If you’re looking to start a new online retail business, you might ask how do I start eCommerce dropshipping? Starting a dropshipping business is attractive to many entrepreneurs because it doesn’t require a large initial investment, but like any business venture, it will still be hard work.
Over the last few years, the dropshipping business model has gotten popular for eCommerce websites because it puts a premium on Internet marketing skills. In this piece, we’ll explain what dropshipping is in greater detail and go over some tips that could be helpful for entrepreneurs starting a dropshipping business.
What is Dropshipping?
Dropshipping is a term that refers to a retail business that does not carry any of the products it sells in stock. When a customer makes a purchase, a dropshipping business buys the item from a third-party supplier who ships the product directly to the end customer.
In the dropshipping business model, the seller never has to handle the products they are selling or hold any inventory. When compared with the traditional retail business model, a dropshipping business costs a lot less to start.
There are pros and cons to dropshipping that need to be considered before going into business. Let’s explore them briefly.
The Pros of Dropshipping
The great thing about the dropshipping business model is that it is very accessible for young entrepreneurs. This model allows entrepreneurs to test ideas, survey the market, and get an in-depth understanding of what products are in demand.
Additional pros of dropshipping include:
- Easy to start
- Low overhead
- Large inventory choices
- Little risk
Easy to Start
The main hurdle eCommerce businesses face is their inventory. Not only do you have to spend money buying inventory, but you also have to store it, ship it, track it, and manage stock levels. All of these considerations require time and financial commitment.
Drop shippers don’t have to worry about any of these aspects of eCommerce. This makes getting an online business started and fully operational less time-consuming and far more affordable.
Overhead costs like storage space and inventory costs eat into profits. Dropshipping businesses have very low overhead costs because they don’t have to spend much to keep the business operational.
Many dropshipping businesses are home-based businesses that are run off a laptop. If your online business scales up, your costs will also rise, but when compared with traditional eCommerce or brick-and-mortar stores, the overhead costs are very low.
For traditional eCommerce businesses, more orders equal more work. The business must scale accordingly in order to meet customer demand. This can cause growing pains for small businesses.
Dropshipping is easy to scale because the bulk of the work is placed on the dropshipping suppliers. This makes expansion less painful when additional orders are made and the business needs to scale up to meet demand.
Large Inventory Choices
Since you don’t actually hold any inventory as a dropshipping business, you can offer your customers a larger selection of items to choose from as long as your dropshipping supplier has it in stock. This gives your business the ability to sell trending items and keep up with the latest fads without having to buy inventory.
Starting a business often requires financial risk, but starting a dropshipping business requires little financial risk on the part of the founder. We’ve already gone over the low overhead costs, the scalable nature of the business model, and the fact that you don’t have to buy storage space or inventory.
What is great about dropshipping is that you can offer your customers a huge selection of items, and if they don’t sell, you don’t have to take a loss on the inventory costs. Dropshipping is a low-risk way to test the market and sell items without being on the hook financially if consumer interest wanes.
The Cons of Dropshipping
The pros of starting a dropshipping business are very attractive. Who doesn’t love flexibility, convenience, and little risk? Still, there are cons associated with the dropshipping business model. Before you start an online business, you should understand the cons of dropshipping:
- Small margins
- Inventory problems
- Shipping issues
- Limited branding
Dropshipping is a highly competitive niche. After all, it is easy, affordable, and low risk to start a dropshipping business. As a result, many drop shippers offer super low prices to be competitive in a crowded market. This forces many drop shippers to operate on very thin margins, which is not exactly a problem for them because it requires such a small investment to begin.
The best way to maximize your margins is to find a niche in the eCommerce market that is favorable to dropshipping. Verticals with a lot of competition drive down profit margins and are more difficult to operate in.
It might be great that you don’t have to worry about buying or holding inventory, but when you are operating a dropshipping business, it is hard to keep track of what is in or out of stock. Dropshipping supplier inventories can change quickly and without much notice.
While there are apps that can help drop shippers manage inventory between multiple suppliers, lack of control over inventory can lead to a poor customer experience and drive dissatisfied customers away from your store.
Trusting dropshipping suppliers to ship your products can be risky. Any issues with a shipment will be blamed on you, and you have no control over the shipment process. Additionally, a customer in your store might buy multiple items at the same time coming from multiple different suppliers.
Each supplier is going to charge you for shipping costs, but it is difficult for your business to pass all of these extra shipping costs on to your end customer when they buy from multiple suppliers. Either you’ll have to take the hit financially or risk angering your customers by charging too much for shipping.
Finally, drop shippers have very little control over the products they are selling. This makes it more difficult to establish your brand or sell customized products. Limited product control is a definite downside to the dropshipping business model. You carry less risk, but you also have far less control.
Tips for Starting a Dropshipping Business
Before you get started, you’ll need an eCommerce website. We recommend Shopify because it is easy to get your business started, and there are Shopify Plus Partners who can help you design and optimize your website.
Once you have an eCommerce website, you can turn your attention to the following dropshipping success tips:
- Focus on the margins
- Seek cheap shipping
- Sell attractive products
- Brand yourself
Focus on the Margins
The main focus of a dropshipping business is customer acquisition and marketing. At the end of the day, it costs a drop shipper just as much time and effort to sell a $5 item as it does a $50 item. The amount of work for both sales is the same, but obviously, the $50 item has higher margins.
Focus on choosing a niche that has higher-priced items. The more expensive the items you sell, the larger your profit margins will be. Take your time and do the market research to find a niche with pricier items.
Seek Cheap Shipping
While the act of shipping an item will fall on the dropshipping supplier, you should seek suppliers with low shipping costs. Customers are turned off by high shipping costs. If shipping is too expensive, you could lose customers.
If the shipping costs are cheap enough, you can absorb the costs and offer your customers free shipping. Online shoppers love free shipping. Free shipping can be a great way to attract customers and make more sales.
Sell Attractive Products
First, you should make sure that you are selling products that can’t be purchased down the street. If I could go to the neighborhood store and buy a product, why would I ever buy it online? Selling items that aren’t easily found make your store more attractive.
You also want to sell products that will appeal to impulse shoppers. The truth is many visitors won’t return to your website. If you can find items that attract impulse buyers, you can capture more sales and increase your profits.
One tool you can use to measure the attractiveness of your product is Google Trends. It shows you how much search interest the public has for the terms you enter. If you enter your product into Google Trends and you see little to no search interest, you likely need to sell something else.
We’ve already discussed how branding and customization were difficult with dropshipping, but that doesn’t mean they are impossible. Building a brand identity will help you retain more of your visitors and attract more customers.
The trick is passing off the items you sell as your own. Do research into white label product lines that you can put your own branding on. There are a lot of dropshipping businesses, but if you can successfully create a memorable brand identity, you will be able to stand out from the crowd.
Dropshipping is a great way to start an eCommerce business with little financial investment or risk. There are limitations to dropshipping, but there is also a lot of potential for success. One of the best ways to set yourself apart from the competition is to create a striking website and mobile app.
Speak with an app development partner to help you take your dropshipping business in the right direction. Count on the industry experience and technical expertise that a development partner can bring to your online business. Solid digital assets can help your business stand out in the crowded dropshipping niche.