Gen Zers and Millennials, who are armed with a bit of Internet marketing skills, are already taking on retail giants using a limited budget. They are the new breed of entrepreneurs who are leveraging technology, consumer choice, and access to a worldwide audience to revolutionize shopping.
These savvy entrepreneurs are dipping their toes into a business better known as “dropshipping,” which is putting retail giants like Amazon in check. It’s a low-risk, low-investment business that doesn’t require a physical location, because it maximizes the Internet’s meteoric growth.
We have compiled this guide to dropshipping for anyone who wants to venture into dropshipping eCommerce businesses. It’s a promising venture considering that by 2019, almost 80% of Internet users in the United States alone will make at least a single online purchase each year.
What is Dropshipping and How Does It Work?
Dropshipping is a business model where a store owner processes orders through a third-party supplier/vendor. The third-party dropshipping supplier is then tasked with the responsibility of shipping the order directly to the consumer – without an intermediary step like having to store the goods.
With this model, the retailer (seller) does not inventory the goods, but instead, passes customer information to the supplier to ship on their behalf. The retailer is then relieved from the burden of having to maintain stock or own a warehouse.
How dropshipping works
Step 1: A customer places an order on the retailer’s online store
Step 2: The retailer forwards the order and customer details to the supplier/vendor they have partnered with.
Step 3: The dropshipper packages and ships the item to the customer on the retailer’s behalf, after charging the retailer a dropshipping fee, plus the cost of the product.
Once the order is delivered, the retailer is responsible for handling any customer queries, returns, or any other issues.
Note: You may need to navigate through licensing during the process, so be sure to do your research before contacting wholesalers.
Who can use Dropshipping?
Dropshipping is best for smaller to mid-sized store owners even though big-box retailers can still rely on it as a means of fulfillment, especially when they want to test out new products.
It is notably more attractive to new entrepreneurs looking to start a new online marketplace without having to stock physical items in a warehouse
Stores wanting to test a new product – You may have a store already, but you are curious about a product, and you want to evaluate its performance in the market. Dropshipping is the way to go.
Stores wanting to add products without investing plenty of capital – This type of seller can add a dropshipping supplier to their lineup to increase their product offerings.
How to select which products to dropship
You want to pick the perfect product, because any decision made at this point will have long-lasting implications for the success or failure of your dropshipping business. Most importantly, the product you decide to sell should be a good fit for your niche audience and your brand.
Set aside your passions, and follow this guide when picking dropshipping products:
- Follow demand – You must establish that there is demand for whatever product you want to source. It’s always easier to fill existing demand that to try creating it.
- Research – Conduct extensive research on your product: its supplier, distribution, and manufacturing costs
- Understand the product – You should at least know what the product is and what it does. Having a genuine interest in your product will give you an upper hand
- Less competition is better – When you enter an oversaturated market, you will have plenty of competition, and your survival is rarely guaranteed
- Shipping costs should be low – If the cost of shipping is too high, customers will be unhappy, and they will look for alternatives. This is probably why it’s not a good idea to handle produce or perishable goods when you are starting. They are expensive to dropship because they will require specialized equipment.
Regardless of the item you pick, start small. You can expand your product offering later when you have a better feel for the business.
Where to search for dropshipping products
Google is a great place to start. Let Google’s autocomplete guide you because it understands popular keywords.
Go through product forums and review sites. Users will always reveal the products they are looking for, and you get better insights. Mercilessly scour the corners of the web for anything that can help in your decision-making.
How to Find Dropshipping Wholesalers (suppliers)
Once you have settled on your product, it’s time to look for dropshipping suppliers. According to Salehoo, finding a great supplier is the most critical part of a successful dropshipping business.
There are several strategies you can use to find dropshipping suppliers, and you must keep in mind that this can be one of the most challenging steps when setting up your dropshipping business.
Before you even start reaching out to the dropshippers, have all your ducks in a row. This includes all legal paperwork, plus your business mission and vision. Most good dropshipping suppliers will request legitimate proof that you are a legal business before they engage you.
Often, dropshipping wholesalers get bombarded by questions from young entrepreneurs who don’t actualize their purchases. Thus, they may be cautious when you cannot prove your legitimacy.
4 ways to find dropshipping suppliers
1) Contact the Manufacturer
Most manufacturers know legitimate wholesale suppliers because they do business together. Ask for a list of wholesale distributors and make phone calls or schedule meetings to find out if they dropship. Some manufacturers have dropshipping programs for resellers.
2) Search in Directories
Whether it’s a paperback or online directory, your work will be much easier when you have a database of suppliers, listed according to their niches or products.
3) Consult Google
Use Google to track reliable and high-quality suppliers. You should know how to perform extensive searches on Google if you want to be successful. There are tons of websites dedicated to eCommerce that can provide helpful information about reputable dropshippers.
4) Attend Trade Shows
Trade shows are an excellent platform for connecting with manufactures and dropshipping wholesalers. Look out for trade shows that are within your niche and attend them when you can.
It may be tough to tell if you and your dropshipper are a perfect match right off the bat. Therefore, perform due diligence at this stage and move on with your search whenever you feel something is off. Ask all the relevant questions and investigate the capabilities of your dropshipping supplier.
What are the top qualities dropshippers should meet?
- Have technological skills – Some non-negotiable features include a comprehensive online catalog, real-time inventory, a searchable order history, and customizable data feeds to streamline your operations. If the dropshipper is lacking technology-wise, it suggests they won’t keep up when it’s time to scale.
- Have proactive sales representatives – The dropshipper should assign a dedicated representative to handle any issues.
- Be punctual, organized, and efficient – Marketplace competition has made fast shipping a priority for getting sales. Dropshipping suppliers who can ship within 24-48 hours, without failure, are preferred. You also want a dropshipper who is mostly error-free; not one who botches every other order. You can test punctuality by placing a test order.
- Provide high-quality products – Top-notch products will lead to a higher level of customer satisfaction. Later, you will find that happiness is key to positive testimonials and product reviews, which are major determinants of future success.
The entire drop shipping business model is dependent on a reliable supplier who sends the right items out quickly and efficiently.
How to start dropshipping in 5 steps
1) Launch your online store/website
The first step is to set up your online store, and one of the fastest ways to launch a website is by using a simple plug-and-play eCommerce option, like Shopify. It doesn’t require you to be tech-savvy, and it comes with useful apps.
You may consider a web designer later when the revenue has started coming in, and you want more customizations.
2) Manage your inventory
You may also want to consider one of many inventory management software available online. You will still be required to manage stock, even though you don’t have to have the stock at hand. The process is usually tedious and time-consuming.
3) Have a customer acquisition plan and keep track of the metrics
You need customers, and one of the strategies you may want to consider is using targeted ads. Start a Facebook ad campaign and leverage on Facebook’s powerful algorithm to reach your targeted audience. This will make it easier to generate sales from the beginning as targeted ads will get you on the customer radars.
If you are thinking long-term, email marketing and search engine optimization are also viable paths to explore, as they will reduce your marketing spending in the future.
Also, keep track of all your conversion metrics. Knowing where your customers originate and how they go about their sale will give you a clear road map of your marketing efforts. You will know how to fine-tune your current campaigns, and get a better picture of when to optimize or shift spending.
4) Ensure smooth order fulfillment
You want to stay on top of things, because several issues can arise with dropshipping suppliers. You won’t have the ability to shift blame, since your customers placed orders with you, not your suppliers.
To ensure a smooth fulfillment process, stick to these rules:
- Provide tracking numbers to customers to let them know their product has been processed and shipped.
- Have a formula for addressing returns or an exchange policy that you can refer to in case of damaged goods.
- When an item is discontinued or out of stock, be ready to go out of your way to find it on the customer’s behalf. Your customers will always be counting on you to make things right.
- Be very clear about your return policy, shipping communication, and customer service.
The goal is to be the buffer between your dropshipper and your customers, especially when something goes wrong.
Building a Comprehensive Marketing Strategy
A comprehensive market strategy is going to be your bread and butter. Therefore, invest as much time and resources into your marketing plan, whether it’s finding your target audience, connecting with the influencers in your niche, or using social media. While at it, keep in mind that marketing is subjective and open to hundreds of tactics, but at the end of the day, it will help weed out the rest of the competition.
You’re ready to go make some money!