A few years ago there were a lot of rumors about dropshipping in the e-commerce space. Many entrepreneurs were excited when they learned that they could use the power of the internet to make money with minimal upfront costs.
This year, the enthusiasm for dropshipping has waned somewhat, and budding entrepreneurs are wondering if there's still money to be made in this business model and whether it's worth getting involved. The short answer? It depends.
In this post, we will discuss what dropshipping is before explaining the pros and cons of this business model. With this information in mind, we will determine what type of entrepreneurs would benefit the most from dropshipping. Finally, we will give you some actionable tips for success in dropshipping.
contents
What is dropshipping?
8 advantages of dropshipping
6 Disadvantages of Dropshipping
Who is dropshipping good for?
Top tips for dropshipping success
Buy and sell on Alibaba.com
Final Thoughts
What is dropshipping?
Dropshipping is an e-commerce business model that outsources order fulfillment to a supplier or fulfillment partner. Dropshippers don't have their own inventory, which helps them keep overheads very low.
In dropshipping, the retailer typically sells products that are designed, manufactured, and packaged under another brand's name. Dropshippers can either sell on a B2B eCommerce marketplace or on their own independent website.
Many choose an established platform because they double as a trusted search engine that shoppers come to when they are looking for a specific product. This makes it much easier to drive traffic to your storefront and ultimately make sales.
Dropshippers can sell anything from shirts to car parts. As long as you can find a supplier who will fulfill your orders for a specific product, you can sell it.
8 advantages of dropshipping
Dropshipping has many advantages, which is why it is so popular among entrepreneurs. Let's see why dropshipping is such a hot topic in the ecommerce industry.
1. Inexpensive to get started
One of the most appealing aspects of dropshipping is that it's very cheap to get started. Since your inventory is managed by a third party, you don't need to invest in stocks. Some e-commerce marketplaces, including AliExpress, allow you to start selling for free and only charge a commission on your sales.
Some entrepreneurs claim to have started with absolutely no money invested, but there are a few small investments that we recommend. To get started, you'll need a reliable computer and an internet connection.
The first investment we suggest is samples of the products you intend to sell. You want to make sure your supplier is offering quality products (or at least the quality you expect). When you see them in person and the materials, from where they are made you will get a much better idea of the quality of the products.
It's also a good idea to register your business to form a legal entity rather than operate as an individual. This protects you in the event of any legal issues that may arise. This also helps keep everything in order for tax filing. The costs of this vary by country and region as most company policies apply locally. You can expect to spend a few hundred dollars on it, but the protection it offers is worth it.
2. Easy setup
Another attractive aspect of dropshipping is that it's pretty easy to get started. The most important things you need to do to start your dropshipping business are choosing a niche, choosing products, finding a reliable supplier, who Setting up an online store and selling your products. That might sound like a lot, but if you take it step-by-step, it's very manageable.
Fulfillment and shipping can get complicated. Outsourcing this part of the retail process saves you a ton of headaches and frustration. This step alone requires a number of finely tuned processes and logistics oversight that eliminating it makes it a lot easier to get started.
3. No inventory management required
Inventory management can be very tedious. You need to keep track of current inventory counts and study a series of reports to keep your inventory on track to meet current needs. You also need to organize and manage the physical products as they move around in your warehouse. These things aren't necessarily difficult, but they are time consuming.
Fulfillment outsourcing means you don't have to worry about these tedious tasks. Your fulfillment partners handle all inventory management for you.
4. Product testing is easy
As a business owner, there may come a time when you want to expand your offering and test new products. With standard ecommerce fulfillment, this comes with some risk. You might stock up on a product and your audience might not be as interested as you expected it.
However, dropshipping makes it easy to test products without any risk whatsoever. All you have to do is see if your current supplier offers the product you want to sell or find another who does and add it to your online store.
This way you don't have to invest a lot of money to see if the product works or not. Since the risk is so low, you can experiment with as many products as you like.
5. No physical location required
If you don't have inventory, you don't need a fulfillment center. You can start a dropshipping business from your studio apartment or even on the go. Not only is it incredibly convenient, but it will also save you big bucks on rent and utilities or warehouse purchase costs.
6. Low risk
Dropshipping is a very low-risk business model. Since the initial investment is not very large, you don't lose much if you have trouble making sales or decide to get out of the business. The only thing you lose is the time you have invested.
7. Build passive income
When set up correctly, a dropshipping business can become a steady stream of passive income. That means once you master the automation, you can sit back and watch the sales roll in and your bank account build up.
The best way to do this is to use a reliable dropshipping plugin with your online store that will automatically send orders to your fulfillment partner. Hire a virtual assistant who is available to troubleshoot the system troubleshoot and resolve customer issues.
This only works if you work with suppliers who are able to see through their end of the business.
8. Easy to scale
Dropshipping businesses are relatively easy to scale because you don't have to worry about raising the capital to purchase a larger physical location, hiring additional fulfillment staff, or investing in additional inventory. All you need is a fulfillment Partner who is able to sell large quantities and you can take him to the max.
You can scale your business either by expanding advertising and content marketing strategies or by offering additional products.
6 Disadvantages of Dropshipping
Although dropshipping has many advantages, there are some notable disadvantages that we should point out. Let's see.
1. Difficult to build a brand
Because a third-party company manufactures and fulfills your order, your customers won't have much exposure to your brand after the initial order, especially if you're selling on a large e-commerce marketplace.
Since the products delivered to your customers are likely to have another brand's name and logo on them, they can go straight to that brand's shop if they want to make another purchase. Unfortunately, there's not much you can do about that as it comes with the territory.
This is a scenario where you can still make money without having a brand, but if you want to take on future projects or ventures under the same brand name, you still need to build from the ground up.
2. Limited control over customer experience
Because you're not fulfilling orders, you have limited control over the customer experience. Shipments may arrive with missing items or with damaged packaging. Items may be delayed beyond their intended arrival. This is all at the hands of the supplier.
The best thing you can do about this is to choose a reliable supplier that you can rely on to get the job done right. We highly recommend checking out the ratings and testimonials for different suppliers so you can see , how well they have worked with other dropshippers.
3. No wholesale discounts
Since the supplier pays for the warehousing, labor, and other order fulfillment management costs, they do not give dropshippers wholesale prices. This also has to do with the fact that a dropshipper experimenting with the business model or new products may not over the course of their relationship decreases its minimum order quantity.
Since the supplier does not cover these costs, the dropshipper will have to. This will increase the cost per unit, possibly closer to retail rates than wholesale rates.
4. Very competitive
Because there is such a low hurdle to start dropshipping, there are thousands and thousands of dropshipping companies out there. Some of these retailers may have very similar ideas to yours. This creates a very high level of competition.
However, if you get creative with how and where you showcase your products, it's easier to stand out from the competition.
5. Profit margins are relatively low
As mentioned earlier, starting a dropshipping business is pretty easy as your fulfillment partners do the hard part of the work. That means you pay for the convenience.
Suppliers who handle the fulfillment don't give wholesale pricing to dropshippers. This tacks on additional fees for running their end of the deal. These increased unit costs significantly reduce profit margins compared to standard ecommerce fulfillment.
6. Suppliers can opt out
There is always a chance that suppliers will let you down. Some may go out of business and others may simply stop supplying the products they need. Failure to plan properly can cause major problems for your business.
This is definitely an inconvenience when you don't have backup options.
Who is dropshipping good for?
Dropshipping has many advantages that outweigh the few disadvantages for some entrepreneurs. This business model is unique and therefore perfect for some unique types of entrepreneurs.
Dropshipping is particularly good for a few different types of entrepreneurs. Digital nomads, or people who travel the world and work exclusively online, find the dropshipping model valuable because it's sustainable for their on-the-go lifestyle.
It's also great for entrepreneurs who need a way to make some money to pump into other business ventures. New entrepreneurs can experiment with this business model to learn how to run a basic business while dabbling in digital marketing .
Dropshipping isn't for entrepreneurs who want to make and sell their own products or build a big brand. It's also not a good option if you're looking to "get rich quick" because while it's relatively easy to make your first dollar, it's not the profit margins are not great.
Top tips for dropshipping success
Dropshipping can be very lucrative when approached with a well thought out strategy and backed by hard work.
There are no right or wrong answers when it comes to starting a business, and dropshipping is no exception. You can get as creative as you like. However, there are some best practices that have helped others in the past become successful be.
Let's take a look at some of the top tips for starting or growing a dropshipping business.
keep it simple
When starting out with dropshipping, it's important to keep it simple and build up over time. This is especially the case if you're new to entrepreneurship. Start with one supplier and maybe even a product if you still have the business model not master.
You can always add more as things progress and you get more comfortable. You don't want to overwhelm yourself to begin with, as that's a surefire way to burnout quickly.
Partnership with reliable suppliers
It's absolutely vital that you work with reliable suppliers. This may mean paying them a larger share, but if you want your business to thrive, you need to keep all areas of operations in check to the best of your ability.
It's also a good idea to choose a supplier who shares values similar to yours. For example, if you value customer service, choose a supplier who values that too. You will never be able to control how they operate, but if your stats are aligned, there's a better chance that their functioning is similar to yours in that regard.
Prioritize customer service
Building customer loyalty starts with excellent customer service. Have a phone or email address available for customers to share their needs, make complaints, or report problems. If you are unable, use these communications to update to stay, hire someone who can.
Your account managers should have phenomenal people skills and be knowledgeable about your products and processes. When they don't know the answer to a question, they need to be able to find an answer quickly.
When you make customer service a priority, you set your business up for success.
Choose a hot product
The beauty of dropshipping is that you can jump on trends without taking the risk. If there's a product that's currently making numbers, find a supplier and add them to your dropshipping store. A great way to see What users are looking for is using needs analysis and planning tools or Google Trends.
We recommend checking out our list of the top 30 best dropshipping products for 2021 to see some of the hottest items right now.
Always test your products
Every time you add a new product to your store, be sure to try it out. Order one for yourself so you can see how it looks and feels in real life.
You can use these test units to take photos for your product listings and create promotional content. This is a win-win situation.
Prepare to take the blame
If something is wrong with an order, you can't just shift the blame onto the supplier. You have to own up to it and make things right with the customer, even if you feel like it wasn't your fault. It's yours business, so it is your responsibility.
While your brand can absorb the shock of a bad customer experience, your wallet doesn't have to. If your supplier made a mistake, ask them to reimburse you. Do this privately and don't share these details with the customer, since creating a scene will probably look bad to you.
Use generic items
If you can find a high-quality, generic version of the product you wish to sell, we encourage you to choose this option. Often, multiple suppliers carry the same generic brands. So if a supplier runs out, you always have backup options to keep that product “in stock” on your dropshipping store.
Familiarize yourself with routing jobs
One of the benefits of online shopping for customers is convenience. Many online marketplaces have made millions or billions by perfecting the art of fast shipping.
One way to reduce your delivery times and keep your customers happy is to be smart about routing orders. This comes down to choosing suppliers who are able to fulfill orders at the pace you want and are committed to are located centrally in your shipping zones.
You can even work with multiple suppliers for customers in different regions to get their packages to them faster.
Buy and sell on Alibaba.com
Alibaba.com is a business-to-business (B2B) e-commerce platform. This marketplace brings together manufacturers, raw material suppliers, wholesalers and retailers to trade from all corners of the world.
Since Alibaba.com is a B2B platform, it is not well suited for building a dropshipping business. Most buyers come to Alibaba.com to buy items in bulk at wholesale price. Dropshippers need a business-to-consumer (B2C) platform to connect with customers.AliExpress, also originating from Alibaba Group, is a great place to create a dropshipping storefront.
However, Alibaba.com is a great place to connect with suppliers who offer fulfillment services. Not all sellers come to Alibaba.com to do fulfillment management, but you can find those who do by You post on our Request for Quotation (RFQ) platform. You can indicate what type of products you are looking for, with some information about the support you need, and eligible suppliers can contact you directly with a quote.
Final Thoughts
Dropshipping is still alive and well and offers opportunities and opportunities for a variety of entrepreneur types. If you are considering dropshipping, we encourage you to carefully weigh the pros and cons to see if it might fit your entrepreneurial vision.
When you're ready to find a supplier for your dropshipping business, log into Alibaba.com and select Buyer as your trading role. Post an inquiry or search for items listed on the marketplace to order to find the right supplier for you.
