Ecommerce and dropshipping go hand in hand. Ecommerce industry is growing 17% every year. Dropshipping is following suit.
It means that dropshipping is not dead. It’s here to stay. It will continue to thrive as long as there is ecommerce, and thus the questions “what is dropshipping” and “ How does dropshipping work” retain the appeal for the industry.
To validate the two statements, I will discuss in detail, as to what is ecommerce dropshipping? How does ecommerce dropshipping works? Pros and cons, which products can you dropship? How you can make money with ecommerce dropshipping business? Whether ecommerce dropshipping is a fitting model for you and will highlight the importance of ecommerce dropshipping in today’s ever-growing business world.
Before we delve deep into this blog, let me ask you a question.
What’s the ultimate luxury of shopping from an ecommerce website? Any guesses?
And 33% of online stores are now using ecommerce dropshipping as their primary mode of order fulfillment. The people behind these 33% online stores are genius.
In order to play safe, they have made a choice.
To use ecommerce dropshipping to their advantage.
Because they know how cumbersome inventory management is.
What is Ecommerce Dropshipping?
This question is right on the money. Dropshipping is a fulfillment business model that works fittingly well with ecommerce businesses. Ecommerce dropshipping allows you to sell your products without handling the operational side of the online business – i.e. picking, packaging, and shipment of the order that you receive on your ecommerce website. This means that you don’t have to maintain an inventory of the products that you sell on your website. It gives you an opportunity to sell a variety of different products without having to worry about inventory management of these products.
How Does Dropshipping Works?
All you have to do is to check if there is an individual who is interested in buying a product from your ecommerce store. Once there is an order on your website, you just have to forward that ‘requested order’ to your dropshipping partner. That’s it. Your dropshipping partner will pick, package, and ship that order to the customer on your behalf. All the invoices and printing on the package will bear your ecommerce store name. Your profit will be the difference between the cost you charge your online customer and the cost that ecommerce dropshipping partner charges you.
In simple terms, you, being the ecommerce website owner, work as a middle man between the customer and your dropshipping partner in order to facilitate smooth order delivery from your web store to the customer, by forwarding the requirements to your ecommerce dropshipping partner.
Basically, ecommerce dropshipping (and how does dropshipping work) is a three-step process:
- The customer places an order on your online store
- You forward the order requirements to your ecommerce dropping partner
- Your partner purchases, packages, and then ships the order to the customer on your behalf.
If you own an online store and a warehouse as well, and you can handle the inventory and shipping process yourself, you don’t need a dropshipping partner. You can save the cost that you otherwise, will have to pay to your dropshipping partner. But remember the fact that inventory management is a tedious task, and shipping process involves physical, legal, and logistical complications. You better understand this.
What are the Advantages of Dropshipping Business?
There are many advantages of ecommerce dropshipping business model, and how does dropshipping work. But you have to be patient to get your due rewards. If you are in it for a long haul, you will definitely reap the benefits of ecommerce dropshipping. In this section, I will elaborate about the advantages of dropshipping.
1. Low Cost
To start a dropshipping business, you don’t have to spend all of your bucks. In fact, it only takes a minimal amount of money to setup your ecommerce website. The other costs that you will have to bear are the payment that you will make to your internet service provider – for smooth internet connection – and the hosting cost and the cost for dropshipping partner.
It is the dropshipping supplier who bears the inventory management and shipping costs, hence you don’t have to worry about it. If you want to begin your ecommerce dropshipping business now, you can go ahead with it. There is a good learning curve there for the aspiring online store owners.
2. No Location Required
When answering the questions, what is dropshipping and how does dropshipping work, the experts highlight one of the biggest advantages of ecommerce dropshipping – it liberates you from the confines of the cubical. If you want to start your dropshipping business, you can start it right away – from any location on the planet Earth.
That’s right! Yeah.
You can start a dropshipping business right from your home. All you need to have is a super fast internet connection and a running online store. There are many individuals around the world, who are running their ecommerce dropshipping business from their home. And they are making money right at their doorstep. You can earn money while relaxing at home. But you must possess commendable communication skills to convince the online buyer and your dropshipping partner to carry out the dropshipping process without any fuss.
3. Low Risk
Dropshipping fulfillment business model involves minimal risks. It’s fine if you fail to sell out your products. You don’t have to worry about it. The fact is that you don’t own the inventory, therefore, there is no point in feeling disappointed or stress out, if the customers don’t buy your products. There is always a second chance, to convince them about other products that they can buy from you.
4. Sell a Variety of Products
One of the best advantages of owning an ecommerce dropshipping business is that it gives you the leverage to sell a huge variety of products on your website, ranging from customized cell phone cases to baby care products. There are a large number of different products that you can choose from and start selling them on your web store.
Not having to manage inventory is a true blessing in disguise for dropshipping business owners. Do remember to select your dropshipping products wisely, keeping in focus your online customers’ demands in the first place. Profit margins play second fiddle here. It’s better to keep your eye on trending online products to keep yourself up to date about the products you must sell online.
5. More Time to Scale the Business
Once you get the burden of packaging and shipping the product off your shoulders, you can have more time and resources at your disposal to scale your ecommerce business without any hindrance. Delegating the shipping process to the supplier or your dropshipping partner provides you peace of mind, thereby helping you to focus on your business expansion goals. With the time on your side, you can come up with more strategic options to market your product(s) to a larger online audience.
The Cons of Ecommerce Dropshipping
Although there are numerous advantages of ecommerce dropshipping business, there are some disadvantages as well. In this section, I will elaborate about some disadvantages of ecommerce dropshipping business model.
1. Low-Profit Margins
Ecommerce dropshipping is not a bed of roses. It is a harsh fact. Due to unprecedented competition and dropshipping suppliers charging a hefty amount for shipping products on your behalf lead to lower profit margins. In simple terms, the suppliers are there and they are ever ready to eat-up your profits. Be cautious. Therefore, the online dropshipping business owners must be well aware of the challenges the field poses before making any decision to jump onto the bandwagon.
2. You are Responsible and Liable
It is a very good omen that you, as an ecommerce dropshipping business owner, are running a successful business. Do remember that with success comes responsibility. Responsibility begets accountability and liability. It means that whatever happens during the whole dropshipping process – anything good or bad – you, the website owner, are responsible for the outcome.
I will elaborate this with an example. Imagine that an internet user has placed an order for three t-shirts on your ecommerce store. You have forwarded the order to the supplier. Now, what if the order is out of stock, and the supplier fails to deliver the t-shirts to the customer? What if the supplier did not get the complete order and delivers only one t-shirt instead of three t-shirts?
The end result?
The customer will lose trust and the blame will be on you, the ecommerce website owner. Hence, you are liable to face legal action if the customer desires to go ahead to file the case.
This is the worst case scenario, and it is real. It can happen to anyone at any time. Therefore, you must actively search for trustworthy online suppliers and must also strive to build your rapport over time to gain the trust of the customers.
3. Legal Complexities
There are some peculiar legal complexities associated with ecommerce dropshipping business model. Imagine that you have a stronghold in your local market, and you want to explore international markets to sell your products to a global customer base, in order to win their trust. It is easier said than done.
Once you decide to expand your ecommerce dropshipping business on a global scale, the legal complexities begin to take shape. There are many countries that exercise exchange rate regulations.
Then there is GDPR legal framework for the European countries, that requires your online business to be GDPR compliant, otherwise, you will be unable to cater to the European customers. And then there are issues with international product suppliers, who face quite a tough time in dropshipping to other countries as compared to their home countries.
I have only mentioned two legal scenarios, but there are many intricacies that make it extremely difficult for ecommerce dropshipping business owners to go ahead with their expansion plans. Hence, you must be very careful when it comes to going global with your dropshipping business.
4. Inventory Management is Not Easy
If you are running an ecommerce dropshipping business, you can use the leverage to sell as many products from different retailers and manufacturers as you want. That’s good. But remember that managing inventory is a cumbersome job, as mentioned in the earlier paragraph. To address this inventory management issue, you can have your own warehouse to keep the products in order, but then again, it’s truly challenging to keep track of each and every product that the supplier ships to the customer, on your behalf. There is a chance of miscommunication and miss commitments. To avoid this inventory management issue, you can deploy software for you and your supplier so as to help and maintain the inventory in order.
5. Fierce Competition
There exists a fierce competition in ecommerce dropshipping business. Thanks to the low cost that it involves to set it up. Do remember that not everyone will buy your product. That’s for sure. Unless and until you have a unique product or a product that adds value to your customers’ lives, you will not gain a foothold in this ground.
There are already many companies and individuals who are in dropshipping business for quite long now. It has resulted in a kind of monopoly of these giants. Therefore, to challenge their supremacy and get your product through to the customer is really a challenging task. You must be well-prepared to experience stiff competition within this industry.
What to Sell at Your Ecommerce Dropshipping Business?
When it comes to selling products via dropshipping, there are a lot of choices you can make. You can sell a particular product or a collection of a variety of products, the choice is yours.
Here’s how can you look out for the best trending ecommerce products. The product must be unique and eye-catching. While selecting the product, you must ensure that the product is not available easily. Or it is not available on any of your competitor’s web store.
You must select the products that have no price tag with them. Do ensure that you select the product which the customers can’t find in their home country. Another important thing to note is that you must select a product that offers a healthy markup, hence enabling you to pocket a healthy profit.
Ranging from drone cameras to baby products, you can sell anything you want. Remember that the profit margins for each product may differ in accordance with its demand. There is a comprehensive blog that covers the trending products that you can select to sell on your ecommerce store. Here is a catch-22. You cannot sell every product on your website. Selecting niche products can give you a commendable competitive advantage.
The fact is that selecting the right kind of products to sell on your web store is the single most important aspect of a successful ecommerce dropshipping business. Hence, you must choose your products with due consideration.
Do take note that the price of the product; size and weight of the product; durability of the product; cross-selling product; and turn-over rate of the product also play a vital role in selecting the dropshipping products for your online store.
As for the pricing factor, you must be well aware of the retail cost and the whole cost. Selling a large number of products for a minimum price means that you will get a low profit. On the other hand, if you sell a few products with a higher price tag, the profit margin will increase.
The size and weight of the product that you are dropshipping matters a lot. It’s all because the charges for the products tend to vary on account of how heavy or light the product is. The shipping companies will charge you the amount keeping in view the cost of packaging and shipping, all inclusive. Hence, you must also take the dimensions of the product into account.
Most of the dropshipping businesses tend to encourage their customers to buy multiple sets of products, providing them with discounts. This is a good idea to use to entice people to buy more products for less amount of money. Maybe a time comes when they become your repeat customers. Offering a subscription to your ecommerce store will also encourage customers to buy more products from your web store, thereby cultivating a sense of loyalty amongst them.
Product descriptions and images are also vital when it comes to measuring the turn-over rate of the products available on your website. If you are selling a product that gets regular updates or new versions, your content copy and photographs will also change as per the updates within the product. This whole practice incurs a huge cost.
You must ensure that you are agile enough to remain abreast with the changes in the products, so that you can update each and everything about the product in a timely manner, providing the customers with an excellent online buying experience.
Factors to Consider When Starting Ecommerce Dropshipping Business
Now, you have decided to start a dropshipping business. It’s time to consider the factors that will influence your ecommerce business in the long run. There are many factors, but some of them are critically important, so it’s better to understand them before making any final decision.
1. Market Research
If you want to start your ecommerce dropshipping business, you must conduct thorough market research so as to know about what it takes to run a successful and sustainable online business. Here, the data about your customers, their demographics, their likes and dislikes, what products they like, will play an important role in making you the first steps towards realizing your goal of owning an ecommerce startup business.
This data will also help you roughly determine your buyer persona who will buy your products. A buyer persona is a fictional representation of your target audience. You can use interviews, surveys, questionnaires to gather the data that you require to formulate your ecommerce business strategy.
2. Product Knowledge
Another important aspect of conducting market research is that it provides insights into which products are worth selling on your website. There are many products available online.
You must know ins and outs of your product. What your product is all about? What problem does it solve? Is it beneficial for the end users? Will the customer come back to purchase this particular product? For how long time, a customer will use your product? These are some of the valid questions you must ask yourself and try to find answers to them.
Why people will buy your product. Try to find the WHY of your product. Answering this WHY will give you a clear idea about a fitting product. You must start selling a product on your ecommerce store, only if you realize the fact that it will add value to your customers’ experience.
3. Competition Within the Industry
It is a given that there is a fierce competition going on within the ecommerce dropshipping industry. And it will continue to get stiffer with each passing day. Therefore, before entering the market, you must be well prepared in advance to face the competition.
You must use technology, online channels, and other tools to get a know-how as to what your competitors are up to? How they are leveraging social media channels? How much they are spending on their online marketing efforts? What are the building blocks of their marketing strategy? What kind of content they are producing? How they are using videos and other non-text media to gain traction and online traffic?
In addition to the fundamental question, what is dropshipping, these are some of the important questions you must find answers to, in order to remain ahead of your competitors. Once you gain an insight into what your competitors are doing, you must follow suit, but cleverly, while using your innovation and creative skills to outshine them at their game. This is where analysis comes in. Analyzing your competitors will help you understand how to play your cards while keeping them close to your chest. Don’t show them all at once. You must use your tactics strategically to gain a competitive advantage over your competitors within the industry.
To gain a competitive advantage, you must be on the top of your game. You must have all the important information, i.e. product knowledge, marketing research, and competitor analysis on your fingertips.
It is quite hard to find your voice if you are a novice in this ever-changing world of online business. Only with hard work, dedication and time tested efforts you will reap out the benefits in the long run.
How to Market Your Ecommerce Dropshipping Business?
Marketing is the core aspect of your ecommerce business strategies. After all, you are doing your business to generate profits. How profits will come then? It all comes down to marketing. A robust marketing plan is all you need to have in place. Remember, well begun is half done.
Having a result-oriented marketing strategy will go in a long way to harness the success of your ecommerce dropping business. You must use social media platforms to your advantage. By tactfully using social media websites, you can outreach your target audience in no time, at a minimal cost.
Social media provides you an incredible opportunity to market your online business to millions of active users, thus multiplying your outreach to a global audience with ease. But to achieve unprecedented success, you must nurture relationships with your targeted audience, and more importantly your customers, who add value to your product and your online dropshipping business.
Apart from social media, you must invest your time in building your teams, i.e. content team, quality assurance team, and customer support team. All three of them are now an integral part of any successful online dropshipping business. With these teams in place, you can make them work towards producing quality content about your products and business. Similarly, you can trust your customer support team to attract, engage, and delight your trusted customers. Remember, all your teams must work in cohesion towards achieving your business goals.
Are You Ready to Start Your Dropshipping for Ecommerce Business?
Many first timers are often stuck on the very basic question – What is dropshipping?
To answer, Think of starting an ecommerce dropshipping business as solving a jigsaw puzzle. In order to achieve sustainable success, you must ensure that each piece of the puzzle fits well in its place, helping you, the owner, to construct a smooth workflow of the dropshipping business to reap in the benefits for a long time to come.
Let’s hope that this comprehensive guide goes a long way in realizing your dreams and helping you setup a thriving ecommerce dropshipping business.
Wrapping it Up
This brings us to the end of this blog. In this article, I have covered all the important points and factors that will impact your decision to embrace ecommerce dropshipping as your preferred business model.
With 33% of online stores using ecommerce dropshipping to fulfill their customers’ needs, the business model is here to stay. There is no doubt about it. It’s a matter of time when the majority of online business embrace ecommerce dropshipping as their choicest mode for themselves.
From what is dropshipping to are you fit to engage in the ever-expanding ecommerce industry, this article provides you with concise yet comprehensive answers to your queries. If there is anything that I have missed out on, do let me know.
I will appreciate your contribution to this blog. Don’t hesitate to share your ideas, comments, and suggestions in the comments section below and let me know if this article adds any value to your knowledge about ecommerce dropshipping model.
Ready, Set, Go!
Happy Dropshipping :)