Do you want to sell online but don’t have the budget to keep products in stock? You can adopt the dropshipping business model. Dropshipping is an order fulfilment method that is quite different from traditional eCommerce in that the retailer neither owns a physical store nor maintains the inventory. A lot of retailers are cashing out big time with dropshipping and so could you. In case you are wondering what is dropshipping business, how to start dropshipping, or how does dropshipping work? This article is for you.
What is a Dropshipping Business?
Dropshipping is a retail fulfilment method where brands or businesses sell products without keeping them in stock. They add the product to their online store (as though they were the owner), adding a price that is higher than what the supplier/manufacturer/wholesaler is offering. When an order is received, the retailer redirects the order to a third party (could be a manufacturer, supplier, or a wholesaler) who then package and ship the product directly to the customer.
Order information such as product ID, order date, and delivery address are forwarded to the third party to fulfil the order on the retailers’ behalf. Due to the lack of physical inventory, dropshipping is ideal for eCommerce retailers and not traditional brick-and-mortar stores.
The four parties involved in dropshipping are:
- Manufacturers create the products and sell them in large quantities to wholesalers and retailers. They usually don’t sell to the public.
- Wholesalers or suppliers buy products from a variety of manufacturers, and then sell to retailers.
- Retailers sell products directly to the consumers.
- Consumers buy the products from the retailers who buy from the wholesalers/suppliers.
Benefits of dropshipping
Deciding to start a dropshipping business in 2022 comes with a lot of benefits including:
- Lower start-up costs
Adopting the dropshipping business model doesn’t require capital in stocking inventory or renting an office space/warehouse. Dropshipping is a low barrier to entry business model that anybody can start without funds. You don’t have to spend time organizing inventory or spend money hiring a staff to fulfil orders. The dropship supplier or wholesaler takes care of all these.
- Lower inventory management
Since the retailer doesn’t own a physical store or warehouse, the overhead management is reduced. Retailers don’t have to spend time hiring staff to organize/track inventory, fulfil orders, and manage shipment. All these are done by the dropship wholesaler or supplier.
- Wide range of product offerings
Retailers can choose to sell a broad spectrum of products without even stocking them. This is particularly beneficial for small businesses.
Dropshipping offers a great deal of flexibility. You can sell different types of products from anywhere and change the prices at any time.
Since the need for inventory management, order fulfilment, workers, and a physical location has been eliminated, a retailer can channel his effort and time on marketing.
How to start a dropshipping business in 5 steps
Before kick-starting a dropshipping business, there are important actionable tips you need to know to set you apart from the competition. Below, I will show you how to start dropshipping in five steps.
- Find your niche and create a business plan
Identifying the right market opportunity is very crucial to your online success in dropshipping. Many retailers have failed because they trivialized this step. A good start would be to know the different types of products. There are seasonal products, trending products, in-demand products, etc. There are two basic rules to identifying the right product:
- Research products that are extremely difficult for consumers to buy without directly contacting a supplier.
- Research products that are difficult for retailers to maintain within a physical store.
Take phone cases as an example. You can hardly see consumers buy directly from the wholesaler or supplier and at the same time, you cannot see them in most retail stores. By dropshipping this product, you will get profit even as a beginner. Once you know which market space you want to venture into, create a business plan to ensure the long-term growth of your business.
- Build your dropshipping store
Once you have determined your market focus or niche, you are ready to create a dropshipping store. Gone are the days when you will require a programmer to design a website for you. As a beginner, you don’t need to be a developer before you can create your first store. With eCommerce solutions like Shopify, WordPress, WooCommerce, Magento, etc., you can build and launch your online store within 24 hours. Also, there are free tools to help you design your company logo, generate a domain name, perform SEO, keyword research, etc. Virtually everything else is free besides your domain name which you will purchase from a hosting company.
- Handling finances
Finance management plays a crucial role in any business. How you handle finance will determine how far your business will grow. Before you start making selling, you need to have a financial strategy on how it will be spent. Without this, you may become careless and spend your money without accounting for it. A good financial strategy could be that for every profit generated per sale, you will reinvest around 40% for marketing, 20% for maintenance (domain name & hosting fee, software, etc.), save 10%, keep 5% for tax, and so on. This is just a template; you can change it at will.
NB: Taxation in dropshipping can be very complex. You need to check out tax rules that apply for your location and that of your supplier.
- Choosing a reputable dropship supplier to fulfil orders
Dropshipping suppliers play a crucial role in the fulfilment process. Fortunately, you can choose more than one supplier; you are not restricted to the number of suppliers you want to use for your business. However, it is important to choose reliable, reputable suppliers to reduce the risks of returns and refunds. A reliable, reputable supplier offers:
- a great deal of trust
- quality products
- rapid order processing and shipping time
- fast and outstanding customer service
- returns and refunds if the situation warrants
NB: Before choosing a supplier, make sure you order and test out a few products to see if they do what they promise.
- Market your dropshipping store
Now that you’ve learned how to start dropshipping, there is one more thing left. The competition in dropshipping is fierce as such you need a solid marketing strategy to stand out. Fortunately, almost every marketing strategy for dropshipping is free. Check out these top 5 tips to market and promote your dropshipping business.
- Content marketing – start a blog or create a YouTube channel to educate/entertain/engage your audience about the product you sell.
- Paid ads – run paid ads on Facebook and Google to increase awareness and boost sales.
- Mobile marketing – offer live chat support to your audience.
- Communities – interact with people on Reddit, Quora, and other online forums. Remember not to always pitch a sale when submitting your opinion.
- Influencer marketing – hire an influencer to promote your product on their social media channels.
Take note of what channels work for your product niche. If you will invest money in a paid advertisement, you want to first learn how to use Facebook and Google ads, so you won’t waste money.
Whether you are an eCommerce expert or a newbie, dropshipping is a great way to start selling online at a low-cost and low risk. Launching your dropshipping site will depend on choosing the right niche, the right supplier, and building solid marketing strategies. The advent of free dropshipping tools for analytics, order tracking, customer engagement, etc. makes it easier to dropship in 2022. You don’t need to struggle to make it dropshipping. With this guide, you can create a pathway to financial freedom by just selling what someone else has created without first buying it. How interesting!