Dropshipping is a retail fulfillment method in which the retailer does not keep goods in stock but instead directly transfers customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer. In the retail businesses, the majority of retailers make their profit on the difference between the wholesale and retail price, but some retailers earn an agreed percentage of the sales in commission, paid by the wholesaler to the retailer. So how this works?
Dropshipping vs. Standard Retail Model
The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders. So:
- No warehouse: Inventory at supplier
- No own logistic process: Supplier takes care of the logistic process.
- A broad product offering: Instantly able to offer a wide variety of products on your webshop.
- Quick time to market: be able to instantly start selling dropshipping products.
- Reduce investments: No need to invest 1000’s of dollars before able to start selling.
Before even thinking about dropshipping you should verify whether dropshipping fits within your existing business strategy. What needs to be done to be able to implement it?
- Activities: The key activities you need to implement?
- Partners: Which dropshipping partners you need?
- Value: Determine how you are going create customer value from dropshipping?
- Customers: In which way dropshipping will influence customer experience?
- Market: To which markets you want to offer dropshipping?
- Channels: Which channels you are going to use to enable dropshipping?
- Costs & revenue: How dropshipping is going to create extra revenue and influence your costs? Is it financially healthy to do dropshipping?
It is best to start brainstorming about it before initiating dropshipping so that you are clear if and in which way dropshipping is going add extra value to your business.
How to make profits with dropshipping
First of all, it is not that easy to generate revenue with dropshipping. When you run an online store that only offers dropshipped products, indeed you don’t have to worry about any inventory or product fulfillment. All you have to do is sell the products, take orders and make a decent profit. Sound to good be true? Yes it is. There are some things to keep in mind:
Who is responsible for customer service?
Having as awesome customer service is very important when you want your customers to trust you. But how this works when doing dropshipping. In the case of dropshipping your are not responsible for the fulfillment. So customer service is partially out of your control.
Is it more or less work?
This really depends how you set it up. For sure no more logistics or inventory but what if your dropshipping warehouse or supplier is not reliable? What if they create a mess? Having clear and transparent contracts with them will be your top priority. Also you need to automate as much as possible. This is step by step procedure, therefore when starting dropshipping business keep the following in mind:
1. Choose a product to sell
Firstly, decide what products to sell. There are many factors that should be considered before deciding on a product to sell. To get inspiration, you can just go to a shopping mall, visit an industry park and see what kind of factories there are..
2. Locate a supplier who will dropship for you
Find a supplier through your network, and preferably in your neighborhood. Or by visiting trade fairs.
3. Set up an account with the supplier
You contact the company that can supply the products stairs and set up a reseller account and sign an agreement with them.
4. Sell and advertise on online markets such as eBay webshop, etc
If you do this right with the correct calculated margin, then the more leads you generate, the higher your chances are that you find buyers and get commissions.
5. The Product Sells
Great news: your first products are sold for 1,000 USD and your customer pays you with a paypal instant payment. We highly recommend to use instant payment methods, such as Paypal or Alipay. This allows the customer to pay you faster, which lets you place the order with the dropshipper faster, which gets the product to your customer faster.
6. The Order With The Dropshipper
After your customer has paid you, you should contact the dropshipper immediately to order the product on your customer’s behalf. The dropshipper then ships the order to your customer under your name.
7. Follow up after the sale
This is where many new online business startups drop the ball. Just because your customer has paid you and you’ve placed the order with the dropshipper does not mean that you are out of the loop. Quite the contrary, if there are problems with the order you are the one that will be held responsible in the eyes of your customer be proactive in your customer relations. Follow up with your customer to let them know that the item has been shipped. And offer them personal contact in case of problems, it’s good to let the manufacturer handle it, and forward a personal contact information to the client, or let the manufacturer contact the client directly.
The ideal Dropshipping Supplier
- The ideal supplier to partner with needs to be reliable and offer quality products.
- Look for products that are popular but not widely available online yet.
- The ideal supplier is open for innovative ways to do business, and wants to outsource their online marketing tasks to you.
- The supplier always has your products in stock and preferably is able to ship goods worldwide (much bigger market).
- The ideal supplier will be able to ship your product frequently, at least once a week. This is important, because your customers wants to receive the products as soon as possible.
- Can provide customer support for you, when you receive questions from customers;
- Can pay your commission on a frequent basis.Quck