Everyone is looking for a side income these days. Statistics show that as many as 44 million US residents have a second source of income and Dropshipping is one of the major players of the game. If you too are looking for a side gig, chances are that you have heard the term Dropshipping.
To understand in simple terms, Dropshipping is an online business model which is one of the fastest-growing types of eCommerce businesses that can generate high returns for an aspiring eCommerce entrepreneur.
You can start a business with a very small amount of capital, once profits start flowing in the business can then be expanding by allocating more resources to advertising and brand building.
But how does dropshipping work, and why should you go for this model? This is a comprehensive guide on starting, growing, and optimizing a dropshipping business.
What is Dropshipping?
As a retail fulfilment method, Dropshipping lets business owners sell products from their online stores without owning or maintaining an inventory. Here the customer purchases the items from the retailers but the manufacturers handle the shipping. After the order is placed, the items are directly shipped to the customer, thus making the seller just a middle man.
This business model reduces the touchpoints by eliminating warehousing, which reduces the cost giving new businesses to grow more quickly. Apart from cost-effectiveness, Dropshipping model is helping new entrepreneurs largely because running an online store does not require any prerequisites such as a physical store, employees on payroll, electricity and maintenance bills, etc. Here all the efforts of the owners are put into marketing and selling as Dropshipping businesses don't have to deal with issues like shrinkage or the bullwhip effect in the supply chain.
So, how does Dropshipping business work?
Let’s take a closer look at how Dropshipping works. There are a few considerations to be made before becoming a part of one of the booming eCommerce segments. The dropshipping model has three main parties, a supplier, a retailer and a customer. The working flow of this model is also quite simple.
- The customer places an order on the retailer’s online store.
- The store sends that order automatically to the supplier.
- The supplier receives the order and starts the fulfilment process.
- The products are shipped directly to the customer.
- The store receives an order notification from the supplier.
- The store processes payment for the customer.
Below are the 3 critical elements in a supply chain of a dropshipping business. They individually ensure a successful operation:
- Supplier – The owner of the products sold on the retailer’s website
- Retailer – The person responsible for selling products directly to the customers using their online stores.
- Manufacturer – The entity that manufactures the products which are sold.
Some facts about Dropshipping
- Nearly 1/3rd of eCommerce businesses have adopted dropshipping.
- Dropshipping revenue was over $100 million in 2020.
- More than 1/3rd of Amazon sales is fulfilled by dropshippers.
- Dropshippers can be 50% more profitable than traditional retailers
What will be the cost of starting a Dropshipping business?
Let’s take a closer look at what is the budget for dropshipping business: With no inventory and no overhead charge, the dropshipping model requires very less initial capital.
- Domain name: There are a lot of options from where you can get a domain name for your store
- This costs approx. 15$ [yearly]
- Website template: 20$ - 100$ [monthly]
- Merchant account payment gateway handling charges: 20$ - 30$ [monthly]
- Other optional extensions and apps to enhance the store’s performance. [budget based]
- Paid marketing: For the promotion of your store. 5$ - 25$ [monthly]
The only two expenses in running a Dropshipping business will be advertising and the monthly fees from the merchant account and website hosting service. Almost all the money made from a sale goes straight into the retailer’s pocket.
This lets the business scale up very quickly as more sales come from the growing audience.
eCommerce Platforms for Dropshipping Business
With the technology evolving, starting an eCommerce store is not a difficult task today. There are many support forums that help new entrepreneurs to understand the market better and get support from within the community.
There are many platforms out there with a ton of technical know-how, which can be used by both beginners and pro-business owners who wish to start or have already entered the market.
Shopify and Amazon Dropshipping, are the two most popular choices for dropshipping. It’s ideal for people who want to try out dropshipping business without investing too much time or money at first.
Here is a list of the most popular dropshipping platforms which you can use right away and start earning.
- Shopify Dropshipping
- Shopify (with Oberlo)
- Amazon Dropshipping
- Shift4Shop Dropshipping
- BigCommerce Dropshipping
- Alibaba Dropshipping
Now, the steps to start your dropshipping business.
We have prepared a process map so that you don’t miss out on any important steps in creating your business.
- Find Products
- Find Suppliers
- Store Setup
- Business registration and legal requirements
- Start selling
- Customer support
Let’s understand these steps in details
Step 1: Find products that you want to sell
The first step is to decide what to sell. This is a market-research focused stage. A clear understanding of the market or your customer can give you an edge over your competitors. There are a few considerations in this stage also but owners like to give this stage some importance as the results can and will shape the entire eCommerce company. Things to consider are:
- Trends – the audience set in this eco-system is mostly trend-driven look for online trend patterns to get an added advantage
- Trigger Impulse Buying – products advertised with emotions get sold more as compared to straightforward products.
- Target Audience - audience insights define the target audience and their interests. It’ll help to understand the process behind customers’ purchasing decisions.
- Partners [supplier] – Better partners means better products which means happy customers.
- Shelf Life of Product – long shelf life allows wider coverage of service.
Step 2: Research suppliers who can drop ship to your customers
There are plenty of places where you can find wholesale suppliers. Yet, the biggest and most popular platforms are Alibaba and eBay. When choosing a supplier, keep in mind the reviews and ratings so you cut your risk of getting scammed.
Step 3: Set up your own eCommerce store
Once the above steps are finalized, we come to step 3 of the process. Setting up your eCommerce store. This step is the easiest as there are multiple platforms that give you custom online stores so that you can just directly showcase your product.
Step 4: Register your business and sort legal requirements.
Make sure to keep all your documents needed to run an eCommerce and dropshipping store in one place.
Step 5: Start selling products.
All set, now start selling!
Step6: Offer the best customer support /service
The key to the successful growth of a company is good customer service. Make sure to provide clear and concise support to your customers to get more brand loyalty.
