Dropshipping is a type of retail fulfillment method for online stores that do not require a business to keep products in stock. Instead, merchants purchase products from third-party suppliers as customers make orders.
The covid 19 pandemic has caused an increase in the dropshipping business with the market value at $162.44 billion in 2019 and it is predicted to reach $591.77 billion by 2027.
With the above statistic, you might still be wondering if drop shipping will still be a viable business for you in 2022? You’re not the only one wondering.
This business model has become very popular among online entrepreneurs but is it still profitable and worth the effort?
In this article, we are going to discuss the meaning of dropshipping and everything you need to know about the whole process.
What is Dropshipping?
According to Oberlo, dropshipping is a type of retail fulfillment method for online stores, where instead of warehousing inventory, merchants purchase products from third-party suppliers as customers make orders. It is an e-commerce business model that does not need to carry an inventory for the products it sells.
Imagine when a customer buys a product from your online store and the online store (your business) forwards the order to the manufacturer, which then (the manufacturer) sends the product directly to the customer so you don’t have to ship it.
When an order is made, an online store purchases the products from the wholesale supplier who then ships the order directly to the end customer. As a result of this, the online business or store does not need to store physical inventory or perform any shipping and handling.
Dropshipping is different from the standard retail model in the sense that selling merchant does not stock or own inventory rather they act as middlemen. Retailers on the other hand may stock their stores and own inventory.
How Does Dropshipping Work?
The process of dropshipping works this way:
- Stage 1: When a customer makes a purchase in our store and we received payment for that particular order
- Stage 2: We forward the order directly to the manufacturer and pay for the item
- Stage 3: The manufacturer receives the order and payment
- Stage 4: The manufacturer then ships the product to the customers
The online store(your store) makes a profit this way:
Let’s assume you start selling Samsung Galaxy smartphones(A52) for $600. Next, the customer places an order and pays us immediately.
After the customer pays for the phone, we order it directly from one of the Samsung stores available for a wholesale price of $500 and inform our supplier to deliver it directly to the customer.
Once the customer receives the phone, the whole process is complete, and we have a handsome profit of 100$. Therefore you earn a profit of $100 for every phone that is delivered to your customers. As long as you have the right product and a good relationship with the manufacturers, you can start earning a lot of profit without handling any inventory or stocking your store.
Benefits of Dropshipping
You might be asking yourself the following question Is dropshipping worth it? Is dropshipping profitable? What are the benefits of dropshipping? Dropshipping is not only profitable, but it is also an easy way for young businesses to make money. Here are a few reasons why you should invest in dropshipping this year.
1. Easy to Startup
One of the major reasons why people invest in dropshipping is because you can easily launch it with just an e-commerce store and no capital is required in inventory or manufacturing. With drop shipping, you don’t have to buy inventory or rent a storefront. What you need is a few dollars to start your website. You can get your website running with as low as 32 dollars on WordPress.
2. It is a Low-risk Business Model
Since you don't need to handle inventory and stock up your store, you don't need to invest a lot of cash in this type of business. You only need to buy products from the supplier when the customer places an order. The manufacturing company will handle the rest of the business including shipping and packaging.
3. It is Flexible
The dropshipping business can be managed from anywhere in the world. You don't need a particular location to run your business. All you need is your marketing tool and software to effectively manage and run the business.
4. You can Easily Increase Your Business
The fact that you don't need a lot of capital to run this type of business gives you the time to invest in other parts of the business. Especially the advertising section. Running ads on Facebook and Google will increase your orders. Creating quality content on your blog and social media pages can also attract customers to your website. You can focus on your overall marketing strategy to get more customers to your website.
5. Sell anything You Want
With dropshipping, you can sell anything you want. There are tons of dropshipping providers out there that can sell nearly anything you can imagine.
6. Test the Market
With dropshipping, you can test out which products resonate with your customers before you commit to storing them. If they sell well and provide you with your ideal net revenue, you can continue selling them to your customers. However, if they do not sell well, you can decide to re-evaluate your marketing strategy or you can drop the item.
How to Set Up a Succesful Dropshipping Business
Would you like to start your dropshipping business today? Here is what you need to get started.
1. Create a Dropshipping Website
To successfully run a dropshipping business, you need to create a website or platform that will allow you to take orders from customers. You can create a WordPress-based website and install the woo-commerce plugin for free to set up your e-commerce site and start taking orders. You can also use Shopify which is a fully hosted shopping cart to set up your store. Shopify provides you with a secure website and free built-in credit card processing so you can start taking orders. Bigcommerce is another example of a website you can use to get started on dropshipping.
2. Pick a Trend and Niche
After you have set up your website, You need to research the trending products. To do this you can research other dropshipping websites and study which products customers are demanding. To keep an eye on your competition, search various products or niches on Google and see where they rank for various keywords. Another idea is to sell goods that carry a higher price tag since the dropshipping process results in lower margins. You can also choose a niche with lots of related products. For example, if a person buys a smartphone, you can also offer to sell them additional products like headsets, memory card adapters, phone pouches, and other related products.
If possible, you can avoid products that go obsolete within a short period. This is because you will need to update your product listing from time to time which might be time-consuming.
3. Connect with Dropship Suppliers
To successfully run a dropshipping business, you need to contact and get in touch with dropship suppliers. Communicating with the suppliers allows you to bargain with them and know their terms and conditions. You must also find out if they will be able to deliver directly to the customers.
To find a legit dropship supplier, you can call the manufacturer and ask them for a list of wholesale distributors in your country. After you have the list, you can call or contact or schedule a meeting with the distributor to ask them if they are willing to dropship.
One advantage is that most of these distributors carry a wide variety of products from several different manufacturers. Imagine the large catalogue of items you will have access to if you land the right distributor.
However, establishing a partnership with a distributor can either be positive or negative, so you have to be prepared. Most suppliers would want to partner with a legit retailer. Therefore your website must be up and running to show them that you are serious. Other things like LinkedIn profiles and some valid IDs will also come in handy. Having a physical office will also come in handy. Overall, you need to prove to these people that you are legit and you can move their product.
4. Promote Your Website
After you have partnered with the right suppliers, it is time to start taking orders from customers. One way to do this is by running ads on various platforms like Google, Facebook, Instagram, Twitter, and Youtube. Running ads can help you get your product out there in front of people that are interested in it. You can use facebook's advanced targeting system to target people based on their location, age, interest, mobile devices, and other demographics. You can also make use of their retargeting strategy to target those people that have visited your website but didn't make a purchase.
Provide quality content that will drive traffic to your website. You can create blog posts on topics that are related to your products. How-to videos and product description videos can be posted on various social media platforms and youtube to drive more traffic to your website. Join online communities and social media groups where your niche market interacts.
5. Provide Good Customer Service
Good customer service is very important if you want to have a successful dropshipping business. You must be able to answer customers' queries and complaints. Things like shipping details or wrong orders must be addressed politely and effectively. It is your responsibility to communicate effectively with the suppliers to know what is going on with your customer's product. If you think it is not your business and ignore your customer's complaints, they will go elsewhere.
Some Challenges Faced by Drop Shippers
1. The Problem of Reruns and Refunds
One disadvantage of dropshipping business is that you are responsible for issues like wrong orders, shipping delays, accepting reruns, and providing customer support for defective merchandise. This is because the customers order directly from your website and pay you for the order, so if anything goes wrong, you are responsible for it. Therefore you have to communicate regularly with your suppliers to solve issues.
2. Low-profit Margins
Another disadvantage of dropshipping is that returns are low. Since you don't have to handle inventory and manage storefronts, your overall revenues from dropshipping are often lower than if you handled the full process in-house. You have to do a lot to make a profit in a dropshipping business. The money made from dropshipping is often low and it might not be able to make up for money spend on advertising and maintenance of your website, including search engine optimization.
3. High Competition
Due to the low cost of entry into the dropshipping market, a lot of people and businesses are investing in it. This has generated a lot of competition and it has become a game of “survival of the fittest”. Because of the numerous online companies out there, dropshipping products can quickly develop into product bargains on price and popularity. Bigger and more established businesses may drop their markup to provide lower prices, which may drive you out of the market. This means potential customers can buy the same thing from someone else at a cheaper rate.
4. No Control Over the Supply Chain.
In an e-commerce business, you have control over all the supply chain journey starting from marketing to promotions to shipping and customer care. So you know what is going on at each stage of the journey. But in a dropshipping retail business, a large part of your business is at the mercy of your supplier.
When there is a problem with the product, drop shippers are trapped and can do little or nothing to address the problem leaving them at the mercy of the suppliers hoping for them to do something about it.
Furthermore, drop shippers have to go back and forth between customers and suppliers which often causes a delay in communication or lack of communication at all. All this is not good for business.
Is Dropshipping still a Profitable Business in 2021?
Dropshipping is still a profitable business for you if you take your time to study the terrain of the business. Statistics show that the global dropshipping market will grow at a rate of 28.8% until 2025. Furthermore, a market study from Research & Markets estimates that the global dropshipping market will reach $591.77 billion in 2027.
A lot of people prefer to invest in this business because it cost little or nothing to start it up, plus the low-risk factor is also an added advantage. Furthermore, the covid 19 pandemic also increased people's need to shop online. This enough has provided a large market for online marketers. Dropshipping can also be profitable if you find a reliable supplier with a large variety of products. However, your profit margins will be much lower than a traditional e-commerce store that carries inventory.
Overall, dropshipping can be profitable for you if you learn to study the terrain of the business. This will require a lot of research and hard work. To get the most profit, you must be ready to spend some money on advertisement and other digital marketing strategies like search engine optimization(SEO), social media marketing (SMM), and search engine marketing (SEM). And more importantly, start looking at what your customers want instead of looking at profits. Build a brand first by creating value to gain people's trust.
There is no better time to start dropshipping than now. Statistics projects e-commerce revenue to reach $2.5 trillion worldwide this year. But you have to make a little sacrifice. You have to spend money on ads and other marketing strategies to get your product out there. You can also handle inventory challenges once in a while to keep your customers satisfied. If you are ready to face all these challenges, you can give dropshipping a try. The potential for dropshipping is unlimited in 2022 and beyond. Go for it!