What is Dropshipping?
Here’s what we mean when we talk about a dropshipping business. The key aspects are:
- A dropshipping business is an online retail business — dropshipping businesses typically conduct all of their transactions over the internet.
- You provide physical goods to end customers — dropshipping is exclusively for physical products. Services and digital products aren’t suitable for dropshipping.
- Dropshipping is mainly a “Business to Consumer (B2C)” style business — you normally provide products to individual consumers, although some dropshippers do sell to other businesses.
- You have an online store (ecommerce website) — this is the portal through which you sell all of your products.
- You do not hold stock yourself — this is the main difference from a “typical” ecommerce business, you don’t need to hold stock locally yourself, instead your dropshipping supplier holds it for you.
- You never see or handle the product — all product handling is carried out entirely by your dropshipping provider.
- When you sell an item, your supplier “dropships” it directly to your customer — they take care of picking, packing, and shipping the item.
- You pay the supplier the cost of the item together with any other admin and distribution costs — any remainder is your profit.
- You take care of customer service and other business functions.
There’s a distinction between what you do as a dropshipper and what the dropshipping supplier does. This normally breaks down as follows:
|What you do:||What the dropshipping supplier does:|
|Identify your dropshipping niche.||Holds inventory for the items you’re selling.|
|Create an ecommerce store.||Receives orders from you for your customers (often automated).|
|Get relationships in place with suppliers.||Picks and packs the product.|
|Market your store and get customers.||Sends the product out to your customers.|
|Take payment for products.||Is paid by you for items sent.|
|Manage customer service, business admin, and other business areas.|
Dropshipping has exploded in popularity, and there are many different ways to approach it.
What we’re discussing in this guide is an approach that will work for most people, especially new dropshipping entrepreneurs.
Is Dropshipping Business Right for Me?
If this sounds too good to be true, here’s a word of caution — it is! Although dropshipping has lots of advantages, there are a number of challenges you need to overcome as well. Here’s a breakdown of the key benefits and issues for a dropshipping business.
Benefits of Starting a Dropshipping Business
|You don’t need to hold or pay for inventory
Dropshipping businesses are much less “capital intensive” than traditional retail businesses. You don’t need to invest in warehouses, distribution, pickers, packers, or the inventory itself.
It’s easy to get started
There’s not much out of pocket expense
You’re location independent
There are a huge number of products available
You can scale up, fast
Issues with Starting a Dropshipping Business
|There’s lots (and lots) of competition
As you’d expect, with all the benefits and low barrier to entry of a dropshipping business, there are hundreds of thousands of them. You need to have a great understanding of your competition so you can effectively position yourself in the market and be successful.
Marketing can be expensive
The profit margins are thin
You will eat all the distribution and logistics costs
You own all of the mistakes, no matter who makes them
Reputation is everything
You have to be distinctive
Don’t let the downsides put you off. If you properly plan and execute your dropshipping business, do the research, find the right products, market, and manage your business in the right way, there’s an excellent chance you’ll succeed.
Approaches for Starting a Dropshipping Business
Once you understand the benefits and drawbacks, you need to look at approaches for a dropshipping business, there are three main ways to go to market:
- Building your own ecommerce website from scratch using a framework like WordPress.
- Opening an independent store using a specialized ecommerce website builder like Shopify, SquareSpace, BigCommerce, Volusion, etc.
- Opening a store using the “shop” function of other major online retailers like Amazon or eBay.
What You Will Find in the Next Guide…
Competition and Defining Your Dropshipping Niche
- Outmarketing Your Dropshipping Competition
- Creating a Unique Brand and Value Proposition
- Competing on Quality, Speed, Price, or Service
- Finding a Dropshipping Niche
- Why Focus on Finding a Niche?
- Establishing Your Dropshipping Niche
- Using Your Niche Sector or Industry Experience
- Identifying Niche Consumers
- Understanding the Marketplace and Competition
- Finding a Niche Product