The number of ecommerce stores being launched daily is large and while a number of these stores operate with a traditional inventory system, there is also online stores which operate as dropshipping businesses. So, what exactly is a dropshipping business and how does one get one off the ground?
Dropshipping is an ecommerce concept where you launch an online store where you sell products directly from suppliers. You do not build an inventory as with traditional retail and instead, your customers make a purchase that is then passed on to your supplier who ships the product directly to your customer without you handling the products at any point in time. The way you make money is that you charge more than what the supplier charges for the product. The difference between the two prices is your margin (we will talk about it more later).
An example of this would be that you find a supplier who sells men’s classic Oxford shoes on Aliexpress for $29.99. In your store, you will sell that same pair for, let’s say $59.99. When your customer makes a purchase, you make a purchase with your supplier who then sends the product to your customer. On this one purchase, you make $30. The question that you are inevitably asking at this moment is why would anyone purchase from your store and not directly from the supplier?
There are a few answers. For one, many suppliers do not sell directly to individual customers and only deal with sellers such as yourself. Furthermore, the majority of people are unaware of such suppliers and they do not wish to risk getting subpar quality (through smart practice, you will be able to guarantee quality). Finally, you will be doing marketing that will lead people directly to your store, without even considering a supplier.
Look at it from a different angle. You could probably get a pound of oranges much cheaper from a farmer in California, but you still buy them from your local grocery shop, don’t you?
Start with a Product (Niche)
You could theoretically open a dropshipping store without choosing the products you will be selling or the niche you will be covering, but it would be somewhat tricky. For example, how would you name this store whose products you are still in the dark about?
There are numerous ways in which you can go about choosing the products to sell. Perhaps you are into fashion and you think you know what people would like to wear. Maybe you know what people are buying online in your country. Perhaps you will discover that you can get a certain type of products at affordable prices and sell for much more in your country, increasing your margins.
Set up a Store (Quickly)
You are not racing against the clock, but there is a reason why you will want to set up your store quickly and without wasting too much time. The reason is that spending weeks on setting up a store will not guarantee sales. What you need is a decent-looking store that will be operational in matter of days (depending on how much time you have). You will be looking at the major platforms and their preset themes for your store – something simple and in tune with what you will be selling. Do not waste time on logo, extensive branding, blog, etc. You will be starting with a skeleton-store – just the basics.
You will want to set up payment options, usually PayPal and major credit cards. You will also want to offer free shipping which you will then cover from your margin (unless you can find suppliers with free shipping). Depending on the platform you will be using, you will also most likely need software which will allow you to automate a great deal of the work. For example, when people make a purchase in your store, this software will automatically order the product from your supplier, taking care of the payment and customer’s details entry.
One of the crucial steps in launching your dropshipping business will be finding the suppliers. There will be a few boxes that you will want your suppliers to check before you start doing business with them.
Before we go on to the boxes that need ticking, we should point out that you will mostly be looking to China for your suppliers. More precisely, AliExpress. AliExpress is the Chinese version of Amazon and eBay and it is popular in the dropshipping circles for one simple reason – you can find products at very affordable prices there. Of course, there are other ways and places to find suppliers, but the chances are you will be working with China and suppliers from there.
Now, onto the boxes.
For one, you will be looking for suppliers whose track record is spotless. This means great ratings and actual reviews from customers. You will also be looking at the individual products’ comments sections, more precisely the images. You will want to make sure that the images of actual products supplied by the customers show the same products that are featured in product images.
Another important feature to look for is ePacket shipping. It is a relatively fast (usually well under a month) and affordable shipping method that was designed specifically for products from China that are sold online. This service also provides shipment tracking which means your customers can check their order at any time. In short, ePacket shipping is a feature to look for in a supplier.
Finally, there is the matter of the price. Namely, in order for your dropshipping business to be profitable, you will want to make at least as much as you pay the supplier. This means that your margin should never be bellow 50%. In other words, your supplier will have to provide prices that you will be able to add to and still be able to sell the product.
One thing you should be aware of is that you will be selling either generic products in your store, or brands that are mostly unknown in the west, as this is what your suppliers will be selling. You should be extra careful that you do not sell knock-off products of popular brands because this can get you in all kinds of legal troubles.
The biggest mistake you can make with your dropshipping business is thinking that simply setting up a store is enough. Like we mentioned, there is no shortage of online stores out there and you have to make sure that people visit your store. In other words, you need to do marketing.
For people who have just opened their first dropshipping store, marketing should revolve around one thing and one thing only – making sales. You are not building a brand or establishing yourself on the market. This comes later. You are trying to make a sale. Two sales. Three sales. Fifty sales in one month. Then a hundred sales the next.
While you will be able to do a few things free (still requiring time) such as doing a bit of content marketing and SEO, you will rely on paid ads in the early days. More precisely, you will be using Facebook, Google and Instagram ads.
Choosing the channel will depend on what you are selling and you will have to be extra careful about choosing the right channel. Namely, your budget will most likely not allow you to go broad and, instead, you will want to focus on just one channel.
Facebook, for example, is a very interesting ad option due to its relatively low ad prices and the ability to target very specific segments of the market. Instagram is also popular for certain niches, such as clothing and cosmetics. Google ads are usually out of reach for new dropshipping businesses due to established competition, but you should still look into it.
It is important to start conservatively with your ads in the beginning. Only spend the money you have and always make sure you are not spending more than you earn with your store. For example, if you make a sale that nets you revenue of $20, you can spend $20 on Facebook ads the following day. If these ads bring you a single new customer, you broke even. If you make two sales, you are already making money and marketing is paying for itself
As you make more sales, you can gradually increase your marketing spend. Conversely, if you are not seeing any results, maybe you need to change something or switch the channel.
The bottom line is that the majority of your work will revolve around marketing your store and increasing your conversion rates. After all, most of your other work will be automated.
A Few Parting Words
Now that we have gone over the basics of starting a dropshipping business, there are a few more things that you should keep in mind. For one, you should look into what laws, taxes and regulations you should be aware in your country. You will probably have to register your company and start paying taxes before long. However, it would probably be a good idea to give your store a trial run before you start doing all that. Also, you might talk to a lawyer or an accountant before you do anything.
You might also want to check out local dropshipping communities, as there will probably already be people who are doing it. Such communities are a great place to get free advice and suggestions on how to take your business to another level.
Finally, never stop learning. There is much more to dropshipping than what you have read here. This free guide to drop shipping from Shopify is a great place to start, for example. Also, you should try and hone your marketing skills, as they will enable you to get more traffic and revenue. Once your business is stable, you can also start thinking about the marketing long game, i.e. branding, serious content marketing and branching out with your products.