Wouldn’t it be great to start selling products without the burden of manufacturing them, keeping them in an inventory and shipping them to your customers? You could save thousands of dollars from this and you can start selling right away.This is drop shipping – a business model where a manufacturer or wholesaler offers to give you access to thousands of products in return for promoting them. Then, they’ll be more than happy to deal with the delivery and outbound logistics for you.
Why Drop Shipping is a Good Type of Business
Have you ever dreamed of a business that made millions of dollars in a year? That’s what happened with Irwin Dominguez who managed to hit the 1 million dollar mark in just 8 months. There are even people who managed to make hundreds of dollars in just 3 days. This is what happened with HelloMatcha when they sold some matcha powder.
The best part? They don’t even need to own any manufacturing firms or warehouses. They just focus on promotion and they get to make this much money.
What is Drop Shipping?
Drop Shipping is a business model that allows you to focus on just the marketing process. After getting a customer, you simply refer him to your manufacturer or wholesaler and they will do the shipping for you. With this, there’s no need for you to see or touch any of the products. You don’t even have to track or list them in an inventory. You just give your brand name to your drop shipper and they will ship the product for you. Easy peasy.
How Drop Shipping Works
There are three steps involved in the drop shipping process:
- First, it starts with your customer. They visit your online store and purchase your product.
- Next, you send the order to your supplier, manufacturer or wholesaler.
- Then, they’ll send the ordered item with your brand as the sender
Can’t you see how convenient this business model is? With it, you don’t need to have an inventory of products and you don’t have to worry about turnover rates. You just send an order when it comes and you make money as the middleman.
Advantages of Drop Shipping
There are many reasons why retailers go into drop shipping. Some of the most attractive reasons are listed below.
- Really Low Startup Cost – One of the things that you’ll love about drop shipping is the extremely low startup costs. If you have entered the world of retailing, you’ll know that most of the expenses go to filling up your inventory. With drop shipping, there’s no inventory to fill up for the products stay at your manufacturer’s’ warehouse.
- Little to No Overhead Cost – Without products, you don’t even need a physical space. In fact, most online stores are operated from home. This results into a little to no overhead cost. There’s no need for a warehouse or a physical office.
- Low Risk – If you want to try your hand in online selling, then drop shipping is the easiest way to get your feet wet. It doesn’t need any upfront capital except for website and tax registration expenses.
- Scalability – Once you manage to capture a significant part of the market, scaling is easy. In fact, you’ll find that this can be a lucrative way to make money if you are good with online selling.
- Easy to Get Started – You don’t need to be a master ecommerce marketer in order to do this. As long as you know how to connect with people in some online social platforms, that will already be good enough for you to get started.
- Can be Done Virtually Anywhere – I have told you above that you don’t need a physical location to operate this type of business. But did I tell you that this can be done anywhere? In fact, it doesn’t matter which country you are from. You can choose to sell in the entire country or in other parts of the world. Why? You don’t need to worry about the shipping cost and strategy – your drop shipper will have already covered that for you.
- Instant Access to Products – Don’t have a product to sell? No problem! With drop shipping, you don’t have to think of products. You just need to look for them. Once you found some products, just promote them and you are already on your way to making money.
Disadvantages of Drop Shipping
While drop shipping can be attractive, it is not always positive. It comes with a set of drawbacks.
- Lower Profit Margins – One of the most obvious disadvantage of drop shipping is the lower profit margins. If your drop shipper is not the direct manufacturer, they would most likely pile up some cost simply for managing your inventory and delivery for you.
- High Competition – Drop shipping is attractive to many people. The number of entrants are high thus giving you a lot of people to compete with. Just because you managed to enter the business easily doesn’t mean that others cannot do it too.
- Lower Differentiation – Drop shipping gives you instant access to products. These products are not yours so they can also be offered to another merchant. When that happens, the both of you will have the same products and you have nothing else to offer aside from after sales service.
- Shipping Issues – Shipping issues are quite common in drop shipping. Often, a drop shipper will fail to give an accurate estimate of the delivery time causing customers to complain about waiting.
- Brand Misrepresentations – There are also cases when the merchant’s brand name is misrepresented in the delivered product. This can happen especially if the drop shipper has so many merchants to serve that they end up forgetting their brand names.
- Hard to Determine Inventory Level – Often, a merchant will post a product for sale only to find out that it was out of stock from the supplier. The worse part? They cannot tell their customer if it’s available right away. They need to communicate with the supplier first.
- Miscommunication with Suppliers – In worst cases, suppliers may end up sending the wrong products to buyers. This could incur some return and refund costs which would really give you a massive headache.
How to Find the Right Drop Shipper
Preventing the disadvantages will depend on your drop shipper. If you hire a professional drop shipper who is used to juggling multiple merchants, then you’ll find that the disadvantages will hardly affect you. With this, it is very important to find the right drop shipper as you start your online business.
NOTE: Not All Manufacturers or Wholesalers are Drop Shippers
Some manufacturers choose to be good at what they do and that is product development. If they focus on that, they would hardly have the time to deal with your customer orders and outbound logistics. The same is true with wholesalers. Real wholesalers already have regular clients and they cannot be bother with sending retail orders. With this, it is important to note that drop shippers are different. In fact, they may seem to be one step off a manufacturer or a wholesaler. A drop shipper buys from the wholesaler or a manufacturer and do the service of taking care of the inventory and delivering items for retailers. They are often middlemen.
Now, there are two types of drop shippers.
- Drop Ship Wholesaler – This drop shipper buys from the wholesaler or manufacturer at rock bottom prices. Then, they offer the service of keeping the inventory and delivering items.
- Drop Ship Aggregator – This is similar to the Drop Ship Wholesaler but with more connections. The Drop Ship Aggregator deals with multiple manufacturers so that they can offer their merchants a wider array of products.
Characteristics of a Good Drop Shipper
I couldn’t stress how much a drop shipper can make or break your business. With a bad drop shipper, you’ll find your customers looking at your competitors simply because you cannot deliver your products. With this, I have come up with a list of characteristics that a good drop shipper must have.
You are entering a business. Sure, a drop shipping business has a low barrier of entry. But that doesn’t mean that you should not take it seriously. After all, you’ll spend time and money building your business. So build it with a reputable drop shipper.
Reputation is important not just for reliability. While you want a drop shipper that fulfills their word, you’ll also need a drop shipper that simply delivers. The last thing you want to happen is have them take your money without giving your items.
Good drop shippers have good track records. This means that other merchants that have dealt with them have something good to say about them. For this, you may need to do your research. Don’t believe anything that has been posted online. Go straight for the drop shipper. Observe how many merchants are getting items from them and how they deliver.
Wide Array of Products
The online world may be one big community but it comprises of a lot of sub-niches. With this, you’ll want a drop shipper that has a wide array of products. This way, you can choose the product that best fits your niche.
Lastly, you’ll want a drop shipper who has good communication channels. Communication can be done through chat, email or social messaging. Replies may not be instant but it should be done in less than 48 hours at best. You don’t want to deal with a drop shipper who will suddenly go AWOL when you are looking for your order.
How do you know if a drop shipper has open communication? Try contacting them before you transact with them. This will give you an idea on the speed of their replies.
Is Drop Shipping Worth Your Time?
Drop shipping is easy to get into and it doesn’t cost a lot of money. It may have its communication and delivery issues but these can be solved once you ‘ease into’ the business. Capital is often just for website development or tax registrations. But if you want to go lower, you can easily set up online shops in social networks like Facebook and Instagram.
How to Price Your Products
As a merchant, it is up to you on how you’ll price your products. Merchants normally price their products with a 20 to 40% profit margin. These are often low-priced, high-turnover products like clothing. Prices can vary for different kinds of products such as gadgets and jewelry. You should aim to get the lowest price from your drop shipper so that you can amp up your margins.
Is Drop Shipping for You?
Drop shipping is not for everyone.
It is a good business to enter if you are one of the following:
- A Person Looking for a Low-Investment Business – Drop shipping is one of the easiest businesses you can enter. It is low risk and requires very little investment.
- A First Time Seller on the Internet – If you find yourself grasping what a domain is and you have just set up your first online shop, drop shipping is one of the fastest ways you can make money online.
- A Person Who Want to Create an Online Shopping Mall Without Carrying Products – If creating an online shopping mall has always been your dream, drop shipping is for you. You don’t need to store all the items in one location. You can let the drop shipper do that for you.
- A Content Marketer Who Want to Sell Products to His Audience – If you already have an online audience and is looking for ways to make more money, why not sell them some products through drop shipping? It can give you an extra source of income.
It is not a good business if you are one of the following:
- A Person Who Can’t Deal with Low Margin Products – Drop shipping will give you lower margins. Deal with it. If you can’t, this business may not be for you.
- A Person Who Get Stressed with Online Communications – One of the most stressful parts of drop shipping is communicating with your customers and suppliers. But that is the only thing you need to do. If you get stressed out with this, then drop shipping is not for you.
- A Person Who is Not Comfortable Selling Online – Drop shipping offers the flexibility of being able to work anywhere. If you don’t want to sell online, this is not for you.
- You Don’t Know How to Market Anything Online – Similarly, it is important that you know how to market products online. Else, you will not make any sales.
So what do you think? Are you the right person for drop shipping? Tell me all about it below.