In today's society, many individuals are searching for opportunities to create a secondary income stream. Recent statistics indicate that up to 44 million Americans engage in some form of a side hustle. Dropshipping is a popular option for those looking to establish an online business and earn a respectable passive income without the added complexities of inventory management, shipping, and order fulfillment.
If you are hesitant about launching an e-commerce store due to these factors, dropshipping may be the solution you have been seeking. This method enables you to establish an online store and sell products without the responsibility of managing physical inventory or fulfilling orders.
Dropshipping can be a lucrative venture with significant earnings potential when executed properly.
This comprehensive guide to dropshipping encompasses a range of topics, including its definition, steps to commence, advantages and disadvantages, common errors to evade, and strategies for operating and expanding a profitable enterprise.
Without further ado, let us begin.
An Introduction to Dropshipping: Understanding the Concept
Dropshipping is an e-commerce fulfillment method that enables retailers to sell products online without maintaining an inventory. Rather than keeping stock on hand, retailers advertise items on their websites, and the manufacturer or supplier handles the shipping and delivery of products directly to the customer.
This feature distinguishes the dropshipping model from conventional e-commerce business models, as there is no requirement for inventory management and shipping operations. This is a significant advantage, as it allows anyone with an internet connection, a website, and marketing abilities to establish an online storefront and receive a portion of the sales generated.
Furthermore, it is now easier than ever for business owners to source products through third-party suppliers. This guarantees that the target audience can find precisely what they seek.
Although dropshipping store owners may earn less profit than traditional businesses, many focus on high Average Order Value (AOV) products to make up for the difference.
Let’s look at the old model of retail vs. dropshipping.
Let us consider an example of a customer purchasing an intelligent TV from Best Buy, one of the most prominent electronic retailers in the United States.
The customer visits the Best Buy store, selects a TV, pays for it, and leaves the store with the product. In this scenario, Best Buy must purchase the TV wholesale from the manufacturer and store it in their retail location, where customers can examine and buy it.
Additionally, Best Buy must cover the expenses of retail space to display the product, employees to move products from storage, cashiers to handle payments, security personnel, and shipping fees for online orders placed through BestBuy.com.
This process involves considerable manual labor, significantly reducing profit margins for retailers like Best Buy.
Dropshipping cuts out a lot of these steps.
Consider a scenario where a customer orders a Samsung TV from an online retailer that operates through dropshipping. In this case, the drop shipper forwards the customer and order details to Samsung, and that's all there is to it.
Unlike traditional retail models, there is no need to employ workers, maintain physical retail space, or display products. This streamlined process not only saves time but also reduces expenses.
Moreover, starting this type of business is relatively affordable, as it only requires online software and access to reliable dropshipping suppliers.
Check out these statistics on dropshipping:
- In 2016-2017, around 23% of all online sales, equivalent to $85.1 billion, were made through dropshipping.
- In 2011, Amazon made 34% of its total sales via drop shipping, and the numbers have continued to increase yearly.
- Dropshipping is a highly profitable business model, with a study showing that manufacturers who work with dropshipping retailers earn 18.33% more profit than those who use traditional channels.
These are the specific steps involved in a dropshipping transaction:
- Market products online as the retailer.
- Attract a customer to purchase through your online store.
- Forward the buyer information and order details to the manufacturer, wholesaler, or distributor.
- The manufacturer ships the items directly to the customer on your behalf.
The customer remains oblivious to the fact that the online store they bought from did not ship the products, thanks to this model. This is particularly the case when the manufacturer inserts retailer packing slips in the packages.
All things considered, dropshipping demands a significant amount of trust and a lasting partnership between distributors and retailers.
Defining Your Niche: Why It Matters
It's relatively easy to start a dropshipping business. You simply have to:
- Sign up for an ecommerce platform and design your website.
- Sign up with a dropshipping supplier and choose your products.
- Add or sync the product to your store.
- Set up your tax and shipping settings.
- Test your checkout process.
- Launch your website.
That's all there is to it. Once you have a website that works and includes a homepage, product pages, and the ability to purchase items, you have an online store.
For instance, you could use Shopify, an e-commerce tool, to automatically synchronize your products with Inventory Source, a dropshipping site, and have your website up and running within a day or two.
If you require assistance establishing your dropshipping store, Fiverr is an excellent resource. They have a designated area for dropshipping freelancers who can assist with everything from setting up your e-commerce platform to designing your store and syncing your inventory.
Starting a Dropshipping Business: Where to Begin
Defining your niche is crucial to the success of your dropshipping business. Setting yourself apart from your competitors is vital.
If you're starting a dropshipping business from scratch, selecting your niche before selecting products to sell is critical.
In eCommerce, customers have no reason to choose you over the competition if you're not unique.
A narrow focus is an uncomplicated yet effective method for differentiating yourself from the competition.
Although you may have a general notion of what you want to sell, finding, negotiating with, and tracking suppliers is much easier when your focus is precise.
Being an expert in the areas you choose also helps.
It’s All in the Marketing
Marketing your store is often more challenging than launching it.
Allow me to share a personal experience.
In 2017, I launched a dropshipping store in the outdoor adventure industry. The niche I chose was the intersection of camping and tailgating, and I named it “Rebel Peak.” My store featured fantastic products, including truck tents, more relaxed speakers, and camping gadgets.
I invested much time and effort into developing the perfect logo, website design, and marketing materials.
However, when I launched the store and began promoting it, I quickly realized the harsh reality of the camping niche's ultra-competitive nature. I attempted to post a few ads on Google Shopping, but competing with major sites like Dick's Sporting Goods, Target, and Walmart was daunting.
The market was highly competitive, and the profit margins were low.
Ultimately, I decided to give up and close the store.
The reality is that starting a small business online is a breeze, but marketing it is a different story. I lacked the necessary marketing expertise at that time to make it succeed.
Attracting visitors and increasing website traffic is a challenging task. If I had the chance to start over, I would have created a different strategy:
- Paid traffic is not a sustainable method for testing your niche.
- Focusing primarily on SEO strategies could help me obtain free traffic over time.
- I would have pursued aggressive guest blogging and link building to acquire backlinks and increase my Domain Authority (DA).
1. Marketing Your Store
Marketing is essential in the highly competitive e-commerce industry.
To start, conduct thorough research on your target audience and aim to provide a solution to their problem.
A product that addresses a genuine issue is critical to success. From there, you can tailor your marketing strategies to cater to that specific customer persona.
Begin by promoting your online store on the following channels:
Boost your store's visibility on various social media platforms such as Facebook, Instagram, Pinterest, and others.
Check out the top social media management applications that can assist you in promoting your pages. You can also use social media advertising to reach your target audience directly on their personal social media feeds.
Email marketing is a highly effective form of marketing for e-commerce businesses. It lets you engage with your customers in their inbox, where they will likely check frequently.
To make the most out of email marketing, you can use email marketing software to send welcome emails with a discount and abandoned cart emails, among other types.
Paid Ads on Google and Facebook
Email marketing is a highly effective method of promoting e-commerce businesses. Email lets you connect with your customers directly in their inboxes, which is an excellent way to engage with them. Utilizing email marketing software enables you to send welcome emails along with discounts and reminders for abandoned carts.
If you bid for a specific keyword and a user clicks on your advertisement, you will be charged by Google for that click. This cost is referred to as cost-per-click, which is determined by the competition and the other bidders for the same keyword. Although this advertising method can generate numerous clicks and provide a quick way to test products, I do not advise it for new drop shippers as it can become exceedingly expensive quickly.
Rather than relying on text-based PPC ads, e-commerce retailers use Google Shopping ads more frequently. To create these ads, you need to upload a product feed, and they will appear when users search for keywords related to your products. These ads contain text and images and are placed alongside competitor ads, allowing consumers to compare prices.
Google Shopping is an excellent tool for researching your competition and determining how saturated your niche is. If you are starting a new dropshipping business and discover that you are competing with enormous national brands, it may be necessary to rethink your strategy.
Although numerous other e-commerce marketing strategies are available (which are covered in more detail in my guide here), these are the basics to consider when starting your business. Let's now move on to the next strategy.
2. Maintaining Inventory
Although the drop ship business model does not necessitate inventory storage, monitoring the suppliers' warehouse inventory is advisable since you will be selling their products under your brand. Fortunately, various advanced inventory management software and multi-warehouse dropshipping management tools are accessible on the internet, making managing and tracking inventory simple.
These tools have revolutionized the automation software market for drop shippers with multiple order fulfillment centers.
Using an inventory management tool such as inFlow Inventory can assist you in:
- Prevents unpleasant surprises for customers when placing orders by ensuring information on product availability is readily available
- Facilitates timely re-ordering of products to avoid stockouts
- Improves communication with customers through the provision of up-to-date product availability information
- Enhances the overall customer experience by preventing unfulfilled orders and providing accurate and timely information.
3. Provide Impressive Customer Support
As global income levels increase and competition intensifies across all industries, there has been a standardization in the products and services provided. As a result, offering exceptional customer support has become a key differentiating factor.
To provide outstanding customer service, you can utilize several platforms, including:
- Social media platforms
- Live chats
A 24/7 help-desk is also an aspect that you should look into as your business continues to mature.
4. Policy for Product Exchange and Refunds
The exchange and refund policy is a critical touchpoint for any drop shipping business, as it can either make or break the company's reputation. With the prevalence of social media, it's easier than ever for negative feedback to spread, making it crucial to handle customer complaints and exchange/refund requests quickly and effectively.
How a company handles these situations reflects its values and priorities and can significantly impact customer satisfaction and lifetime value. For dropshipping businesses, refunding products differs slightly from traditional e-commerce sites, as it requires collaboration with the supplier to collect the product and issue an exchange or refund.
While these points aren't an exhaustive guide to running a successful drop shipping business, they are essential to its success. By following them, you can establish and maintain a solid reputation for your business.
For example, Gymshark's return and refund policy is effortless for customers, allowing them to return the wrong product quickly.
How to Grow Your Dropshipping Business?
It's important to remember that the dropshipping model is a slow and steady business model. Expecting rapid growth and high-profit margins in a short period is unrealistic. To see success with this business model requires a long-term investment of time and effort.
However, this doesn't mean you should stop all the hard work you've put in so far. Instead, it's time to focus on scaling and growing your business. By taking the following steps, you can achieve growth in your dropshipping business:
1. Use Multiple Channels
To mitigate the risk of relying on a single platform and protect your business, you should take advantage of multiple channels, including Amazon, Alibaba, eBay, and other options.
Expanding your reach to a broader audience becomes feasible by using multiple channels. By relying solely on one track, it's impossible to cater to such a diverse customer base.
However, when employing various channels, it's critical to maintain adequate stock levels for your top-selling products to avoid shortages. Failing to do so when selling the same product across different online stores can result in stock shortages and backorders, leading to delays in delivery and a poor customer experience.
By ensuring you have enough inventory, you can broaden your target audience globally.
2. Build Dropshipping Stores
Utilizing multiple channels can help increase the profit margin for your dropshipping business idea, but it's also crucial to establish your store to enhance your brand image.
There are numerous benefits to building your dropshipping store, such as:
- Greater control over website’s user-interface
- Greater control over products, stocking, and marketing
- Better decision making when it comes to discounts and bundled sales
- Control brand positioning and brand imagery
With their dropshipping stores, owners no longer have to pay commissions to online vendors to display their products. This results in a higher profit margin per product, ultimately increasing revenue.
Several online websites and e-commerce store builders are available to create your store. These builders offer appealing templates and a range of marketing and analytical tools to help grow your store.
To find the best e-commerce platform to build your dropshipping store, take a look at my review of some of the top options available.
3. Leverage Email Marketing
Email marketing has one of the highest rates of ROI, with a $32 return for every $1 invested, as per email marketing statistics by Oberlo. Therefore, focusing on your email marketing strategy is crucial to make drop shipping profitable.
To do this, the first step is to build an email list that comprises a relevant audience. Email marketing provides direct access to leads who have willingly subscribed to receive your emails, making it an effective tool.
To build your email list, offer something valuable for free to pique your audience's interest. For instance, I offer a free email course to encourage readers to subscribe to my email list.
Once you have an email list, engage with your audience regularly. Send follow-up emails and offer discount coupons to encourage them to buy from your store.
However, be mindful not to flood your subscribers' inboxes with emails. Inform them about the frequency of email newsletters you plan to send and stick to the promise. Excessive emailing can work against you and prompt customers to unsubscribe.
4. Use the Right Channels For Advertisements
Investing in the right areas is crucial for the money spent to pay dividends and for your business to take off. Therefore, before increasing your marketing budget, appropriate market research is necessary. Identify the advertising channels that can help maximize customer visits to your website.
For dropshipping businesses that lack a physical shop, taking advantage of online advertising modes like pay-per-click (PPC) is crucial. Running ad campaigns is accessible on social media platforms like Facebook, Instagram, and Twitter.
Avoid wasting money by spending it on websites that bring in low traffic.
Andreas and Alexander offer an excellent example of a dropshipping business done correctly. By optimizing their Facebook ads, among other measures, they achieved maximum returns through ad campaign budget optimization.
5. Use Video Advertisements
The use of video marketing has become a popular method of reaching out to customers.
Consider the following statistics that highlight the advantages of using video advertisements:
- 82% of Twitter users use video
- More than 500 million hours of video are watched on YouTube every day
- 33% of online activity is spent on watching videos
- 85% of US internet audience watches online videos
The use of video has the potential to reach a vast audience, significantly increasing your reach.
In addition to promoting your brand and products, video advertisements can accomplish much more, including:
- Customer engagement
- Making your leads click-through and arrive at your store
- Influence your potential customers to buy your product
To reach your intended audience, you can broadcast your video on social media platforms or YouTube, or you may opt to buy advertising space on a third-party website to increase your visibility.