What is a Dropshipping Business-[Complete Breakdown]
What Is A DropShipping Business
With all the different ways to make money online it is hard sometimes to disseminate what works and what does. I have been asked what is a dropshipping business? or how do I start a dropshipping business? In this article I have put together a breakdown of how dropshipping works and what you need to know before you decide to go that way or not.
I ran a dropshipping business for a few years and I will share with you some of what I learned during that process. A few tips on what to know and what questions need to be answered
What is Dropshipping?
It is a business model used online that puts you the website owner between a customer and a supplier. Primarily based on a retail model for selling products or services online. Here is how Wikipedia defines dropshipping.
Just like the last time you went on a retail website and purchased something, you may not even know if that was a dropshipping website, because you only interact with that site when you,make a purchase and you get the item shipped to you. Simple enough right?
Now let’s look at it from a sellers perspective of what you would do if you chose to go this route. I will use Radar detectors as an example, I actually did this when I dropshipped a few years back as part of a much larger set of items I sold online. Anyways, back to the explaining how it works.
Using that example of Radar detectors Let’s say that you have a website that sells directly to customers who purchase online, much like Amazon or Zappo’s or any other online retailer for that matter, just on a smaller scale.
You have an item listed on the site for $79 for a Radar Detector, you chose the retail price when you offer it on the site. Now someone likes what you have and purchases one from you then what? Well you as the seller have a direct relationship with a supplier that stocks these items and sells them to you at a reduced price, let’s say $39.
So you pay for the item from the supplier and purchase it and the supplier ships that item to the customer directly and many even put your brand or logo on the shipment. Your profit comes from the difference in the prices after all shipping costs are factored in.
In theory, you do not need to store inventory which can be very costly and space prohibitive. You can run this business from a small apartment and not have to take up valuable space for storing products. Depending on the item and the supplier you choose you may want to have a small amount of goods to ship to customers who may be in a different country than you.
What You Need To Know
So This starts to get into what you need to know about how this really works. There are a few questions to consider. I will answer them and explain some details as well. On the surface it sounds like a great way to do business, it is but there are a few things you must be aware of before you begin.
Hopefully you can learn what to avoid and how to find what you need in order for your dropshipping business to succeed.
How to get started
First, you need to do some research and decide on a target market for the goods or service. Refine the market down to a smaller set of people, rather than just everybody. We in the online marketing world call that a niche market. Use a good keyword research tool to find a good market, you can also use Google and type in the keyword and see what auto populates, that is usually an indicator of user interest.
Find a supplier preferably more than one. There are several places you can go to get set up. I will list a few places to go to get setup with quality suppliers for your business below.
Next you will need a method to sell the items to the market. You can use auction sites like eBay or you can create a website and go that route.
I recommend the website route, there are many places online that can get you set up with a retail website but honestly WordPress is free except for the hosting, and you can get a Great WordPress website up and running fairly quickly.
Here is one place that you can try to provide you with 2 Free WordPress websites. You can install Woo Commerce plugin and integrate directly with AliExpress.
There are many plugins that can help you out for this but Woo Commerce plugs right in to WordPress and provides you with all the retail options to display and process on the site.
You will need to set up an account with a payment service like PayPal or Stripe or Bitpay. Heck do all of them and leave it up to the customer how to pay you.
If you are not into Crypto Currency then maybe not Bitpay but you could be missing out on a very large and growing market of folks who are using crypto to buy online.
How to find a good supplier
This is important and it is in your best interest to find a great supplier you can work with that will help you out. You don’t need a shady operation that sells the cheapest items with low quality. That could kill your reputation online. So Let’s start with a few places to go to find a supplier for you. Depending on the budget you can find some good wholesale directories of suppliers or a site that has a variety of items for you. There are a dozen or more good dropshipping companies to try but for today we will stick to just four.
AliExpress– A very popular and easy to use directory and you sign up for Free. There are also a few WordPress plugins that can integrate AliExpress directly into your site if you go that route, so you can use the images and other information to advertise on the site. The integration can be very helpful if you are selling in volume. They charge 5% of the sale cost as a fee.
Worldwide Brands– Probably the largest supplier directory online, each supplier is vetted for quality so you can have a good experience without worrying about it. They charge $299 One time for Life. That gives you access to a massive directory of suppliers and great useful information regarding your choice See My Worldwide Brands Review Here. There are a couple of videos in there that show the interface and how it all works. They are considered an industry leader in the field of Wholesale Dropship suppliers
Salehoo– Another good place to find high-quality suppliers. They also have an extensive directory to use of over 8000 suppliers. They charge a fee of $67 annually for the service which is reasonable considering what you can get in return
Doba– Another good option, with a good amount of suppliers to work with. They have a variety of membership plans but you can start for 14 days for Free then bump that to $29 a Month for the cheapest payment option
Will the supplier ship overseas or to the country the market is in?
You need to know this in order to properly supply the customers what they ordered and do so in a timely manner. You may want to have some inventory on hand if you are shipping internationally but before you go buy 100 of the favorite online item, you may be able to totally avoid it by contacting the supplier and finding out where they are willing to ship to and for what cost to you.
The cost will be yours because you order from them, based on what you customer ordered from you. Once you identify a potential product normally the supplier will indicate if they ship to certain countries.
This is one reason why I recommend having more than one supplier for the goods. You may have a fantastic supplier but they may not ship internationally, but they could be the go to for sales within the country they support while you have another supplier that ships internationally to cover the orders from other countries.
What is the supplier return policy?
How easy is it to return Items?. Some suppliers won’t just give you another one or credit you for the entire item, some don’t while others are really good at customer service ( you are the customer) I recommend having more than one supplier if at all possible.
If you use the right supplier directory like Salehoo, WorldWide Brands, Doba or AliExpress you should be able to find multiple suppliers depending on what you are selling. Try a few and see which one works best taking into account all the other factors I have mentioned
How do you know if a supplier is reliable?
A very common concern for people starting out in this business. First you should search online for reviews about that supplier or use whatever service you have that provides you a list of suppliers, many have supplier reviews. Next, how is the flow of information between you and the supplier, for example do they answer the questions in a timely manner? or are you left to figure it out on the own.
A good supplier wants you to succeed, because in doing so, they succeed as well so it is in their best interest to have a good communication flow. If you struggle with getting information from a supplier, that is a red flag to be aware of.
Example: My supplier for my Latex Mattresses and toppers I sold for a while, was very good at communication and I had an agent of the company that handled my company as a go to source for information. I used Worldwide Brands to find that supplier.
What is the cost and how do I get paid?
So as explained above, you determine the cost of the items and the money you used to purchase from the supplier comes from the sale from the customer and you keep the difference. Remember FMOC. Fixed Markup On Cost, which can be a dollar amount or a percentage of markup in order for you to make a profit.
Traditionally the markup average in the industry is around 20% but you can vary that if need be. Less expensive items may need a higher markup and less on more expensive items. Check out the competition and see how they are doing it and what they charge for the same item.
This can provide some great information and you may also learn from their success as to what works. Let’s say the supplier charges you a discount rate of $100 for the item and you mark it up 20% and sell it for $120, that is what you used to make the profit.
Your Cost = $100
Sale Price = $120
Net Gain = $20 or 20%
You should consider shipping costs as well. Normally the customer pays the shipping however if you want to make a bit less per item and maybe have an incentive to buy from you. You can offer discounted shipping or even Free shipping and you end up covering that cost yourself.With thatt the buyer feels like they got a good deal as a result.
This is how I did it on my site. I learned a few things about offering Free shipping and one is that it sounds great but it is not always the best way to go.
Consider that you may ship to Hawaii which will be much more costly than a more local U. S based customer. I Use U.S since I am based in the U.S. A, but the same rule should apply wherever you are located and the important factor is where the customer is located and how expensive is it to ship to them. So when starting out you should have customer pay shipping and that will help keep the costs down
You may be considering dropshipping as an online business model, which does work and can be profitable. The question is do you want to do it? or would you rather try another method to make money? Finding the right answer can be fun, I look at it like, why not just try something. If it works great, if it does not then move on to something else.
You can know one thing for sure. You will Not make any money at all if you do not try. I tried a few ways myself before settling on what I do now and I learned a great deal along the way. Some success and some not so much but still working at it got me to here where I have a good background of online experiences to call on. You can do the same.
I hope this article has provided you with the information you need to decide if you want to move forward with this method.
What have you tried so far? Leave a Comment below and others can learn from it. I would love to hear about the experiences or questions you may have.
Thanks for stopping by.