More than 33% of the ecommerce industry
uses dropshipping to fulfill orders. Big companies like Walmart have used it for years to expand their product offerings and gain more market share. But is dropshipping a good fit for you? The answer depends on several factors.
In this guide, learn more about dropshipping and see if this growing retail model is the right choice for your business.
What is dropshipping?
Dropshipping is one specific type of ecommerce business model where the products being sold aren't shipped by the seller. Instead, they are fulfilled by the wholesaler, distributor, supplier, or manufacturer, who sends products directly to the customer.
If you order something from Amazon or Sam's Club, for instance, and you receive the product in the original manufacturer's packaging directly from the manufacturer’s distribution facilities, you are experiencing the benefit of dropshipping.
Both big and small retailers can take advantage of this business model. Also, it’s common for companies to only dropship some of their products while they directly fulfill the others.
What are the advantages of dropshipping?
Some of the perks of this fulfillment model include:
1. Easy to get started
With no warehouse or shipping station to worry about, you can get up and running in the amount of time it takes to build your online store. The hardest part is finding sources for your products and ensuring they will deliver quality merchandise on time. Once you’ve done this, you can begin selling right away.
2. Less cash needed
Because you aren't buying inventory upfront or paying to store it and ship it, your startup cost is lower, too. This makes dropshipping ideal for those with limited funds who want to sell even luxury goods. Your primary expenses are website development, order processing, marketing, and customer service.
3. Location independent
Even if you are headquartered in a part of the country with expensive real estate or you don’t have access to the goods you want to sell, you can still run a thriving dropship business. It’s even possible to do business in a state that’s more business-friendly and offers lower taxes.
While some dropshipping businesses grow to include a full staff, others are run by just one person or family. This means you may even be able to work from home with kids
4. Low overhead
With no inventory to keep, you won’t have the overhead of a traditional retail model. This zeros out many of the common business expenses and tools that startups must pay, such as shipping machines and packing materials. Some entrepreneurs start their company with just a laptop
and an internet connection.
5. Easy to scale
It’s more difficult to scale a traditional retail model than a dropshipping wholesaler. For those businesses, more orders mean ordering additional stock, finding room to store it, hiring staff to fulfill and ship, and dealing with customer service requests.
With dropshipping, however, the fulfillment center and supplier handle most of these tasks. You may need to hire someone to deal with suppliers or to process refunds, but it’s a significantly smaller workload than traditional retail.
6. Dropshipping success stories
Simply Google the term “shopify dropshipping
" and you'll see all kinds of high-profile success stories. Many of those same people are now selling courses to newbies looking to enter the industry. While the most successful claim to earn millions of dollars from their businesses, the majority of successes see more modest earnings.
Some examples of large dropshipping businesses include Inspire Uplift
, and Zulily
. They sell an array of products, and the orders are fulfilled by vendors from all over. Any business that advertises the benefits of orders being shipped “directly from the seller” is likely a dropshipping business, too.
What are the downsides of dropshipping?
Despite the potentially quick startup time and lower price tag, dropshipping isn’t perfect. Watch out for these drawbacks.
1. Low margins
Don't expect to make as much on each item with a dropshipping business as a traditional retail business. The competitive environment and lower barrier to entry make it enticing for people who may not need to make that much of a profit. You'll enter a market where the lowest price often prevails. In some merchandise categories, it's truly a race to the bottom.
2. Little control over logistics and fulfillment
Unlike traditional retail, where you package every order to make sure it’s picked and packed correctly, you’ll have less say in how items are sent to your customers. If a supplier lacks quality control and sends out broken items or the wrong items altogether, it will reflect badly on your business. There's little you can do to make another business behave properly other than ending the relationship and finding a better dropshipping supplier.
Despite low margins, the dropshipping industry is booming. It’s an attractive option for people who want to make money without a large initial investment, and you can expect many competitors for even your carefully selected wares.
Often, other dropshippers will watch the market to see who is doing well, then seek out those same suppliers to add to their own stores. Standing out from the crowd is simply more challenging with such a low barrier to entry.
4. Lack of branding
Unless you sell a lot of one product, don’t expect exclusive agreements with just one retailer. This means that anyone could sell the same product you’re selling, making it impossible to brand yourself. Some suppliers offer white labeling
, where they add a company logo or specific detail that’s unique to your store, but expect to pay for this privilege.
5. Dropshipping horror stories
Those in the dropshipping industry are reluctant to share their failures, but they do exist
. Some have shared common mistakes, including:
- Not understanding the fees or costs associated with processing payments or listing items for sale
- Paying too much for poorly targeted social media ads
- Picking items with a high return rate (such as clothing)
- Not branding well enough to get repeat customers
Other sellers admit to terrible experiences with their dropshipper, including IP infringement and blatant cases of fraud or theft. It will take more than just choosing the best dropshipping products. You’ll need to pay close attention to the pitfalls in order to avoid them.
How to start a dropshipping business
Your exact path to launch will vary somewhat, depending on what you sell and which platform you use. However, the basics for each business are the same.
1. Research the market
Don't go blindly into any product niche without seeing what sells first. You want to strike a balance between offering something that’s popular enough to sell, but not so popular that hundreds of competitors pop up right away. If you can find a little-known niche that's seeing natural growth, you may have a winner.
2. Ship items that make sense
You have to trust that your items will arrive from the shipper in good shape, so that requires a product they can send safely to begin with. Suppliers who specialize in fragile, large, or heavy items already have the systems in place to get them where they need to go (and in one piece).
Use their strengths to ship items that you can’t otherwise afford to store and ship, and offer more options to your customers. Avoid items that are so small or inexpensive that your margins aren't worth it or that it would be just as easy to ship yourself.
3. Sell, sell, sell
You don’t have to store inventory, so there’s nothing stopping you from aggressively marketing your items. In fact, the more you can sell early on, the better off you’ll be, because many popular product categories will have competitors quickly trying to catch up to your success. If possible, motivate shoppers to buy more with promotional offers that reward them for making bigger or recurring purchases.
4. Partner with an ecommerce site that is dropship friendly
You can build your own website
for sales, but it’s easier to work with an existing infrastructure. Whether you exist solely on a third-party platform, use Amazon’s dropshipping, or you use an ecommerce solution like Shopify to keep your own brand intact, you’ll get started sooner if you work with tools that are already tested and successful. Some ecommerce sites are more dropship friendly than others, too. Check out other retailers to see what they use so you can get an idea of who’s leading the pack.
Is dropshipping right for you?
Like any business model, dropshipping has significant upsides along with unique challenges. How can you decide if you have what it takes to enter this field and, better yet, succeed?
Prosperous store owners have made the most of the shipping conveniences and low overhead by selling pricier wares or items that may be cost-prohibitive to ship themselves. Others have hit on trends and rotate out their offerings to meet customer demand at just the right time.
No matter what your business focuses on, you need to be agile in your response to the market and sell items that your customers truly want, at a price that's competitive enough to stand out. At a minimum, be sure to research the market and build an attractive, easy-to-use website or use a responsive third-party selling tool.
If you can roll with the changes in both consumer demand and tech, you may have what it takes to make it in this potentially lucrative environment.
About the Author: Linsey Knerl is a contributing writer for HP® Tech@Work. Linsey is a Midwest-based author, public speaker, and member of the ASJA. She has a passion for helping consumers and small business owners do more with their resources via the latest tech solutions.