If you've considered starting your own ecommerce business, it's likely you've come across the term "dropshipping" in your research.
There's no question that it's a popular approach to selling online. Roughly 33% of online businesses use dropshipping to power their stores.
But what exactly is dropshipping?
Is it a lucrative or even viable business model in 2019?
And if it's still viable, how do you build a dropshipping business?
In this 4-step guide, we'll answer all these questions and more, and we'll give you a thorough understanding of dropshipping's potential to help you reach your goals for 2019.
Let's get started.
What Is Dropshipping?
To put it simply, dropshipping is a fulfillment method where the retailer (you) doesn't keep an inventory of products and instead sends customer orders and shipment information to a third-party wholesaler or supplier. This third party then ships the purchased products to the customer.
Dropshipping eliminates an entire component of running an online store. You'll never deal with inventory, shipping, logistics, fulfillment, or packaging with this business method.
Is Dropshipping a Viable Business Model?
As with any business, there are pros and cons to starting a company using a dropshipping method.
Let's take a look at some of the most common benefits to starting a dropshipping business:
Low cost to launch
Because you're not dealing with stock and shipping costs, it's relatively inexpensive to set up a dropshipping business. This is probably the most significant advantage. With this model, you typically don't have to pay for stock until a customer places an order and has paid you. It's cost effective and very low risk.
Easy to manage
Without having to deal directly with the products you're selling, it's much easier to manage a dropshipping operation compared to other eCommerce businesses. Dropshipping lets you forgo some of the most complicated aspects of running a business, such as warehouse space, shipping, returns, inbound shipments, and more. Not too shabby, right?
Low overhead costs
Not only is it inexpensive to launch a dropshipping business, you also can save money in the long-run thanks to lower overhead costs. You don't need as many employees, rental space, or other overhead costs as you would were you managing the stock and shipping yourself.
Flexibility to work wherever
Without having a physical store or warehouse to manage, you can run your business from wherever you'd like. All you need is your computer and a reliable internet connection.
On the flipside, there are several disadvantages to the dropshipping business model:
Because starting a dropshipping business is so much easier and cost-effective than other business models, there is a lot of competition. Entrepreneurs set low prices for products with the hope of operating without spending a ton. But remember that third-party supplier? You owe them a percentage of every sale you make, which can drastically reduce your take-home pay. However, this can be avoided if you select a niche that is best suited for dropshipping and allows you to set higher prices. We'll discuss that in more depth later on.
Snags with inventory
Without directly overseeing the stock of the products you sell in your store, it's not uncommon to run into issues—especially if you're dealing with multiple warehouses. It can turn into a logistical nightmare quickly if you aren't staying on top of things or work with mediocre suppliers.
Since you're not the one directly supplying your customers with the products they purchase, there may be times when a customer is sent the wrong product. But guess who's going to hear about it? That's right, you are. You must have a plan for when mistakes happen, or you can kiss your loyal customer base goodbye.
It's important to weigh your options and see if dropshipping is something you are willing to invest time, energy, and money into, especially at the start.
What Do You Need to Start a Dropshipping Business?
It's safe to say that if you've made it this far, you're probably still interested in starting a dropshipping business.
But what do you need to get started? Is it really that easy?
As we mentioned above, there isn't much you need to get started with dropshipping.
However, you're going to want to have the following defined before you can announce that you're open for business:
- Your niche
- A reliable dropshipping supplier
- An online store equipped for dropshipping
- A customer acquisition strategy
Let's discuss each one in more detail.
1. Choose a Sustainable, Profitable Dropshipping Niche
You have to know who you're selling to.
Plain and simple.
Defining your niche, your target audience, your market—or whatever word you'd like to label them as—is critical to selling your products and building lasting relationships with your customers.
But how do you choose a niche? How do you know it's a "good" one?
Selecting a niche by price point
When it comes to dropshipping, you'll want to make sure you select a niche with higher-priced products. Due to the nature of this business model, selling something for $50 could end up requiring the same amount of work as selling a product that retails at $350, so choose your niche wisely.
Research from Oberlo found that the top dropshipping niches per number of orders year over year are women's clothing and accessories, home and garden, beauty and health, and jewelry. Each of those categories has subcategories, like intimates, necklaces, home decor, etc., that allow for varying price points.
For example, EBHOR, a luxury watch retailer, has products priced anywhere from $110 at 60% off the original price to watches priced in the thousands. Watches are a luxury item, and the high demand means they can be sold at higher price points than other products.
Beyond price point, it's important to pay attention to the shipping costs of each product you want to sell. Yes, your wholesalers are handling the shipping, but you don't want to scare off customers because of an outrageous shipping fee. Consider how much you'll take home when it's all said and done when selecting items to sell in your store.
Selecting a niche by interest
Working in an industry you're genuinely interested in always makes will make it easier to stay passionate about your dropshipping business well into the future.
For example, let's imagine you're passionate about the latest high-tech gadgets. If you start digging deeper into that interest, you can look at what areas may be most lucrative.
For instance, the Wireless Audio Market Global Forecast estimates that the wireless audio devices industry will reach 31.80 billion by 2023. A Google Trends report supports that claim in terms of Google Shopping data over the last three years:
So for a person who is naturally passionate about technology, this could be a viable niche for you due to the continual growth seen each year.
But again, be cautious. Consider niches that you're passionate about but that also tend to sell higher-priced items with low shipping costs.
If you can find a niche that falls into that overlapping area, you're golden.
Still need some inspiration?
Research what the current best-selling items are across niches that are of interest. A few top resources for finding the best dropshipping niches are:
Also, don't forget to see what your competitors are selling. Clicking around on their sites will give you an idea of how specific niches are positioning themselves as well as what price points to set for your products.
2. Find a Reliable Dropshipping Supplier With Experience
Because you're waiving control over several aspects of your business by choosing the dropship model, it's critical to select a supplier that is not only reliable, but verified.
As you would with other parts of your business, it's important to do your due diligence and look into multiple suppliers. Your relationship with them and their ability to deliver (literally) is mandatory to the success of your company.
You may be thinking, "what constitutes as a reliable dropshipping supplier?"
Consider the following when researching suppliers:
- The supplier is a legitimate dropshipping company. Be careful—some manufacturers or wholesalers don't actually offer dropshipping services.
- The supplier has experience working with dropshipping companies and has a knowledgeable staff that can help you when you need it.
- The supplier doesn't charge huge fees. Yes, they're handling the product and dealing with inventory, but if their fees are super high, it's probably not going to be worth it to you in the end.
- The supplier is either a reliable general supplier or specializes in the niche you're in, like sports equipment or women's clothing.
As you're vetting suppliers, make sure you ask the right questions, including:
- Do you have any account setup or monthly fees?
- Is there a wait time to when you can start selling after you create an account with the supplier?
- What are their warranty and refund policies?
- Do they have handling or packaging fees?
So, where can you find these dependable dropshipping suppliers?
But when it boils down to it, you have to go with the supplier you feel will work best for your business, not just because it's what other companies are doing.
3. Select the Right Structure For Your Dropshipping Store
After you've identified your niche and have a secure supplier ready to roll, it's time to build your online store.
There are a few ways to approach this:
- Selling on an online marketplace like eBay, Amazon, or Etsy
- Building your own online store using a platform like BigCommerce or Shopify
Both methods come with their own trove of pros and cons, so it's important to weigh your options and select what is going to work best for you.
Let's take a look at the benefits and setbacks for each selling avenue.
Utilizing an online marketplace
Online marketplaces are a great place to jumpstart your dropshipping business. For one, it's fairly easy to build a store and add inventory. Plus, online marketplaces already see large amounts of traffic—not to mention they have established trust among consumers—which makes it easier to get in front of your ideal audience from the get-go.
However, online marketplaces tack on seller fees with every sale you make, which can be inhibiting depending on your prices. There's also a limited control over store branding, customer service solutions, and marketing due to platform limitations.
Lastly, some of your direct competition may also be using the same online marketplace platform, so you'll have to think outside the box to encourage customers to shop your store.
Building your own store
When it comes to building your own store, you have total flexibility and freedom to design it however you see fit. You have control over your branding, marketing, and customer service solutions, which some entrepreneurs may prefer. Also, there are no additional marketplace fees per order sold, and you aren't in direct competition with other sellers like you would be using a marketplace platform.
But with building your own store comes another kind of investment—time and (more) money. You can outsource this to a designer and developer, but it's an added expense in comparison to an online marketplace. In addition to that expense, you'll have to invest in tactics to generate traffic to your store, which can also be costly.
Additionally, when it comes to building your own store, there are tons of platforms on the market today that make it easy and relatively inexpensive to set up things on your own.
Another great thing about building your own store?
You don't have to know how to code or have any experience with website design due to the intuitive drag-and-drop functionality many of these builders are equipped with. It really is that easy.
4. Determine Your Customer Acquisition Strategy
Now, it's time for the part you've been waiting for—let's sell some product!
But hold on.
To actually sell your wares consistently, you have to have a reliable customer acquisition strategy that brings in business repeatedly.
Now, there are no one-size fits all strategy, so testing, implementing, and optimizing is part of the process. Only then will you gain an understanding of what truly works for your business.
Keep these things in mind when formulating your customer acquisition strategy:
Target buyers who have disposable income and impulse-buying tendencies.
A great way to boost your sales is to appeal to customers who not only have money to spend, but who tend to be impulse buyers.
Use language that triggers time-sensitivity or immediacy like "available for a limited time only" or "sale ends at midnight" to encourage purchasing now, rather than later. To take it a step further, include the percentage discount, or better yet, how much the item was originally and what the new price is.
Don't put all your eggs in one basket in terms of tactics
It's best to try a few things out at a time that work together cohesively and see what your results are. Test out different combinations of channels—with both paid and organic campaigns—like Facebook, Instagram, and Google AdWords.
For example, clothing retailer Shein leverages multiple channels to spread the word about sales, product releases, giveaways, and more.
These channels work together to not only spread the word about promotions, but to build a following.
Avoid aimlessly throwing money at channels to see what sticks.
This goes hand-in-hand with the point above. Although it's important to try reaching customers on various platforms, don't spend money on tactics arbitrarily.
Similarly, the findings from your research can help you determine what items to put in your shop as well as what to take out of your inventory.
Developing a sound customer acquisition strategy takes time and a lot of trial and error. Don't give up if one channel doesn't give you the results you were expecting from the start.
The Bigger The Foundation, The Taller The Tower
It can be tempting to launch your business as fast as possible, especially with dropshipping.
But the truth is, you can't build a tall tower on a small foundation.
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