So, you have decided to start an online store and join the E-Commerce revolution. The very first questions that you need to answer are all about your proposed product: what are you going to sell, how and where will you get it and how are you going to get it to your customers. Fantastic marketing and incredible customer service will not get you very far without having sourcing, inventory management, order fulfillment, and shipping processes in place.
Does that sound intimidating, boring or even impossible? If so, you may want to skip the hassle and check out Dropshipping.
What is Dropshipping?
Dropshipping enables store owners to fulfill orders directly from a wholesaler or manufacturer. This means that you won’t have to worry about inventory management or shipping; you simply transfer orders to a Dropshipping partner who will handle all of the inventory and logistics.
Before there was Dropshipping, there were two major E-Commerce models:
- Make your own unique product from scratch. Do you really enjoy knitting cashmere dog sweaters? Awesome! You now have a completely one of a kind product to bring to the marketplace. But will you be able to create demand and scale your business?
- Purchase your inventory in bulk. You won’t have to develop a new product, but it is possible you will get stuck with a garage full of widgets that you can’t sell. If you are successful, you will need to tackle fulfilling and shipping orders on your own.
With dropshipping, you will only be responsible for marketing and selling your products. Some other person in the supply chain will worry about product, inventory, packaging and shipping. But that also means that rather than finding efficiencies in the system, you will need to get very clever to take on Amazon, big box stores, and other dropshipping E-Commerce stores.
The Pros & Cons of Dropshipping
Dropshipping can sound like a no brainer for making money online, but don’t let yourself be fooled. Like anything else, there can be upsides and downsides to dropshipping.
1) There is no startup capital. If you are just getting started, dropshipping will let you launch without having to invest a lot of money. Traditional retailers have to buy and store inventory in order to sell it to consumers. But if you’re utilizing a Dropshipper, you will be able offer a full catalog of products with very little overhead.
2) Much less hassle involved. As mentioned above, you don’t have to deal with on-hand inventory, which means that you don’t have to handle packing or shipping either. This will let you focus your time and energy on marketing and growing your business.
3) You can easily expand your offerings. If you want to expand your offerings, dropshipping is also a great way to test new products with your potential customers. This allows you to truly see if they’re a market fit without having to invest upfront in large amounts of expensive inventory.
1) Managing the logistics. The logistics for dropshipping can be difficult to overcome as your business expands. If your supplier relies on multiple warehouses, this can be even more of a challenge. Subpar logistics management can lead to a poor customer experience. This can be due to improper tracking numbers, incorrect addresses, and delays in shipping.
2) The low barrier to participate. This can sound like a positive, and it is. However, at the same time, due to the low barrier to participate, there will be plenty of other people trying to sell the same products. This will make it harder to stand out as a new business and it also means there will be stiff competition. Remember, if a supplier is dropshipping for you, they will also dropship to anyone, and that makes it a challenge to stand out.
3) You have no control over the packaging. If you are an online-only store, the very first physical interaction that you have with your customers is when they start their purchase. But if you’re dropshipping, you will give up control over the packaging. This means that there are no special touches or cute thank-you cards that can really make your store stand out. These days, most reputable Dropshippers will at least allow for private label shipping with invoicing and packing slips that are customized.
4) Tight profit margins. It can be very difficult for small businesses to compete on price. And the nature of dropshipping means you aren’t selling a unique product. Make sure that you are ready to invest in something that will differentiate your store. This can include great educational resources, strong copywriting, or building a unique niche market.
Avoid These Common Dropshipping Mistakes
Once you have decided to start dropshipping, you will need to make sure that you’ve got a solid strategy in place from the get-go. And that will mean avoiding these common mistakes:
Expecting Your Products to Sell Themselves
As mentioned above, dropshipping will automatically put you in a competitive space. This is because others will be selling exactly the same thing that you will. It’s all very easy to think that you will be able to set up dropshipping for your store and then have an immediate money-maker on your hands.
Actually, the opposite is true. When you’re dropshipping, you will need to put all of the time that you save on shipping and fulfillment into marketing and SEO. These are the elements that will drive traffic to your store and bring you sales when you’re a dropshipper. Since you aren’t able to control the fulfillment or packaging with dropshipping, you will always want to put a priority focus on quality customer service and giving customers a positive experience with the parts of the buying process that you are able to control.
Not Testing Suppliers or Relying Too Much on One Supplier
Every time you start working with a new supplier, you should make sure that they can maintain your high standards by placing test orders. When you receive the order, examine it closely considering the packaging, shipment time and so on. And then make sure that everything is top-quality. It’s a good idea to continue placing your test orders on a fairly regular basis. Fulfillment is critically important to any successful online business. And you are going to want to catch any slips in quality before they become an issue.
If you are relying on one supplier without having a back-up, you may be setting yourself up for logistical problems on down the line. What if they decide to raise their prices to a point that you can’t afford? Or, what if they go out of business? Or maybe they simply decide not to work with you anymore? And possibly on the less drastic end of scenarios, they might be out of stock on a product and then have no idea when they will have it back in stock. You should always have a backup supplier that you can turn to if your go-to supplier isn’t available for a particular order.
Stressing Over Shipping Rates
Dealing with shipping rates can be a real challenge, even if you are shipping all your orders from one location.
If you are shipping from more than one warehouse, or dropshipping through multiple suppliers, it can be a real headache. What if a particular order draws on two different warehouses, or maybe three different suppliers?
Instead of stressing about multi-location shipping on each and every single order, take a step back and take a look at the big picture. What are you trying to achieve? Is it accurate shipping rates, or more sales, or happy customers and repeat business? If you’re spending excess energy over shipping prices on every single order, then that is energy that you are not spending on creating a better shopping experience, or growing your store, or marketing and so on.
So what are you able to do instead? Review your past orders and use them to work out a flat shipping rate. Or maybe you can use a tiered rate based on cart value. Will it cut into your profit margins? Yes, possibly on some orders. But you will also come out ahead on others. And if you’ve set your flat rate properly, shipping costs will even out over time. There’s also the fact that flat rate and free shipping has been shown to increase conversion rates. It is also known that one of the main reasons customers abandon their shopping carts is because of shipping costs. A flat shipping fee or free shipping removes confusion and seemingly “hidden” fees that tend to show up at checkout.
As you can see, Dropshipping is not a one-size-fits-all plan and solution. But it can be a great way to start or scale an e commerce store. At every stage of your business, you are going to need to step back and analyze whether or not Dropshipping makes sense for you personally and your store.
Thanks for taking the time to read my post on Dropshipping 101. I hope it has provided information that the reader can use in their future business endeavors. Please feel free to leave Comments or Questions below. Have a great day.