper instead builds an online store.
A retailer needs to have a balance between high-selling products, and an open market that wins over a heavyset customer base. You don’t want to open an online store and end up with zero sales at the end of your first month. That can get a little awry for a beginner mostly.
So before you make your ecommerce site go live, this is how you can keep off the 80% ecommerce failure rate:
Draft a drop shipping blueprint
Same as other business models, drop shipping needs a deeply analyzed market strategy. The trends are changing and so is the need to move towards the right direction, objectively.
You need to level up with other drop-shippers in your niche across all sales channels. To make your 2 days old online store bloom up effectively, it’s important to do market research which in turn, measures your subsequent business’ prospects.
A drop shipper needs to make a calculated risk. In all fairness, it’s usual to sell a niche product that lacks a steady market demand curve and viably make generous amounts of sales.
Use these key indicators while building your drop shipping blueprint:
- Choose a sales channel with a proven scalability potential
- Do a niche product research
- Set price markups that give you the leverage for profit-making
- Look out for dependable suppliers to work with
- Understand your target audience better than your competitors
- Build a brand that emotionally syncs with your target audience
- Learn how to market your products on social media mediums
To match up with the drop shipping boom, these are some of the pointers to help you solidify and double up your prospective profits. They’re pretty much useful while drafting an e-commerce blueprint that’s up to the mark.
Besides, this guide goes in-depth to give you a first-hand outline of what each objective aims to sew up. The misconstrued speculation that portrays drop shipping as an easy business option to hang on is lacking in a number of ways.
Find a product to sell
This is one of the primary steps to building an ecommerce business model that results in better sales prospectively. Quite often, this tends to be a crunching moment for starters.
In this part, we’ll focus more on the tested strategies to use while finding a product to sell on your drop shipping store.
Build a brand that converts
Let’s face it.
The competition is eating up the chances to get a better deal out of your website’s traffic. According to BigCommerce, the average conversion rate for ecommerce sites lies anywhere between 1-2%. This represents even those drop-shippers who pull all strings to get better results.
So how do you scale further?
Posting ads is just part of the deal but doesn’t guarantee sales. At times, high website traffic might be deceiving. What you need to focus more on is tweaking your conversions using valuable strategies.
And you can nail it connecting your brand to these tactics;
Create a generous loyalty program
Customers tend to be receptive if it so happens that your business takes entirely all the potential benefits without giving back. In other words, it ought to be a give and take situation.
To maintain a viable catalog of returning customers, it’s of great essence to build a hands-on rewards system. You can award customers points whenever they shop from your online store.
A points-based system is mostly used by ecommerce entrepreneurs to lure customers into buying every so often. While setting up your drop shipping store, a loyalty program is a first-rate marketing strategy to consider.
Come up with ‘free shipping’ offers
Free shipping is a huge factor that influences customers’ shopping tendencies. In fact, the stats show that 93% of online shoppers successfully hit the checkout button if a product includes free shipping.
As a matter of fact, customers will end up buying products from your drop shipping store times without number.
I know you might ask– “so what if I don’t include free shipping?”
Well, the numbers don’t lie. 47% of online shoppers admit to abandoning their carts since the free shipping option was missing at checkout. To add on this, you don’t want to include any hidden fees. Your potential customers might not take it lightly. That accelerates your ecommerce site’s overall bounce rate.
Solve a problem
If your niche product is too obvious, your revenue projections might not materialize as anticipated.
Nobody is genius enough to read the minds of customers naturally; we can all allude to this fact. But with the right tools and metrics, it’s easier than ever. The core objective is to engage with your customers at a proximate level.
Make constructive keyword research to familiarize yourself with what your target audience is searching for on the SERPs. Each keyword density should give you a roadmap to what your marketing content should entail.
Most sales channels come with a blog section. In as much as you can use other marketing strategies, it’s competent to create content alongside your online store. How else would you share your products’ information?
In so doing, it’s much easier to detailedly explain what your product aims to resolve. To the greatest extent, it’s a solid move to build an unwavering awareness for your brand.
Coincidentally, the latter pointer introduces us to the next tactic.
Make your brand look glossy
Drop shipping is not a ‘get rich quick’ scheme. It needs the same dire attention as other physically established stores. First, you need to create a captivating brand logo. A logo builder such as Canva can help you simplify this task especially if you’re a beginner.
Consequently, branding isn’t just about creating a logo alone. It’s more of juggling with the consumers’ emotions. Branding is a key performance indicator that a drop shipper can’t afford to leave out.
Scaled drop shippers design and print private labels for packaging. This option helps you control your pricing and the brand’s dominance. Most of all, you can work with a 3rd party fulfillment companies to get the work done in a professional way. Sometimes, the suppliers might be slow to respond to your packaging instructions.
To put it in perspective, a steady branding strategy on all mediums, in this context, selling channels, grows your business’ revenue by 23%. It apparently turns out that your e-commerce brand’s image lets you thrive at engaging with your customers.
Set up a drop shipping store
Your online store needs to look alive. Yeah, you heard me right.
The setup part might seem like a daunting process for starters at times. But if you don’t want to spend weeks launching your drop shipping store, you can sign up for a course or alternatively, hire an expert.
Anyways, if none of these options sound perceptive to you, here are a couple of first-hand insights to help you get on board pretty easily:
Choose your preferred selling channel
You need to consistently stay abreast of the newer e-commerce trends. There’s no other way to come along with what your customers need.
To go beyond the typical practice of drop shipping, you need to pick a platform with a high volume of optimization capacity. What evokes more interest is the blossoming number of e-commerce platforms.
Most of these channels are mobile responsive and allow customizations from all dimensions. So here are some of the feature-rich e-commerce site-building platforms to try out:
- Shopify (full review here)
- Volusion (full review here)
- WooCommerce (full review here)
- Ecwid (full review here)
- BigCommerce (full review here)
- 3dcart (full review here)
- Big Cartel (full review here)
- Squarespace (full review here)
Please don't miss to check out the backlinked reviews for the channels above.
So which ecommerce builder is right for drop shipping?
First off, what gratifies the most if the fact that each of these solutions has distinct perks that will get you carried away with an ‘otherworldly’ fuss.
Back to the deep-trenched question…
To catch the drift of which SaaS option is right for your drop shipping prospects, these are the best possible yardsticks to help you measure a platform’s ins and outs.
Look at the functionality options
If anything, a site builder’s ease of use needs to be second to none. One with a handy dashboard to help you track down these pieces of data:
- Sales over a predefined period
- Number of visits
- Returning customer rate
- Average order value
- Average conversion rate
- Total orders(daily, monthly)
With such kind of metrics at hand, the drop shipper gets to measure their store’s performance accurately. All an ecommerce entrepreneur ought to get hold of in real-time are sharp insights that depict the customers’ behavior.
Shopify, BigCommerce, and WooCommerce are admittedly heavy contenders with exceptional functionality. For starters, you don’t need any grand skills to upload your products. Just to illustrate, Shopify allows you to bulk-import products and fill in their titles, descriptions, variants, and so forth.
In comparison to other sites, Shopify’s overview dashboard is more gleamy and easy to interact with, especially for beginners.
Choose a niche-focused theme
It’s always useful to consider the template you want to work with as part of your brand’s identity. It develops a secondary meaning as to why your drop shipping store is live and ready to feed off a market’s potential revenue.
Each of the earlier mentioned sales channels has marketplaces that are infiltrated with both free and paid themes. If you're on a strapped budget, it wouldn't hurt to start with freebies.
Should you not find any of the templates capable of yielding reasonable sales, you can still choose to get a quote from an expert for a customized theme.
WordPress has a large directory of themes and extensions; which includes the WooCommerce store builder. A quick tip to grasp is that the sales channel is best suited for drop shippers looking to sell content-based products. The seemingly literal fact is that WordPress turns out to be a very powerful content management system (CMS).
And with over 50k plugins, it’s pretty certain that sourcing and customizing your theme to have a chock-full of brainy features is never a brain drain.
Link your store to social selling mediums
You can embed social media buttons for Facebook, Instagram, Twitter, Pinterest, Google+, and much more to your store using a few enjoined instructions.
For each sales channel, there are outlined ways to help you sync your drop shipping store to its official social media page. Gone are the days where placing a link in your bio was the most fruitful way to fetch an audience for your products.
Instagram now has a ‘shoppable posts’ feature which seems to be a new stride that’s far off from the conventional means of advertising. Over 80% of Instagram users complete the checkout process without leaving the app. That alone suggests that a seamless integration makes a whole lot of sense.
What’s inherently distinctive with ecommerce channels such as Shopify or BigCommerce, is that a drop shipper can connect their store to marketplaces like Amazon and eBay and start listing products.
Amazon is a retail giant with optimal fulfillment capabilities. You can dropship with the Amazon FBA at the convenience of your online store. All you need is a product catalog that can easily be tracked from your store’s dashboard.
Put your payment options in order
A high cart abandonment rate is mostly attributed to a poorly structured checkout page. In fact, it’s linked to $4.6 trillion in lost e-commerce revenues. This fact might seem hard to wrap our minds around.
It’s, therefore, necessary to be conclusive to potential customers on all the apparent shipping rates taxes, or any other extra fees associated with the online purchase of a product.
With Shopify Payments, you can process credit card transactions from customers rather than using 3rd party payment gateways.
For drop shipping, I’d recommend any of these payment solutions:
PayPal being the most penetrating gateway in the US operates in over 200 countries all over the world. So it’s boundlessly possible to accept payments and fulfill orders internationally. Even better, there’s a seller protection policy that confidently covers any uncertainties that may happen to any eligible transactions, for that matter.
Stripe, on the other hand, is quite popular across Canada. So here are a few quick takeaways to serve as points of entry while picking a payment gateway for your drop shipping store:
- Compare the transaction fees. Lower fees allow you to broaden your profit margins.
- Find a gateway whose security standards are up to the mark, more precisely to customers' credit card transactions.
- Look out for any perks it offers, especially for your customers
- If it integrates with your drop shipping store.
Best drop shipping apps
Oberlo is the right plug if you want to drop ship cheap and high selling products from AliExpress. This plugin syncs flawlessly with the Shopify platform. To put it briefly, Oberlo lets you hunt and bulk-import products to your drop shipping store, instantaneously.
It’s exclusively built for Shopify drop shippers and gives access to dependable drop ship suppliers. To keep off the possible mishaps, Oberlo lists down verified suppliers who have a remarkable track record.
Most of all, it automates the order fulfillment process. Once the buyer places an order, you can prompt the supplier to ship a product at the click of a button. The process works seamlessly even where a cart has products from different suppliers.
For you to get a conclusive overview run-down, please check our Oberlo review.
This is a close-grained alternative that’s well inclined to the drop shipping model. Unlike Oberlo, Spocket hosts suppliers from the US and the whole of Europe. It’s selling point is that it doesn’t focus on products sourced from Chinese based suppliers.
Drop shippers can source products from this platform without any upfront costs. It’s no surprise that Spocket racks up among the most elite Shopify drop shipping apps.
More interestingly, it connects to WooCommerce; Shopify’s closest rival. Same as Oberlo, you don’t need to worry about warehousing, shipping, or any other fulfillment related priorities.
Our Spocket review covers the ins and outs of the Spocket marketplace.
What’s not to like about this drop shipping app?
SaleHoo is not only a directory of suppliers but also an online hub for drop shippers with like-minded objectives. If you have no idea of what to sell online, this could be your ultimate starting point.
There’s a whole catalog of low-cost suppliers to count on while scaling your online business. The product pages on SaleHoo are designed in a manner to help you spot high-selling and in-demand products early enough.
For you to get a conclusive overview run-down, please check our SaleHoo review.
Nothing works better with AliExpress than it’s very won drop shipping site, AliDropship. This platform is proven to bear a snowball effect on your drop shipping business model via a plethora of niche products to pick from.
AliDropship is the most suitable extension for WooCommerce store owners. It’s a fully automated plugin that comes with multiple built-in themes to help you customize your online store without any need for coding.
It actually puts an end to the hassle of having to build a store from scratch. The slowdown here is that since most of its products come from suppliers based in China, you customers might experience longer shipping times.
To get a hold of all its functionalities, pricing, pros, and cons, check our top to bottom review on the AliDropship plugin.
Dropified simplifies your drop shipping business by helping you find suppliers without any daunting input. As of now, the app integrates with Shopify, WooCommerce, CommerceHQ, and GrooveKart. You can put Dropified on the trial phase using its 14-day free package.
So here’s what happens:
With its powerful automation features, Dropified allows the user to upload products to their ecommerce store with just a click. Thereafter, once a customer adds a product to the cart, Dropified places an order with a verified supplier to have the item shipped to the buyer.
To hold fast onto Dropified’s order fulfillment and product hunting strategy, please check out our all-inclusive review.
Connect your drop shipping store to productive and insightful tools
This part is not anything close to quantum physics. It’s simple and uncomplicated. So here are a few tools you need to sync your store with:
So here’s why you need to use Google Analytics for your ecommerce store. Running a drop shipping business successfully would require the store owner to set a couple of metrics which measure these actions:
- How customers interact with your store’s product pages and overall interface
- The products which clients are most interested in
- Monitor your goals and objectives
- Have a better overview of your customers’ demographics
Understanding your customers’ behavior could potentially help you analyze the conversion rate for your ecommerce store. That is to say, you can distinguish between your new and returning visitors.
While operating a drop shipping store, you’ll also need to monitor these unique sessions:
- Visits that roll in an “Add to Cart” action
- Transaction-based sessions
- Number of abandoned cart
- Total number of product views
These as some of the phenomenal patterns that Google Analytics is built to analyze in an in-depth and concise approach.
The list of CRM tools i’m about to introduce you guys through are not only market-driven but those which will only cost you chump-money—or even no penny at all. Best part is all of these tools are beginner-friendly and compatible with big selling channels like Shopify, WooCommerce, and BigCommerce.
To get in on the action quite fast, I'd recommend that you try and look up at any of these customer relationship management tools:
Below is a better comparison of all the mainstream CRM tools that especially integrate with Shopify:
These tools, in a nutshell, are used to sort the customers’ contact information. A seller can make spot-on decisions while running target-oriented marketing campaigns. What’s more engrossing is that they can boost the customer engagement relationship quite exceedingly.
Market and optimize your drop shipping store for better conversions
No matter how merchantable your product or service is, you need to prioritize marketing your online store on channels that your target market is vastly clued-up on.
For you to have the use of these digital marketing platforms, you need to have some cash for paid advertising and promotions. Taking this into account, this is what you could do to save you from a hulking amount of budget:
Running a blog is a considerably cosmic way to help you achieve the maximum productivity while engaging with your target audience. Shopify and comes with a built-in blogging engine.
Since WooCommerce is fully integrated with the WordPress REST API, you can interact with your audience via a blog even if you’re a non-techy drop shipper.
This guide has some other blogging solutions for ecommerce store owners:
Best Blogging Platforms for Your Online Store
It’s easy to generate leads and learn the art of link building through blogging. The drop shipper can introduce a call-to-action in an article just to compel readers into taking an action– making a purchase in this context.
Search Engine Optimization is all about improving the quality of your website’s traffic. Your products need to have a higher ranking compared to those of your competitors on the search engine.
So how do you go about that?
You can perhaps jump-off straight to your competitors’ search results and spy on what they’re actually ranking for.
Or better yet, you can do keyword research to help your store have a high search volume.Here’s a scaled-down list of the best SEO tools you can work with to rank-up your ecommerce store:
Below is some additional 101 guide for prospective drop shippers:
Google Trends works as a starter-pack solution for drop shippers who want to get a hold of word phrases with low competition as well as those which are highly competitive.
But what’s the end result?
You get to find the high-selling niches and the search volume of all the related keywords. This lets you monitor the growing trend of a particular product over a period of time, as well as the interest over time, for all the related products.
A loyalty program is essentially meant to help the store owner keep a sustainable relationship with returning customers. To max out the average order value potential, you can introduce an incentive-based program where customers can earn points when they shop from your store.
Such a rewards system could make your returning shoppers develop a spending habit, in due course.
Email marketing is one of the most conventional streams to building a close connection with your customers.
There are cost-effective tools to help you build an email list that gives you a solid ROI, on average. But before we even dive into the most prime tools in the market, here are the essential specifications you should be looking for while choosing your automated email marketing platform:
- A user-friendly interface
- Bulk email response automation
- Captivating newsletter templates
- Capacity to manage coupons, A/B testing, email retargeting
Below is a list of extremely easy to use email marketing platforms for ecommerce store owners:
- HubSpot (full HubSpot Marketing Hub review here)
- Sendinblue (full Sendinblue review here, more info about Sendinblue's pricing here)
- ActiveCampaign (full review here)
- GetResponse (full Getresponsereview here, more info about GetResponse pricing here)
- ConvertKit (full review here)
You can view the set of subscription packages each solution has in this review.
Social Media Advertising
Your store needs to gain a massive following on social media. There’s so much potential to tap on.
Thankfully, all major ecommerce platforms are well plugged-in to social media selling channels such as Facebook, Instagram or Pinterest.
It doesn’t matter whether you’re a digital marketing guru or a new kid on the block, social media can help you grow your drop shipping business exponentially.
Remember that you can drive traffic to your site from social media in two ways; paid advertising or organically.
If you maintain a blooming interaction with your regular shoppers, then chances are, they’ll refer your brand to their friends without any hesitation. In other words, you need to have a top-notch customer service for you to survive in the drop shipping business.
Soon enough, it’ll also be so crucial to share video content through social media to your customers. It’s no surprise that thriving ecommerce companies now have sponsored posts/ads on mediums like Facebook and Instagram.
What is drop shipping: FAQ Section
Is drop shipping easy?
Well, drop shipping carries the same priorities as any other business model. While it has a lesser- startup costs, there's vigorous effort needed to make customers have confidence in your brand.
On the face of it, it seems like a quick fix to help you get fast money. In actual sense, drop shipping is now becoming highly competitive.
But if you start off with the best strategy to help you with priorities such as marketing, order fulfillment, market research, you can easily build a successful drop shipping business.
Is drop shipping legal?
Yes it is.
But there’s a catch:
In order to make your business look legit before the eyes of your potential customers, there are some few aspects you need polish up. For instance, you don’t want your online store to be flagged because of any tax issues.
While deciding upon your store's brand needs to factor in the applicable copyright laws. If you infringe your competitor’s intellectual property rights, that could paralyze your future operations.
Most newbies end up doing these common mistakes:
- Drop shipping counterfeit products
- Infringing their competitors’ trademark rights
- Not paying attention to the customers’ complaints
- Absconding their tax obligations
Sales channel such as Shopify, and WooCommerce which are above board and highly regarded, often ban store accounts which customers’ have filed numerous chargeback claims against.
So is drop shipping on Amazon legal?
To put it into context, drop shipping on Amazon is legal, as per its policy. Since you don’t have andy inventory, you can sell your products and label them as ‘’Merchant Fulfilled”. You are however, restricted from using the Amazon FBA to drop ship products.
Keep in mind the fact that your products need to be physically at Amazon’s warehouse.
In the usual run of things, it’s important to do more than is required to stay in line with the laws that reign over ecommerce related transactions.
Is drop shipping profitable?
It’s absolutely a commercially viable and highly profitable option for starters. After all, its a low-cost business model.
To make your store look more appealing you need to pick a niche that has a market potential. It takes more than a bare bone online store to get anything closer to Amazon Prime. There’s undeniably no doubt about that.
A profitable drop shipping business is one that sails through the tides in spite of any acute competition. In other words, decent figures will begin to trickle in only if you stand out from the bunch.
Drop Shipping Benefits
- Minimum Capital Requirements – One of the biggest advantages that cause merchants to choose drop shipping is the extremely low capital requirements. With drop shipping you can start on online business for almost nothing, since there’s no need to purchase thousands of dollars worth of inventory. You simply take customer orders and instruct your drop ship company where to ship the goods.
- Quick and Easy Start-up – Ecommerce businesses are already pretty easy to get started, but they’re even easier if you don’t have to stock any inventory, or worry about packaging and shipping orders. Drop shipping eliminates the cost of storing inventory, the hassle of packaging and shipping, the need to track inventory for accounting and tax reasons, worrying about how to handle returns and incoming shipments, and managing inventory levels.
- Extremely Low Overhead – Because you have no inventory, you can run a drop shipping business from your home office. You might pay even less than $100 a month to run your business, with the only real expense being your internet connection and the initial cost of your laptop.
- Location Independence – You can run a drop shipping business from anywhere you have an internet connection. As long as you’re able to communicate with your suppliers and customers, you can run your business.
- Product Selection – Because you don’t have to worry about inventory costs you can offer a much wider selection of products to your customers. As long as a drop shipper lists the item for sale, you can also list it for sale on your website for no out of pocket cost to yourself.
- Ease of Scaling – With a traditional business model, if you receive twice as many orders you’ll also need to do nearly twice as much work. With the drop shipping model, increased orders don’t translate to increased work for you, just increased profits. The drop shipping suppliers will bear the brunt of most of the additional work, making it quite easy to scale a drop shipping business, even when compared with other ecommerce business types.
These benefits can make drop shipping sound like the ideal ecommerce solution, but not everything about drop shipping is ideal. There are drawbacks as well, and we need to have a look at these.
Drop Shipping Disadvantages
- Low Profit Margins – The largest disadvantage to drop shipping is the very thin profit margins due to operating in what is an extremely competitive niche. The fact that it’s easy to get started means many merchants will set up an online shop to offer drop shipped products at the lowest prices possible to try and jumpstart the business. Because they have a minimal investment in the business, and minimal operating costs, they are able to work with the smallest of profit margins.
- While it is true that these merchants often have poor websites and non-existent customer service, it doesn’t stop customers from ordering from them, or at least using their prices as a comparison to yours. When merchants begin competing aggressively on price it isn’t long until profit margins drop nearly to zero. The best way to avoid this is to choose a niche that is well-suited to drop shipping.
- Inventory Management – While it might not be exactly easy to manage inventory when you’re stocking all your own products, at least you know at the end of the day what your stock levels are. This isn’t true of a drop shipping business, where you might be sourcing from multiple vendors and warehouses all across the globe, with inventory changing on a daily, if not hourly basis. There are ways to synch inventory levels with those of your vendors, but not all vendors support these solutions, which can lead to situations where you can’t actually deliver products ordered.
- Shipping Issues – If you have several different vendors supplying your drop shipped products you add complexity to your shipping picture which can complicate your shipping costs. In some cases you may need to ship items from multiple warehouses to satisfy a single order. You’ll be responsible for the shipping costs from all the warehouses, but you can’t pass all of these costs along to the customer because they’ll think you’re grossly overcharging for shipping!
- Supplier Mistakes – Are you able to accept responsibility for mistakes that weren’t yours? If you’re start a drop shipping business you may have to. Even the best drop shippers will make mistakes, and when this happens you’ll need to take responsibility for the mistakes, and apologize to your customers, likely providing some compensation to offset the error. And if you’re dealing with a low quality drop shipping company you could quickly become overwhelmed with frustration over missing items, botched shipments and low-quality packing, which can damage your business's reputation.
What is drop shipping? Rounding Up
So are you now in a fit state to start your ecommerce store?
If you have a few bucks to spare, you can launch your drop shipping store on any of the sales channels that I've repeatedly mentioned in this guide. Needless to say that Shopify(read our review) outranks most of the ecommerce programs.
Making good reference to this guide will help you overstep the barrier to entry and keep off the entrenched competition.
I’ll be around so if anything isn't sharply defined, you can drop your questions at the comment section below.