WHAT IS DROPSHIPPING? HOW TO START IT IN 2020?
Today, dropshipping has become a highly profitable ecommerce business model that can be started with almost zero investment. Some ecommerce giants such as Zappos, Wayfair, and Fab and Gilt, all have built their business models around dropshipping. However, the term ‘dropshipping’ gained popularity in 2006 when AliExpress became popular in the United States with the launch of Chinese e-commerce stores. At that time many people didn’t knew what is dropshipping. So for a better understanding, here is what you need to know:
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WHAT IS DROPSHIPPING?
Dropshipping is a supply chain model in which a dropshipper can directly ship one product from wholeseller’s warehouse to the customer’s house without handling logistics and management. This lets dropshippers focus on the actual business aspect of their business, i.e., growth and scalability.
In short, the dropshippers work as intermediaries between suppliers and customers. When an order is received, they transfer the order information to the suppliers and keep the markup amount as commission for themselves. The supplier will then dispatch the product from the warehouse to the customers. In most cases, the suppliers don’t even know that the person buying from them is a dropshipper or an actual person.
So, in other words, a dropship store works similar to an ecommerce store. You place an order and receive the product. Once the wholesaler receives the order, they ship the product directly to the customer. Dropshippers don’t directly handle the product. However, they can track the shipment.
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HOW DOES DROPSHIPPING WORK?
Dropshipping works when a dropshipper fulfills orders with the help of a third party such as wholesaler or an ecommerce store that sells the product at an even lower price .e.g AliExpress. Most dropshippers sell products directly from Chinese manufacturers because the prices in China for most products are quite low. If the wholesaler’s price for a product is $5. A dropshipper will sell it for $8 and keep $3 for them. Most dropshippers target countries with higher purchasing power.
HOW TO START AN E-COMMERCE DROPSHIPPING BUSINESS?
A dropshipping business takes only a few minutes to start if you are experienced in it. To launch your dropshipping business, you will need to:
- Select a niche
- Analyze competition
- Get a supplier for your products
- Select an ecommerce platform and create a store
- Create a proper marketing and customer acquisition strategy
- Start receiving orders
- Repeat the whole process again
Dropshipping involves the supplier, the dropshipping store, and the customer. The customer orders a product from the dropshipping store. The dropshipping store transfers the details of the customer to the supplier. The supplier then ships the product to the customer. The dropshipping store makes a profit by selling the product at a higher price.
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BENEFITS OF DROPSHIPPING
Dropshipping is a highly lucrative business opportunity for entrepreneurs. The good thing is that it doesn’t have a barrier to entry and anyone having little or no investment can easily enter the market. It is practical and convenient for anyone who would like to start their ecommerce store. And now if you know what is dropshipping, here are some of the benefits that you need to know.
NO UPFRONT REQUIRED
In dropshipping, you don’t have to pay upfront for the products. So, you will only pay for the hosting and domain charges. As you have no excess inventory, hence your business is less prone to loss of revenue. You can upsell your own products along with best-selling ones on your store.
CONVENIENCE FOR SUPPLIER AND DROPSHIPPING STORE
With dropshipping, neither the dropshipping store has to worry about shipping and packaging of the product nor the supplier has to worry about marketing and promotion of his products and both reap decent profits. Dropshippers can work with multiple wholesalers at once.
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EASIER TO SCALE AND REMODEL
As dropshipping stores don’t require storage facility and are completely digital, they are easier to scale. Even if one niche or product doesn’t sell well, dropshipping stores owner can easily move to a better selling product.
A dropshipping store can be started for free. Just get a domain and hosting and you are good to go. Even if you lose the store, not able to scale or profit from it, you can easily back out with no risk at all.
WHAT ARE THE DRAWBACKS OF DROPSHIPPING MODEL?
Just like any other business model, dropshipping also comes with certain drawbacks. However considering the benefits, you could ignore these drawbacks. Nonetheless, all potential dropshippers need to know about the hurdles and challenges they might face before making the jump.
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Almost all ecommerce businesses have high competition. That’s why the online store owners try to stand out by providing quality services and unique products that their customers would love to buy. The high competition can become a problem for dropshippers who aren’t too careful about the way they market their products.
Most dropshippers tend to simply give up because the profit margins are too low. However, if you look closely at it, dropshipping isn’t a short-term business. It is all about staying in the game and moving up the ladder one step at a time.
COMPLETE LIABILITY OF PRODUCTS
Dropshipping is one business where you will be selling a product that you haven’t actually seen. Therefore, chances of a product failure are high. When that happens the whole responsibility of returning the actual amount to the customer and returning the product to the supplier lies on you.
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