Dropshipping is one of the most sought-after business options. This is an eCommerce business where the owner runs a business but doesn’t stock anything. In this business model, you advertise the items on your store and the supplier handles the fulfilment.
Once a customer orders an item on your store, you, in turn, place an order with the supplier. Instead of the supplier shipping the product to you, they ship it directly to your client. The client pays you when placing an order; you take out your markup and pay the supplier their due when placing the order.
This online business appears to be simple and risk-free, which makes it extremely tempting to a lot of people especially in the Lockdown Era due to COVID 19.
Table of Contents
- Dropshipping Basics
- Is Dropshipping the Best Business Model?
- Choosing Dropshipping Products
- Defining the Target Market
- Knowing Your Competition
- Finding the Right Dropshipping Supplier
- Looking for Dropshipping Suppliers
- Choosing a Dropshipping Selling Platform
- Acquiring Customers for Dropshipping Business
- Running a Dropshipping Business
- Common Dropshipping Mistakes Newbies Make
- Frequently Asked Questions
Here is a quick guide to dropshipping to help you make informed decisions.
There are a few basic steps that you must be aware of before starting your dropshipping business. These are:
- Figure out a niche that is profitable and sustainable. You can use research tools as well as competitors to find out such metrics as product demand and the average retail and wholesale prices
- Build a credible eCommerce store as it will help you build trust with clients and suppliers. There are some tools and platforms that you can use to achieve this; we’ll look at that later on in this piece
- Research and get to know credible and reliable suppliers who can fulfil your orders efficiently and on time. You can check out your competitor’s suppliers or conduct your own research. Look out for credibility scores, certifications, prices, MOQs etc. and negotiate where you need to.
- Optimize your store. Look into tasks you can automate or outsource. You can use some tools and apps to automate tasks such as marketing and customer support
The Basic Dropshipping Tools
a). The tools that will help you to start your market and product research
- Google Trends and Google Keyword Planner
- Bestsellers list on marketplaces such as Amazon and eBay
- Google Analytics and Clicky for factual figures
b). Ecommerce platforms and plugins that you can look into are as follows
- Shopify, which may be coupled with Oberlo or Dropified
- WooCommerce which may be paired with WooDropship
- BigCommerce and Magento
There are other countless dropshipping plugins that you can look into
c). Here are some tools that can help automate dropshipping tasks
- Mailchimp and AWeber for email marketing automation
- Social media management and automation through Hootsuite, Buffer among others
- IFTT and Zapier can help with integrations
Now that we have the basics covered, let’s dive in a little deeper into the real secrets of the dropshipping trade.
Is Dropshipping the Best Business Model?
Dropshipping is pretty easy for newbies who are testing the world of eCommerce. It is a low-investment, low-risk option, which doesn’t feel like a huge gamble. As such, there is the freedom to experiment with different products before settling on what works.
This business model works for some but not all aspiring business owners.
Here are the types of entrepreneurs that can grow tremendously with this model.
- The validation entrepreneur who is looking for an affordable yet effective way to test a new product
- The budget entrepreneur who is looking for the cheapest mode of doing business
- The first time entrepreneur who wants to learn how eCommerce works
- The Walmart entrepreneur who want to sell a variety of products
The following types of entrepreneurs may find it a tad harder to achieve growth exponentially through dropshipping alone.
- The brand-centric entrepreneur who is looking to grow their brand for long-term sustainability
- The margin focused entrepreneur since dropshipping margins are about 20% after business fees
- Marketers who are not creative, and are competing with their own suppliers to sell the same product
Choosing Dropshipping Products
One of the most vital pillars of a successful eCommerce business is picking the right product. Use facts and in-depth research to determine the profitability and sustainability of the business. This does not mean that you cannot sell seasonal products.
Here are some factors to consider when choosing a dropshipping product.
- Look at the retail and wholesale price of the product and plan on how to achieve your profit goals. Low price products may have thin margins but high sales volume and vice versa. Normally, dropshipping has a markup of 10% to 50%
- The product itself; what are the features, weight and size? These factors will affect your selling price as such costs as packaging material and shipping costs will be included. Starting out with small, easy to ship items is always advisable.
- Look at products you can cross-sell. Showing shoppers items that they may be interested in while shopping encourages them to make more purchases
- Check if the products are renewable. How long will the client take before they come back for more? If you are looking into making predictable income, pick products that have high chance of repeat orders. You can also incorporate marketing strategies such as subscription options
- The rate at which the product is discounted, updated or changed will affect your business. This is because you will have to incur the costs of changing the copy on your store and marketing pages or risk appearing untrue or unreliable.
Here are some common pitfalls to avoid when choosing dropshipping products.
- Do not rely on the likes or dislikes a product gets. Base your decision on facts
- Avoid selling counterfeits (often labelled as “true copies” or knock-offs) as it will ruin your business credibility. This doesn’t apply if knock-offs are your business and you advertise it as so
- Don’t jump on trends without due diligence
Defining the Target Market
If you want to build a sustainable business, defining a target market is essential.
Here are some pointers.
- Measure the demand for the product. Keyword research tools such as Google Keyword Planner come in handy to show the products that have been searched the most and their ranking, say in a month. You may need to dig deeper if you intend on serving an emerging market
- Understand seasonality and customer purchasing patterns. Trend analyzing tools such as Google Trends can show you the trends and their peaks as well as all-year-round products
- Competitor research is vital. Look at their presence on social platforms, on marketplaces, their marketing activities, their website, their sales volumes and how they handle their customers. Look at the reviews and ratings from their customers
Once you have an idea of the market you are getting into, it is time to define your target customer.
Consider the following factors when thinking of your ideal client.
- Who do you want to sell to; a business, consumers or the government? B2C, B2B and B2G models have differing aspects such as purchasing power, purchasing quantities and preferred quality among others.
- Look at the demographics such as location, gender, age and buying capacity. Look at the spending habits and abilities based on the demographics. Market to the audience that is able and willing to pay for what you are selling
Knowing Your Competition
In 2020, truthfully, there is an influx of sellers in the eCommerce space. A market that has established sellers is good. However, if the sellers are too many in a small space, that could be a problem.
Here are some insights.
- Tools such as SEMRush shows you the top-ranked websites in your preferred market
- You can pose as a client and order from your competition. Take note of everything from the order processing, to customer service, to the delivery time to packaging and post-delivery customer support. Don’t copy, simply observe so that you know the expectations that the customers have
Finding the Right Dropshipping Supplier
The backbone of a dropshipping business is getting affordable, reliable, efficient punctual suppliers. You need to invest enough time and resources into searching for suppliers that you can work with. Here are some things to keep in mind.
Look out for drop shipping agents who pose as manufacturers or wholesalers but are in fact middlemen. While some agents are vital in bridging the gap between manufacturers and a dropshipping business, a good number of them can be cons.
- Look into the credentials of the company, as well as the number of years they have been in business. You want to deal with a company that is experienced in their niche and have established and helpful customer support
- Look into the quality of the product. Apart from quality product images, check out detailed product descriptions. Additionally, look into what others say about products from that company. You can always order an item for yourself to test the quality, customer service and efficiency of their service
- If you like a supplier, ask for referrals. A good supplier will be in a position to give you a few companies that they serve who can attest to their service.
- Look out for exorbitant order fees. Most dropshipping suppliers charge a fee to package and mail the order for you in addition to holding the stock. The fee usually ranges between $2 and $5. This fee is not inclusive of shipping fees
- Check if they actually do dropship. Most manufacturers aim at selling their products in bulk, which they specify in their MOQs. If a manufacturer doesn’t do dropshipping, consider working with a dropshipping agent
Looking for Dropshipping Suppliers
Some of the authentic manufacturers are not very good at online marketing. Most of the visible suppliers are mostly middlemen and not real manufacturers or wholesalers. This means that you may have to dig deep to get them.
Here are some tips to make your search shorter.
- Check out verified wholesale directories; they contain thousands of suppliers who have been vetted and approved
- Score through reputable sites such as AliExpress or Alibaba. Note that you may have to do your own vetting of suppliers on these sites
Choosing a Dropshipping Selling Platform
You need a platform that is easy to navigate, affordable and aesthetically appealing. There are some platforms that charge to host online stores on their servers.
Here are some of the options to consider.
- Marketplaces such as eBay, Etsy and Amazon
- Create your own platform via Magento, Shopify, BigCommerce, Salehoo, WooCommerce
Marketplace offers newbies an easy set up as well as huge traffic amounts since the platforms are already known and trusted. The downside is that they retain a commission for each sale made through their platform. Additionally, you will have to conform to the terms, conditions and policies of the platform.
Creating your own storefront gives you better control over branding especially if you intend to build a brand for the long term. Additionally, it saves you the commissions as well as cuts down on competition. On the other hand, you have to heavily invest in your own store design as well as marketing and advertising.
Acquiring Customers for Dropshipping Business
There are several ways that you can inform target clients of your presence in the market and your products. You will need to create a customer acquisition strategy.
If you decide to use a marketplace such as Amazon, a good amount of marketing has already been done for you. However, you still need a strategy to stand out among the competition.
Here are some marketing insights.
a). For fast results, you can opt for paid advertising. Some of the options include the following.
- Banner ads and Facebook ads for dropshipping
- Google Ads on search engines, GMAIL and YouTube for eCommerce
- Influencer marketing on social platforms
- Google Shopping and Bing Shopping
- Giveaways and gift cards
b). For slower but evergreen results, you can opt for some of the following options.
- Content marketing – blogs, social media posts, business website, YouTube
- Create or join industry forums and actively participate in discussions
- Build an email database from signups or checkout details for email marketing
Running a Dropshipping Business
One of the most prevalent questions that come with dropshipping is how to handle customers if they do not like their deliveries. Here is what to do.
- Have a replacement, return and refund policy and make it available to your clients when they are ordering
- Include an informative piece on your platforms about your business’ return/replacement/refund policies
- Negotiate a replacement, return and refund policy with your supplier
- Have multiple suppliers to sort you out if one is unable to deliver the required quantity and quality at the required timelines
Common Dropshipping Mistakes Newbies Make
- Do not pay a dropshipping supplier who asks for upfront fees before showing proof of capability to deliver
- Don’t work with the first person you find on search engines as they are likely to be middlemen. Do your research
- Only work with suppliers who enforce MAP (Minimum Advertised Price) policies
- Don’t compete with offline retailers
- Don’t buy any turnkey dropshipping store
Frequently Asked Questions
Yes. Disclaimer; you cannot just list products on a site and expect to build a business. At the very least, you need an efficient and effective marketing strategy and excellent customer service
Yes. This is because secure and credible payment service providers require credentials to prove your business. This is especially important when your business grows and you start moving volumes.
In most cases, dropshipping requires minimal capital. The amount you need will depend on a variety of factors. For starters, if you choose to use marketplace such as Amazon, you may need to set aside content marketing and advertising budget and adhere to their policies. When creating your own storefront, you may need to pay periodic subscription fees for hosting and plugins. Additionally, you may incur costs on content creations, optimization and marketing if you don’t desire to do it yourself.
The costs are dependent on your budget. The most common costs include paid hosting, marketing and advertising, and customer service. If you find that you are getting more orders than you can keep track of, you can hire an assistant. You can get a competent worker from freelancing sites, especially for seasonal orders.