If you are an online seller, you must be familiar with the term dropshipping. Simply put, it is a technology used by retailers that allows them to pass customer orders directly to the wholesaler or manufacturer. In return, the manufacturers will ship the merchandise directly to the customers.
How Does Dropshipping Work?
In dropshipping, retailers already display items in their online stores so customers can decide which items they want to purchase. Other retailers may only choose to display a catalogue with merchandise prices.
Once a customer chooses the item they want to buy, the retailer sends the order to their wholesaler, along with the customer's shipping details. The wholesaler will ship the items to the customer. As a dropshipper, you are an intermediary between the provider and the customer. Profits are made by the difference between the wholesale price and the retail price.
What Are the Benefits of This Business Model?
1. The drop shipping business is a very low-risk business where you only spend money you have earned. This means that you only pay for products that have been bought by paying customers.
2. It gives you the convenience of doing business from the comfort of your home.
3. When done right, this business model can be profitable you can make money without having to set up your own store and spend on warehouse and manufacturing costs.
Is Dropshipping Profitable?
The global dropshipping market is poised to grow to more than $557 billion by 2025. The profit margins of drop shipping are quite significant because you do not incur the costs of manufacturing and shipping products. The initial costs are also much lower than the cost of opening a manufacturing plant and hiring staff. You, therefore, keep more of the profits. Also, with the current global pandemic situation, this model will thrive as customers choose delivery of products to their homes to stay safe.
What are the Challenges of Dropshipping?
- But as in all endeavours, it is necessary that you double-check and verify which manufacturer you can contact to supply your merchandise. There is a risk of being scammed by fake producers. It is necessary to research the manufacturers you find online and find a source of genuine companies. This also applies to finding a database of genuine shipping companies. From these sources, you can contact them and observe their replies to your questions for products and best prices. Unfortunately, the information of legitimate producers is not always easy to find as many retailers using the same companies do not disclose information about the wholesalers. This is because it’s a competitive business and giving you the information will rob them of their profits.
- The dropshipping business is easy to start but is also full of risks. The challenges include fees like picking, packing and shipping which can eat into your profits, giving you low margins.
- As a retailer, you are responsible for marketing your website, placing orders, providing customer service and maintaining your website. This is not a get rich quick business as you will probably work 10 hours or more to set it up.
- Though you have chosen good products and enjoy the convenience of outsourcing the manufacturing, the quality of those products is far from your control. If your producer sends out substandard products, the customer will blame you and not the manufacturer. This can lead to returns and refunds and low reviews.
- This is a highly competitive business. Though it attracts many with its low entry requirements, the competition affects your profits because many are willing to undercut you with lower prices that will not be profitable for you to provide.
What are some Dropshipping Success Tips to Know?
1. Get expert advice on running a dropshipping business from experts like those on Oberlo.com.
2. Add value to your customer's buying experience. Everyone is just selling products, but you can stand out by adding real value.
3. Offer outstanding customer service.
4. Focus on Marketing and SEO optimization of your website.
5. Have a long-term perspective to avoid giving up too soon.
Dropshipping is a great way to start your own business, but it may not be for everyone. If you think dropshipping might be the right choice for you, the insights above should get you started on your research of this business and can help ensure success.