How Dropshipping Works: A Guide to the Basics
Do you want to learn how to dropship? A lot of entrepreneurs are now using this method to carry out their business. But what is dropshipping anyway?
Picture this. You are an online retailer, and you want to sell refrigerators because of the high-profit margin. The problem is that you are just a small home business owner, and you don’t have enough garage space to store a handful of fridges ready for disposal should anyone want to order from you.
On top of that, you don’t have enough funds to capitalize on your dream business. Maybe you can afford to buy a fridge or two, but not ten or more. Definitely not enough to consider as “stocks”.
In this situation, what do you do? Do you give up your refrigerator dream and look for smaller products instead? Is it still possible to run this type of business and effectively cater to many buyers despite your lack of storage?
The answer is yes, with the help of dropshipping.
What is dropshipping?
Simply put, dropshipping is a means of fulfilling customers’ orders without having to handle the product yourself. What happens is that your store somewhat becomes the middleman between the customers and your suppliers. You sell their products and make a cut for yourself.
Does that mean you can make a lot of money by learning how to dropship? Yes and no. If you know how to dropship and rely solely on it to earn, you won’t get far. However, If done right and with a bit of an investment in resources, dropshipping can be very profitable.
Businesses do dropshipping under the following instances:
- Large products, like the refrigerator example we mentioned above
- Heavy products that cost too much to ship
- Fragile products which require special packaging which the manufacturer can determine more accurately
- High-value items like jewelry and antiques or collectibles that require extra storage security
- Things that need special care like temperature regulators, special ventilation, and so on
Nevertheless, if your products don’t fall under the conditions given, you can still conduct dropshipping and earn from it.
What do you need to put in to make dropshipping work?
You don’t need storage. You also don’t need an inventory. It’s so convenient that you don’t really have to manage much in terms of logistics with dropshipping. But does that mean that you just lie back and wait for buyers?
As a dropshipper, you should know that there are plenty of entrepreneurs just like you. You certainly don’t want to get buried underneath all those other competing shops that sell the same stuff as you.
For you to stand a chance against your competitors, you will need a few things:
- An online presence, such as a website or online shop
- Marketing and advertising
- A means of managing sales orders
- Man hours for managing sales orders
How do you do it?
Here are the steps you need to undertake to do dropshipping right:
Pick a niche
As much as it would be tempting to be a one-stop-shop for anything and everything, it’s not a good business idea if you’re just starting. If you are personally manning your e-commerce store, you need to focus on a product niche. You also need to earn as much as you can with as little variety as possible.
When selecting a niche, choose one that has the best profit margin as possible. Keep in mind that it takes the same amount of time and effort to sell a $10 item and a $1000 item. However, make sure that it is something appealing to people who can actually afford it.
Also, try to sell something that is not locally available. If people can just walk into a store and buy it, why sell it online? People flock online for things that are not readily available to them locally.
Research your competition
As mentioned above, there are a lot of dropshippers nowadays. This fact might make you think that it would be wise to do dropship on niches or products that don’t have much competition. Don’t make this mistake.
Anyone who knows how to dropship well knows that there is a reason why certain products don’t get that much competition. It’s usually because they’re not worth the attention. It could be crazy high shipping costs, low-profit margins, or issues with the supplier.
Find a product with some good and healthy competition. This strategy is one of the ways you can make sure that the item you are eyeing is profitable.
Find a reliable supplier
Product sourcing is an essential aspect of dropshipping. Since you are not dropshipping local goods, expect that most of the suppliers you will deal with are overseas. This means that you might come across communication barriers with suppliers.
Assess each candidate well, ask many questions, and before you solidify a partnership, assess how your communication has been going on so far. You can browse through a list of potential reliable suppliers here.
It is crucial to find a provider that is reliable and can deliver without fail. Otherwise, it will reflect poorly on your business since you are the one facing the customers and not them.
Set up your e-commerce website
Your website is your online presence. Think of setting it up like putting up a physical store. The most instant way you can do this is to find a medium that supports e-commerce and dropshipping; something like Shopify. Check out this Shopify Dropshipping Masterclass to find out more about this.
If you go to such platforms, you won’t need a lot of tech knowledge as the site itself provides you the base from which you can conduct business. Once your business picks up, you can explore other website options.
This part is where your work on dropshipping gets going. You are basically the marketing and sales arm of your company. It is your job to attract customers to your website to see what you have to offer.
You can go about this in several ways. You can do email marketing, Facebook ads, Instagram marketing, and even Pinterest if your niche fits the platform.
Evaluate your work and adjust accordingly
Apart from sales order management and marketing, your sales and data analytics fall mainly on your shoulders as a dropshipper. Find out if your strategies are bringing in the maximum possible profit and tweak them if you see an opportunity for improvement.
If you want to learn more about dropshipping, check out The Complete Dropshipping 101 Success Guide from Skill Success.