One option for starting an online business is dropshipping. This article gives you an overview of starting an online business in dropshipping, including:
- What is dropshipping?
- Types of dropshipping
- The pros and cons of starting an online business in dropshipping
- Can you make money by starting an online dropshipping business?
- Best ways to get started with dropshipping
- Why research and understanding profit margins is really important with dropshipping
- What will you need to learn before you start an online dropshipping business
What is Dropshipping?
There are many types of online business models and dropshipping in partciular has been attracting a lot of attention in recent years. Its popular for a number of reasons. Including because platforms like Shopify and Oberlo promote it heavily.
Essentially dropshipping means that you source products to sell through a website to your customers. But rather than hold stock of that product the supplier you purchase from, ships directly to your customer.
The droshipping process is simple:
- You receive an order
- You forward the order to your supplier
- Your supplier fulfills the order
While dropshipping has many benefits, it also has some drawbacks and it is good to understand these. There are many YouTube videos promising to get you to $10,000 a month… quickly. And that’s great. Except, as always its essential to break that down to understand what the products cost you (cost of sales), what your business expenses are and then what your end profit is.
Many businesses make $10,000 a month but are losing money. That means the business costs the owner each month! Don’t fall for vanity numbers!
So, before you get excited about vanity numbers, let’s understand how to make an online dropshipping business profitable.
Start your online business in dropshipping in the right way.
Types of Dropshipping
Dropshipping can take a number of forms:
- Dropshipping products that you have found from a supplier (i.e. from Aliexpress) and re-sell through an online store.
- Print on Demand Dropshipping of tshirts or other printed merchandise you create with unique designs,
“Simply put, dropshipping refers to an online business that fulfills customer orders by purchasing products from a suppplier and has the supplier ship the products direct to the customer. Dropshipping is a form of ecommerce, there are also many types of dropshipping. “
Shopify has a great round-up of the different types of Dropshipping:
What are the pros and cons of dropshipping as an online business?
The pros include:
- No need to hold stock
- Low startup costs (as you don’t need to purchase stock, you can invest your startup money in research, building your online presence and marketing)
- Sell and test products with low risk
- Simple* to setup (*simple to setup but you will need to invest time and money to get it right!)
The cons are:
- Reliant on the quality of product and customer service of the supplier for fulfilling your customer’s orders
- Research and marketing is key to successs, this will require time invesment
- Profit margins can be tight and its important to understand these, if you have low profit margins ad require high volume, there may also be a time cost in customer service, answering and responding to customer enquiries, especially if your suppliers let you down
Can you make money by starting an online business in dropshipping?
Yes. There are people that are doing really well dropshipping.
There are not as many doing really well dropshipping as ecommerce platforms would like you to believe.
Understanding your costs, expenses and take home profits and keeping a watchful eye on them, is essential – as in any business.
Why are so many people conveying the idea of dropshipping as an attractive online business model?
- On face value it looks really quick, simple and low risk to setup, that encourages people interested in starting an online business to sign-up for a trial and setup an online shop.
- Once someone has invested the time and energy, to setup an online store through a trial, they start spending money on their ecommerce subscription and the ecommerce platform makes money before the new online business makes its first sale.
- Long term, an ecommerce platform will make more money if you are successful, so they have some great education material to help you be successful. Your determination, focus, research and business acumen will be the determining factors if you ultimately want to be successful.
Using an Ecommerce Platform for Dropshipping:
Online ecommerce platforms such as Shopify have worked really hard to make it as simple as possible for you to start an online dropshipping business. They have created integrations with print on demand businesses, Aliexpress, Oberlo and more that make it as simple and straight forward as possible. This comes at a higher cost long term then using a platform such as WordPress and Woocommerce.
However, Shopify and other ecommerce platforms make it simpler for those that have less technical knowledge, allowing you to focus on the product and market research / other areas of the online business. If you are aware of the costs, you simply factor that in when considering your pricing.
Best ways to get started in Dropshipping:
- If you aren’t sure you have the technical skills, then check out Shopify and use their free trial to see whether you are able to use the platform to setup and online store.
- Decide which approach to dropshipping you want to take (reselling, print on demand, etc.) then do your market and product research FIRST.
- Create a sales and pricing plan. There is an excellent round up on setting pricing for dropshipping here it covers some of the essential costs you need to consider when establishing your pricing so that these don’t eat into your profit margin.
- Once you know how many sales you will need and your profit margins, then you can create your marketing plan – how are you goint to attract the visitors to your site that you need to make the sales and achieve your profit goals?
If you are a little like me and yawn at the mention of starting with a sales and pricing plan – consider that the ultimate goal of any online business is to make money.
We all know that our chances of success increases massively when we are focused and have goals.
So what is your target? Set your targets and work back from there. That way you have a realistic path to succcess – not just a ‘make $10,000 in a month’ vanity number that ultimately costs you money by not turning a profit!
Other important considerations with starting and online business in dropshipping:
Your dropshipping business hinges on the quality of your dropshipper, once you have a customer you wan them to have an excellent experience so they become a repeat customer, therefore evaluating your dropshipping suppliers carefull is really important.
Successful online businesses in dropshipping requires a partnership between you and your supplier delivering a great experience to your customers.
Before you rely on any dropship supplier, always place a test order to see how the order is handled and what the end product is like – are you happy with the experience your customer will receive?
Specifically, you should look for…
- How quickly the order is shipped – Shipping time is extremely important for an ecommerce store and it’s essential that orders are shipped within 1-2 business days
- How the order is packed and packaged– is the product in a crappy box? Will the product arrive safely and undamaged? (Hint: you don’t want to spend lots of time in your new business dealing with unhappy customers demanding refunds – when you have spent your time and hard-earned money attracting and converting those customers!).
- The quality of customer service – Does the supplier respond in a timely manner? Do they provide tracking information on the shipment and an invoice? Do they give refunds for defective merchandise and returns? (Hint: on Aliexpress you can filter reviews on a product based on negative reviews)
Remember, that unhappy customers can also give you negative reviews online, harmning your online standing and potentially damaging one of the critical factors in online shopping ‘trust’. For a customer to give you money online, they must sufficiently trust you that they will get a good product for their money.