What is dropshipping?
Official definition According to the official definition, dropshipping is a supply chain management method in which the retailer does not keep goods in stock but instead transfers the customer orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer. As in retail business, 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. In simpler words, dropshipping is a business model which enables a person to sale a product or a range of products for profit, without taking any inventory. (Source: https://bit.ly/1LUdXba) In other words Dropshipping is a quite recently invented model, especially for people who are new into the business domain and have troubles with opening a business of their own. The most important part of the dropshipping concept is that it allows one to sell a product online, even without the product being in one’s hands. In order to start a dropshipping business, the most basic tools needed are a computer, an online store and an elementary understanding of how to market and sell online. Thus, with dropshipping, instead of purchasing a large amount of inventory, it is possible to partner with a dropshipping supplier and list their merchandise for sale. Next, once an order is received, it can be forwarded to the supplier for fulfilment. Then, the supplier will ship the product directly from their warehouse to the costumer and charge the retailer only for the price of the shipped item.
How does dropshipping work?
As mentioned previously, once an agreement is in place with the supplier, dropshipping needs a few steps for completion.
1. Choosing a product to sell Firstly, a decision regarding what products to sell needs to be made. There are many variables that should be considered before deciding on a product to sell. As such, in order to get inspiration, one can just go to a standard shopping mall or building materials market, visit an industry park and see what kind of factories are in place.
2. Locating a supplier who will dropship Secondly, to continue, a supplier needs to be found through various networks, preferably in close proximity, or just by visiting the local trade fairs and start searching for the perfect products.
3. Setting up a web shop, a dropshipping account and organizing with the supplier One can set up dropship accounts on several providers such as Shopify. Also, there is also the possibility of promoting one’s own web shop (even though this is the priority, it is advisable to arrange low cost web design). Then, one needs to contact the company that can supply the products, set up a reseller account and sign an agreement with them.
4. Selling and advertising on online markets (i.e. ebay web shop) If one does all this appropriately, with the correct calculated margin, then the more leads one can generate, the higher one’s chances of finding buyers and get commissions are.
5. The Product Sells Great news: one’s first products are sold and one’s customer pays one with a PayPal instant payment. It is highly recommended to use instant payment methods, such as PayPal or Alipay. This allows the customer to pay faster, which lets one place the order with the dropshipper faster, which gets the product to one’s customer more rapidly.
6. The Order with The Dropshipper After the customer has made the payment, one should contact the dropshipper immediately to order the product on one’s customer’s behalf. The dropshipper then ships the order to one’s customer under one’s name.
7. Following up after the sale This is where many new e-business people drop the ball. Just because the customer has paid the retailer and the latter has placed the order with the dropshipper, this does not guarantee instant success. Contrarily, if there are problems with the order, the retailer is the one that will be held responsible in the eyes of customer. As such, the most favorable approach in order for the procedure to be completed without issues, the retailer needs to adopt a proactive attitude and be seen that way by his customer. One needs to follow up with one’s customer to let them know that the item has been shipped. Besides this, it is important to 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.
What are the benefits of dropshipping?
1. No need for stock management One of the greatest advantages of dropshipping involves the exemption from stock management. Nevertheless, it goes without saying that this aspect involves significant financial savings, which reduces one’s risk of accumulating loses, given the alleged situation in which the business will fail. Given the fact that, with dropshipping, there is no need for stock management, consequently, no effort invested in the storage or in the maintenance of the products. According to Salvador Esteve, CEO of BigBuy, an internationally certified dropshipping supplier, this is the main appeal of dropshipping: It allows you to take care of sales and maximize profit share, without worrying about logistical issues.
2. Less spending Furthermore, with dropshipping, starting a business is easier and faster than even. The main spending will only revolve around the costs necessary for establishing the online store. If additional services are subcontracted in order to create the online store, the ecommerce process can be ready in a much shorter time than formerly estimated. The dropshipping provider will take care of everything. “Your vendor must become your global logistics operator with all that involves,” says Esteve. The vendor has to manage all the goods in stock, record the order, pick up, prepare the delivery package and coordinate with the appropriate courier companies for each area. In addition, the distributors are offered, in their control panel, all the information about the status of their orders. They can track each order by tracking number and receive after-sales support if they want to consult any delivery-related issue.
3. More time allocated to attracting customers What is more, as dropshipping allows the retailer to not worry about storing and shipping the products, this allocates more time to what is in reality most important in e-commerce, namely, selling. By delegating work to a dropshipping wholesaler, one can take care of attracting as much qualified traffic as possible to one’s store and encourage the public to buy those products that one has at one’s disposal with care. In this case, different financial and time-related resources will be at one’s disposal, therefore, permitting the one’s ecommerce business to achieve its mission.
4. Greater opportunities for development Besides the above-mentioned points, collaborating with a dropshipping wholesaler allows the offer of a very large catalogue, which can hardly be seen in the case of an individual work process. In addition, it will be constantly updated without one worrying about it. Also, with dropshipping, there is a high probability that the business will significantly develop, if a smart marketing strategy is put in place. In traditional trade, evolution can be seen as limited by things as simple as the size of commercial space. In order to be able to grow, the owner will have to look for a new space, with the costs that this entails (and not just the rent). If the area changes, the launching of an advertising campaign to make the location known, will be necessary, and that is quite costly. And, although an ecommerce that does not work with dropshipping can evolve much easier than a physical one, the real difference is made by working with dropshipping. This distribution model allows the retailer’s online store to attract all the traffic he / she wants, without the risk of selling too much and being in a situation where orders cannot be handled. The dropshipping provider will handle all orders to ensure timely delivery and the shipment in the retailer’s name.
How to find dropshipping suppliers?
Dropshipping suppliers are not known for their ability to market themselves to their audience, so it can be quite hard to find the right dropshipping suppliers for one’s company. Important to bear in mind is that this process could take hours before it bears fruit, so patience is vital. Another thing to consider is that most dropshipping suppliers are based in China, India and other non-English speaking countries, so the language barrier could take a little getting used to. There are a few steps to take to find the right dropshipping supplier.
1. Research Once the decision regarding which products to sell is made, research needs to be done in order to see which suppliers are in the market and which ones are the most suitable for one’s business. One might need to choose whether to go with a domestic or overseas supplier depending on the number of suppliers in one’s chosen product segment which will require more research into raw material sourcing, delivery times, and service potential.
2. Contacting Suppliers It is a good opportunity for business to talk to the supplier that best suits one’s interests and to start a relationship with them. Talking to them allows for asking questions about the service they provide. They may provide contact information from current customers, hence, one can get first-hand experience of working with the supplier before committing to them. Maintaining a good relationship with the dropshipping suppliers from the very beginning means that, once the process of conducting business starts, the trust will make it it easier to get questions answered quickly, and disputes resolved straight away.
3. Ordering samples from the supplier Once the top suppliers are chosen, the retailer needs to order samples for himself/herself. It is important to test the quality of service, delivery times, packaging, and other supplier-related questions that arise, in order to be entirely happy with the selected choice. When individually ordering samples from a dropship supplier, one will witness first-hand how one’s customer will experience it.
4. Ordering from the competition If one of the competitors is using the same supplier, then one can find out how the supplier packages its products and offers its services. This is called custom labeling. If one’s competitor uses other suppliers, one can order from them to get an idea of the level of service one needs to provide in order to rank in line with the competition.
5. Finding the right supplier Suppliers can seem great when looking at their reviews and product offering, but once one starts to research more about their businesses, they may appear to be not as useful as initially thought. One of the reasons for this could be represented by the raw materials they use, the way they do business, or how they deal with returns. In this case, it is necessary to talk to suppliers and get to know how they do business before committing to them. Although one can choose not to use a supplier after issues arise, the damage might have already been done and the brand could have been harmed. 6. Dropshipping suppliers to avoid It is hard to know which dropship suppliers to choose, but there are some tell-tale signs that a supplier is to be avoided at all costs. Apart from bad reviews, negative feedback, and cheap quantity products, there are other factors that can anticipate a bad dropshipping supplier. If a dropship supplier insists on monthly or ongoing fees, doing business with them is a bad sign. Ongoing fees could mean a supplier is part of a directory, as opposed to a single supplier. It is normal to have pre-order fees that increase slightly depending on size or complexity of an order, or decrease with bulk ordering. The research will highlight suppliers that charge higher than normal pre-order fees and therefore should be avoided. Minimum order size is another thing to keep in mind when choosing a dropship supplier, but most times a supplier is willing to charge the minimum order fee and fulfill orders as they come in. This means that if a supplier’s minimum order size is 200, one must pay for the 200 units upfront, however the supplier will fulfill the orders as they come from the online store, over a period to time. Suppliers that refuse to do this should be avoided as they are more suited for wholesale.
About the Ecommerce Foundation
Article written by The Ecommerce foundation.
The Ecommerce Foundation is an independent organization, initiated by worldwide national ecommerce associations, online- and omnichannel selling companies from industries such as retail, travel and finance.
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They facilitate the development of practical knowledge, market insights andservices for which individual institutions, retail and ecommerce associations and B2C selling companies do not have the (financial) resources and/or capabilities for.