Lots of people want to start online stores, but the thought scares them. All those shipping problems, all that money spent on inventory. It’s overwhelming. And kind of intimidating.
But what if there were a simpler way? A way to reap all the benefits of an online store with very little work.
What if someone volunteered to cover your up-front inventory fees on thousands of products and take care of your fulfillment duties, too?
It would be so much simpler to begin, and you could operate your company from just about anywhere. Imagine laying on the beach in Fiji, sipping on a mojito while managing your online store.
Does this sound like a fantasy? Like something out of science fiction movie? Surely you can’t run an online store without mountains of inventory stocked in your house or in a storage unit, right?
Thanks to the concept of drop shipping, it’s no fantasy.
This article will address all that drop shipping entails. We’ll define what drop shipping means, discuss its advantages, explain how to obtain drop shipping wholesalers, and provide answers to typical issues that come with drop shipping.
By the end, you’ll have a good grasp of drop shipping as well as an idea of whether it’s something you want to pursue.
So, What Exactly Is Dropshipping?
Drop shipping is a retail strategy where the seller doesn’t hold the inventory themselves. Rather, a wholesale supplier partners with them to fulfill orders from customers, and ships products directly to buyers on behalf of the seller.
In other words, you are essentially selling products made by, stored by, and shipped by someone else. Your main job is just to sell the products.
Remember the old door-to-door salesman who used to go around selling products? They didn’t have those products at their home, they simply took the orders. You’re kind of like that, minus the bad suit and shady sales tactics.
The greatest advantage of drop shipping is that you needn’t be concerned with inventory or fulfillment tasks. Most people don’t want the hassle of dealing with storing inventory, packaging it when it’s time to ship, and then dealing with returns. Dropshipping eliminates ALL of that.
Many customers are none the wiser that you’re using a drop shipping approach, as “private label shipping” allows a package to be shipped from the wholesaler with a customized invoice and return address.
Who Should Use Dropshipping?
Seriously. It’s a really flexible business option. It’s perfect for…
Those who want to bootstrap a business.
Given that it takes very little cash to start up a dropshipping store, it’s a great option for bootstrappers.
Those who want some side income.
Want to make a little cash on the side to finance your obsession with rare Pokemon cards? Dropshipping is a great way to get some extra income rolling in.
Those who want to test out a product or idea.
Do you have an idea for a new product but you’re not sure if it will resonate your audience? Test out a similar one with dropshipping! It’s a great way to see what people really want!
Dropshipping easily allows you to get to market without investing thousands of dollars. It has low overhead costs, meaning that even if your idea stinks, you won’t be tanked financially.
The Advantages of Drop Shipping
There are several reasons why drop shipping is worthwhile:
1. It Doesn’t Require a Lot of Money to Get Started.
If you were going to start a real brick and mortar store, you would have to drop some serious change. Not so with dropshipping. It’s easy to begin selling online with drop shipping. A large investment isn’t necessary, nor is a hefty inventory, and despite those things, you are still able to sell an abundance of products to customers. If you want to start a business but aren’t rolling in cash, this is a great option.
Since all physical fulfillment tasks are being taken care of on your behalf, you can manage your company wherever you find an internet connection. People like Tim Ferriss have long been advocating for “lifestyle design”. If you want to craft your ideal life, it’s pretty hard to beat dropshipping. Seriously. You can run your store from all these places…
- The bowling alley
- Your mom’s basement
- A jet
- Your mom’s jet
- A remote island
3. Effectiveness and Convenience.
Properly starting and nurturing an eCommerce company requires plenty of effort, particularly if your resources are limited. However, if you don’t need to be concerned with fulfillment yourself, a lot of free time is suddenly available to you, allowing you to focus on customer service, marketing, and management.
This is an especially important point if you’re good at sales. Dropshipping allows you to focus on the thing you’re really good at (separating people from their money) and delegate the time consuming tasks of shipping.
4. It’s Well Established.
If you’re worried that drop shopping is a fly-by-night scheme, you shouldn’t be. Don’t take our word for it, though – check out the online stores from Shopify and Sears, both of which use drop shipping to provide a vast array of products to customers without the need to handle the hassles that come with increased inventory.
Standard Dropshipping Drawbacks
Okay, yes, we love dropshipping. But, before you get started, you need to know about some of the typical issues you may run into.
As long as you’re aware of how things work and plan for problem prevention, you can manage a successful drop shipping company properly and efficiently.
1. Terrible Margins and Heavy Competition.
This shouldn’t be a surprise to you. Because it’s so easy to get into, you’re probably going to have lots of competition. Think of this as kind of like the gold rush of the late 1800’s minus the typhoid fever and saloons.
You likely won’t be the only partner a distributor or manufacturer works with, and therefore, you’ll have competition, which will lead to low-profit margins and reduced prices.
If you’re competing based on prices, you’re already dead in the water. The trick is to provide value in ways your competition can’t. Consider things like:
- Offering crazy good customer service.
- Having the absolute best variety.
- Injecting humor and life into all your communications with customers.
- Responding quickly and promptly to requests.
You need to be really creative in how you will set yourself apart. Remember, if you can’t win on price, you need come up with another winning solution.
2. Synchronization Problems.
So here’s the deal on this one. You aren’t the one controlling your inventory, so you could run out of stock on items without even knowing it. Then you have customers complaining, etc.
How do you avoid this? Work with several suppliers who have coinciding product selections. Having a backup or using a couple of suppliers on a constant basis increases the chances that a product will be available upon customer request.
If a customer does purchase an out of stock item, go out of your way with customer service. This is one of those ways to separate yourself from the competition.
3. There Will Be Mistakes.
You’ve added in a third party between you and the customer, meaning that they will occasionally screw things up. Everyone makes mistakes from time to time. Suppliers tend to be fair about taking a financial hit to resolve an issue with a customer. However, they won’t always do so, and when they don’t, you should be ready to pay certain costs out of your own pocket.
You need to do your homework on the sellers you’re working with. As one woman found out, when a seller screwed up her order, it led to terrible reviews, which in turn led to her losing a LOT of sales.
If this kind of thing happens, keep your calm, be flexible, and always keep a positive attitude.
A key expense that comes with drop shipping is the need to rectify logistical issues. If you understand from the beginning that this is a normal part of operating a business, you won’t have any customer service or reputation problems to deal with.
4. You Can’t See Your Product.
This is the funny thing about selling online. You can’t see your product, which means you need to figure out what it’s like and how it works in other ways. Study pictures, watch YouTube videos, do whatever it takes. If you’re selling replicas of Elvis Presley’s head (a sure money maker), become intimately familiar with every hair upon that well-oiled scalp.
You can always purchase the products that sell well in order to familiarize yourself with them. You can always resell that item as a “refurbished” or “used” item at a discount to recover your investment.
When you must provide specific answers, your manufacturer or supplier is a phone call away.
Finding Your Wholesalers and Suppliers
Now, before you run out and launch your own dropshipping store, you’re going to need to find some wholesalers and suppliers. These are the folks who actually do the dropshipping of the products. You will be selling their products.
Don’t hold back on doing the hard work of finding the right dropshipper. As one man put it:
Deals that are harder to get on the front end; those are the ones you make way more money on the back end. Because no one else goes through the hassles of getting it set up.… Most people just want to click a button.… The reality is now you can sell what everybody else can sell, but they’ve not done anything else.
Here are the steps you need to take.
Ensure that everything is properly set up prior to contacting a supplier. In the U.S.A., many suppliers will require a copy of your resale certificate and/or state sales tax, as well as your business EIN number.
There are numerous approaches to locating wholesalers for drop shipping, and the following video provides you with some of those choices:
You can contact a manufacturer directly if you already know what kinds of products you want to drop ship. Keep in mind that not every distributor is open to drop shipping. Perform proper due diligence – there are a lot of useless information and scams out there. Consider using the “World Wide Brands” directory, which categorizes drop shipping wholesalers.
Of course, drop shippers can also be found on search engines, but you should be mindful of a few things:
1. Conduct an Extensive Search:
Drop shippers and wholesalers are not known for their marketing and SEO prowess, and therefore aren’t likely to appear at the top of search engine results. You’ll need to comb through at least 10 to 20 pages of search engine results to find companies to pair up with.
2. Don’t Take Anything for Granted:
Suppliers generally have outdated websites. Don’t be discouraged by a layout that resembles a GeoCities or Myspace page. While a modern, responsive website can suggest that a supplier is worth working with, keep in mind that a poorly maintained website might not accurately reflect the company.
3. Use Many Modifiers:
While searching for suppliers, use keywords like “reseller”, “distributor”, “warehouse”, “bulk”, and “supplier” in addition to “wholesaler”.
When researching dropship partners, consider asking them these ten questions to help you get a better feel for them.
- Does the company charge to work with you?
- What is their refund policy?
- How many other merchants are they working with?
- Are there any marketing or sales restrictions for selling their products?
- How quickly can they get the products shipped?
- If the client doesn’t pay or defaults, will you be held liable? If so, for how much?
- Do they have a customer support staff?
- How do you submit orders to them?
- Can orders be tracked and are customers able to track them?
- Will the orders appear as if they were from you or the manufacturer?
Find Your Niche
Those who succeed most at dropshipping are those who take the time to research a profitable niches. In other words, try to find a product or genre that is not exhausted by competition. Yes, this will take some extra time and research on your part, but it’s worth it.
There’s a saying that the riches are in the niches. When it comes to dropshipping, that’s particularly true.
The Bottom Line
Drop shopping won’t make you rich overnight. You won’t be going out and buying a new Lambo and gold watch tomorrow.
You’ll need to put in the work and perfect your website, customer service, and marketing strategies. You need to get experience, find out what works, and figure out how to separate yourself from your competition. You need to do the hard work and research to build your company, just like any other company.
If you do these things, you can create a lucrative company without the need to invest in your own inventory or the shipping costs that come with fulfilling orders.
Related Ecommerce Posts
- A Layman’s Guide To HS and HTS Codes
- Hong Kong Fulfillment: the Missing Piece in YOUR International E-commerce Strategy
- E-Commerce Logistics: the Whole End to End
- China Duties Updates 2017: Ecommerce Opportunity