A Guide to Dropshipping
From domain real estate and blogging to crypto and NFTs, the connectivity afforded by the internet has allowed many people to find comfortable, convenient, and varied streams of income. The interconnected online world has changed the way we do business. As a result, novel business models have cropped up and given millions of people new opportunities.
What is dropshipping?
One of the most popular business models over the last decade has been dropshipping. Dropshipping is a business model where a vendor sells products to customers that they don’t hold in their inventory. They merely act as the middleman between the customer and a third-party wholesaler or manufacturer. The vendor purchases the inventory when the sale is made and with calculated profit margins, they can make money. It’s similar to the way your local grocery store buys products in bulk from many different vendors and sells them to you at a higher profit margin so that they can make money. Except, dropshippers don’t need to buy upfront and stock their store.
One key aspect of dropshipping is that dropshippers don’t need to handle the logistics of manufacturing, stocking, or shipping. Logistics have always been a huge hurdle for many business owners. Dropshipping allows dropshippers to act as an online storefront while manufacturing experts and wholesalers do what they do best. An eCommerce store owner can run a business without needing to manufacture products, keep inventory stocked, ship anything, or go through the rigmarole of managing a team to accomplish logistical feats. One big advantage of dropshipping is the lack of upfront investment required by a new store. This ease of entry has allowed tons of new entrepreneurs to start their own stores. Since the pandemic, it’s clear that we’re moving toward remote work being a necessity. Dropshipping is a business model that can be run from anywhere in the world, as long as you have an internet connection.
How does dropshipping work?
To better understand how exactly dropshipping works, we’ll use the following example:
You set up an online store to sell organic dog food and dog treats to dog owners. You specialize in serving a small niche of dog owners by selling a collection of the best organic dog food and dog treats that you personally test and cultivate.
A customer finds your online store through one of your marketing channels and places an order for five bags of dog treats. The order is received and you pass along the order details to one of your suppliers. To make a profit, you build yourself a healthy profit margin between what you pay the supplier for the five bags of dog treats and what you charge the customer.
When the supplier (also known as a wholesaler, vendor, or seller) receives the order, they handle the fulfillment of the order. They ensure the product line is stocked, prepare the order, ship the item, and handle returns. While dropshippers don’t ever handle the goods that are sold, they will sometimes manage shipment tracking.
In the end, the customer receives the product and if they’re satisfied, they look at your store as the entire reason for this positive customer experience. Most people shopping with dropshippers have no idea that they are simply dealing with a digital storefront that doesn’t even handle inventory.
Is dropshipping really that simple? In a nutshell, yes. Due to app integration, various software, and eCommerce technology, dropshipping has exploded in popularity. A lot of this popularity stems from just how easy it is to get launched. Globalization and digital interconnectedness have given dropshippers access to networks of wholesalers and automation for nearly every previously complex step of running an online store. Bridging the gap between suppliers and your eCommerce platform has never been easier. Much of the process is automatic. Zooming out slightly, the popularity of dropshipping has coincided with a boom of online resources available to help you learn how to dropship.
How can you start a dropshipping business?
With the tools available online and an ecosystem of resources to learn how to successfully start a dropshipping business, it’s never been easier to start one. But, where do you start? Before anyone can begin a dropshipping business, they must understand that even a simplified and accessible business model like dropshipping takes a lot of effort. It is no “get rich quick” scheme. Once prospective business owners commit to this, they can follow the same process that other successful dropshipping businesses have done before them.
Your niche: All successful businesses start with an idea. In this case, the big idea is your niche. What exactly are you going to sell? This stage of launching your dropshipping business requires research. You need to study customer needs, competitors, and suppliers. You ideally want to find a product that has been proven to be in demand, yet not so competitive that you won’t be able to survive. Many dropshippers find success by being very specific and going niche. You’ll want to study your competition and see how they’re doing what they’re doing. In what ways can you be better or simply different? It’s important to take the necessary time to complete this step to ensure your chances of success.
What are people already selling that you might want to consider? Well, the list is really endless. For some inspiration, Shopify (the premier eCommerce authority for dropshippers) does a good job of documenting the best niche ideas every few months. You can check out some ideas for dropshipping products here. The list includes:
- One-piece swimsuits
- Organic skin products
- Beard oils
- Reusable water bottles
- Coffees and teas
- Stroller fans
- Baby toys
- Pet supplements
- Holiday decorations
- Ergonomic office supplies
- Air purifiers
- Phone cases
- Steering wheel covers
Once you know your market and your product, you’ll need to find a supplier or several suppliers for the products you plan to sell. You’ll want to select suppliers that are verified and known for delivering high-quality goods and excellent service. Some proven suppliers that have been the backbone for thousands of successful dropshipping businesses include AliExpress, SaleHoo, Sunrise Wholesale, and CJDropshipping.
Your online store: The next step is to build your store. Luckily for you, you won’t need any brick and mortar to get launched. The beauty of dropshipping is that you can build and launch your online store in a matter of days, not months. Your online store is where you’ll convert prospects into customers so it’s important to be designed in a way that showcases the quality and trust of your goods and customer service. Plan to consistently and regularly update your online store as you grow.
One driver of the dropshipping trend has been Shopify. Shopify allows users to build and launch an online store. Shopify was designed with eCommerce at the forefront of its use case, so everything you need to start, launch, and grow a dropshipping brand is ready to be integrated through Shopify apps and plug-ins. Once built and launched, you’ll need to drive prospects into your store. The marketing phase is the most difficult process for many dropshippers. Everyone can launch a store but not everyone can fill it with customers. This process, however, is a dynamic one. Your marketing strategy will change over time and will need constant optimization. Some of the most successful ways to market your new store include paid advertising on social media and search engines, content marketing like SEO blogs and viral videos, influencer collaborations, and networking and sharing your store within like-minded communities.
Your first sale (and beyond): Once you’ve decided your niche, done your homework on your competition and product, built your store, and launched your marketing initiatives, your next big milestone will be your first sale. This is an important moment in any business, even an online store. When set up correctly, this is where dropshipping shines. Because of the convenience of the business model, most of your work is done before the sale is made. Don’t be discouraged if your first sale doesn’t happen in the first week of being in business. As long as you’ve built a conversion-focused online store and done the correct legwork, your first sale will inevitably come. And after this, it comes down to “wash, rinse, repeat.”
The process for starting a dropshipping business can appear simple but it’s important to note that there are certain legal requirements, much like starting any business. It’s best to do your own research and find out what legal, tax and registration requirements there are for your unique situation. Despite this, dropshipping remains a legal and viable method of business. After all, this model of product fulfillment has been the standard operating procedure for businesses for decades.
Why is dropshipping such an attractive business model?
Dropshipping is a huge industry and despite the competition, the industry is still growing. Why is this? For one, dropshipping requires a lot less of an upfront investment from a cash-strapped budding entrepreneur. For less than a thousand dollars, you can get started with your first online dropshipping company. This is a huge contrast to the startup capital required in other business models. Another huge plus for potential dropshippers is the ease at which these businesses can be run once they get started. Overhead is low since you don’t need to worry about inventory or a physical location’s rent. Additionally, there are tons of resources available that make starting a dropshipping business simple. Every day, new apps and integrations are being added to the dropshipping ecosystem designed to make everyone’s business run smoother and faster. All of this adds up to a lower risk for potential dropshippers.
What are the challenges of dropshipping?
Despite a lower risk than starting a restaurant or a software company, there are some challenges that you should be aware of. How much money you take home from your dropshipping business will depend entirely on your margins.
Unfortunately, your margins will be somewhat low as many online stores need to compete on price, especially when going head-to-head with giants like Amazon. Even though dropshipping removes the logistical issues from your hands, any issues that pop up from shipping or fulfillment still affect you. It will rest on your shoulders if there are issues with customers not receiving their products on time or at all. This issue can get even more pronounced when dealing with a global shipping network.
With the ease at which one can start a dropshipping business, competitive and crowded niches will become more of an issue in the future. Prospective dropshippers who want to be successful will need to learn how to carve their own niche and truly provide something better than their competition.
*The opinions reflected in this article are the sole opinions of the author and do not reflect any official positions or claims by Acer Inc.
About Alex Clark: Alex is a contributing writer for Acer. Alex is a Texas-based writer and B2B email marketing strategist specializing in helping technology brands connect to their customers. He has lived all over Asia and has consulted with business clients in numerous industries to grow their brands.
Alex is a contributing writer for Acer. Alex is a Texas-based writer and B2B email marketing strategist specializing in helping technology brands connect to their customers. He has lived all over Asia and has consulted with business clients in numerous industries to grow their brands.