Last Updated on 10 months by First Guide
Everyone is looking to start a side hustle these days. In fact, according to statistics, as many as 44 million Americans have a side hustle. And this where dropshipping comes into the game.
If you want to earn a decent passive income by launching your own ecommerce store but are skeptical about the complexities of inventory management, shipping, and order fulfillment, then dropshipping is the perfect option.
However, if implemented correctly, dropshipping can help you make a lot of money.
In this best guide to dropshipping, we cover everything from what it is, to how to get started, to how to run a successful dropshipping business.
Now let’s get started.😀
Table of Contents
- What is Dropshipping?
- Pros of Dropshipping.
- Cons of Dropshipping.
- Who is Dropshipping For?
- Dropshipping Products to Sell.
- Dropshipping Mistakes to Avoid.
- Finding the Right Dropshipping Supplier.
- How to Run Your Own Dropshipping Business.
- How to Grow Your Own Dropshipping Business.
- Examples of Successful Dropshipping Companies.
- Common Dropshipping Questions (FAQ)
What is Dropshipping?
Dropshipping has been around for a while now. However, contrary to popular belief, it is not a get-rich-quick scheme.
It is basically a retail fulfillment method where a store doesn’t own or maintain an inventory. Instead, you purchase the item from a third-party source and get it delivered to the customer.
You don’t have to handle the product yourself or take care of the shipping process.
One of the biggest differentiators between a regular ecommerce or a brick-and-mortar store and a dropshipping store is that the person selling the product doesn’t handle the inventory.
Let’s consider Top Discount Electrical Stores Ltd, one of the biggest electrical retailers in England. Suppose a customer walks into Top Discount Electrical Stores Ltd, buys a new washing machine, pays the bill, and walks out. Essentially, Top Discount Electrical Stores Ltd has to store the washing machine in their retail location so that the buyer can see it and make a purchase.
They also have to display the washing machine, set up their store to keep it on display, make billing counters for the consumer to make the payment, keep packaging material at the billing counter, ship the washing machine from their warehouse, and so forth.
That is where dropshipping is different.
In the case of dropshipping, the retailer doesn’t store the washing machine at all. Instead, when an online order for a washing machine processes on their website, the dropshipper automatically notifies the wholesale supplier who delivers the washing machine at the customer’s doorstep.
Here’s a simple breakdown of how dropshipping works:
Since you don’t need a lot of money or resources to get started with dropshipping, its popularity is on the rise. More and more retailers are jumping the bandwagon.
And it makes great business sense: you don’t have to keep any stock, you don’t have to keep any inventory, and you don’t have to worry about packaging and shipping. You get someone else to do all these things for you, while you make a decent profit.
- In the year 2016-2017, around 23% of all online sales, which amounts to $85.1 billion, were made via dropshipping.
- In fact, even Amazon made 34% of its total sales via dropshipping, way back in 2011. The numbers have only increased every year.
- And it’s a very lucrative medium of conducting business. A study proves that manufacturers who do business with dropshipping retailers end up earning 18.33% more profit than those who rely on more conventional channels.
With the internet reaching millions of households all across the world, dropshipping retailers can expand their reach quickly and subsequently maximize their revenue.
To make it quite simple, here’re the exact steps required in a dropshipping purchase:
- Market your products online through a catalog featuring your products
- Attract online consumers to make the online purchase
- The retailer forwards the list of items to the concerned manufacturer/wholesaler/distributor, along with customer details like name and address
- The concerned manufacturer/wholesaler ships the list of items to the customer (under the name of the dropshipping retailer)
Dropshipping requires a good deal of trust, and a long-term partnership between the multiple stakeholders like retailers, suppliers, distributors, and manufacturers.
Ready to start dropshipping? Get started with a 14-day free trial of Shopify.
Pros of Dropshipping?
The biggest reason why dropshipping has emerged as a lucrative business opportunity is that it doesn’t have a large barrier to entry and no heavy lifting is required from you
Anyone with a small investment can start their dropshipping company. And there are plenty of helpful guides online to help you. In addition to this article you’re reading now, there are other helpful resources like this guide on how to start a dropshipping business in 21 days from Drop Ship Lifestyle.
Here’s a list of some of the pros of starting a dropshipping business:
1. A faster start-up.
Unlike a brick-and-mortar store or a regular ecommerce business, you don’t need a physical warehouse to store the materials. You only need to pay for the domain and hosting plan of your dropshipping website.
As it requires a lot of capital to stock a warehouse. But with dropshipping, you can eliminate the risk of going into debt to start your business.
You don’t have to worry about loss in revenue or have tons of money tied up in inventory that potentially might not sell.
You don’t have to manage or worry about shipping costs or shipping times as much.
2. Low Order Fulfillment Costs.
Since you aren’t responsible for the sourcing, packaging, and delivery of the product, you don’t have to worry about the additional cost incurred in the entire process. You simply forward the customer request to a third-party wholesaler or import products with a company like AliExpress and you’re all set.
Your only job in this arrangement is to make sure they get your customer orders. Everything else will be handled by them.
3. Low Risk & Flexibility
Not handling inventory naturally results in minimum risk. On top of that, you get to offer a much more comprehensive product selection, along with a high scaling-up potential.
If you are unable to scale up or derive profit from your dropshipping business, you can back out anytime without any monetary loss.
You can also easily partner with multiple wholesalers, distributors, and suppliers for added flexibility in your business.
Since you don’t have to pay upfront to stock the products, you always have cash on hand.
4. Easier to Pivot.
You have the option to easily change your niche and move to another product in case your current domain area doesn’t work out.
Dropshipping also opens the door to a wide and ever-changing array of products. This can be good if you want to capitalize on trends or seasonal surges in consumer activity.
Dropshipping offers you smooth facilitation of up-selling and cross-selling of products.
Cons of Dropshipping.
No business model is without its fair share of disadvantages. And the dropshipping model is no exception.
The largest flaw is that you’re at the whim of whichever drop shipping companies you choose to work with.
That means if they mess up, you mess up. If they change their pricing, you change yours, too.
You essentially have less control over your business, and therefore less control over your customer satisfaction as well.
Here’s a list of some of the most common cons of the dropshipping model:
1. Over-reliance on your partners.
Since you don’t physically have the product, you must always rely on your partners to keep stock and hope they don’t run out of it. Which means you have to carefully choose the company you want to partner with.
2. Little control over order delivery.
Since you don’t have any product stocked yourself, the onus is entirely on your partners to deliver the product by the stipulated time. In case they fail to deliver the product on time, customer satisfaction decreases, which will eventually hurt your business. That’s why choosing an efficient partner(s) are essential to run a successful business.
3. Impaired customer service.
With dropshipping, you’re not in charge of the entire supply chain process, including packaging, warehousing, delivery, etc. Everything is taken care of by your partners. As a result, if there’s an error on their part, and they refuse to rectify the same, you won’t be able to reach out to them. Now, you are left on your own to placate the unsatisfied customer.
4. Lack of branding.
Since you’re selling other wholesalers products on your site, your brand image can suffer. To mitigate this, make sure your wholesaler allows you to insert branded packing materials upon shipping. That way, even if the product is coming from another brand, the unboxing experience ensures the customer remembers who you are.
5. Shipping is complicated
Shipping is pretty complex with drop shipping, as it depends on which supplier the product comes from, where the customer is located, the weight of the product, etc. If a customer buys three products all from different suppliers, that means you’re hit with three different shipping rates. You’re forced to either eat some of those costs or charge sky-high costs and risk losing the customer. Neither’s an ideal option.
6. Lower profit margins.
There is less profit compared to manufacturing your own products. In fact, some dropshippers simply shut down their business due to inadequate profit margins. With dropshipping, if you want to make the same profit as a traditional retail shop, you’d have to sell a lot more products at a high price point.
In general, you can expect a profit margin of 20-30% and a conversion rate of 2-3%. These metrics might change according to the industry and situation.
Depending upon the average profit margin and conversion rate, you estimate your profit using this equation:
(Traffic x 0.02) x (Avg order value x 0.2) = Profit
These are both the pros and cons, summed up in short.
Who is Dropshipping For?
Dropshipping is meant for budding entrepreneurs and novices entering the business world, people on a low budget, and for those who don’t want to invest their money just yet.
Earlier, setting up a business required a large amount of money. People usually get their parents to loan them the capital or work overtime to earn money.
In fact, Jeff Bezos started Amazon by borrowing money from his parents, and we all know how that worked out for him.
The point is, without the initial capital, starting a business was a major obstacle.
But now, with the advent of digitalization and social media, starting an online business is easier than it has ever been at any point in history.
However, the dropshipping model is a slow path to being successful and making huge profits. To put it simply, it’s a “patient man’s game”.
It’s great for:
- Budding Entrepreneurs
- People looking at sustained growth
- Professionals interested in having their own retail business
- People savvy in marketing that can drive significant web traffic
Breaking it down, it’s a perfect business model for the following group of people:
1. Entry-level Entrepreneurs.
Dropshipping is a great business model to get introduced to the world of business and learn the tricks of the trade for the first time. Entry-level entrepreneurs are likely to fail a few times while trying to grasp new concepts in business.
However, since there’s nothing much at stake in the dropshipping business, they can afford to fail here.
For example, you could start an ecommerce website selling low-cost t-shirts to test your marketing chops. With such a low barrier to entry, it’s great practice for budding entrepreneurs.
2. Sellers With Multiple Product Niches.
If you sell an extensive range of products, dropshipping is an excellent option for you. In such a scenario, keeping stocks and inventories of a wide variety of products becomes very cost-intensive, and may not be sustainable in the long-term.
This holds true, especially if you plan to sell a range of products in the league of Target or Walmart. Going for a dropshipping model, in this case, can save you a lot of money by doing away with the need for maintaining stocks, inventories, and having shops or warehouses.
3. Budget Entrepreneurs.
It’s straightforward — you want to make money, but don’t have money to invest right now. Obviously, since you’re on a tight budget, renting warehouses or retail locations is expensive.
In this case, dropshipping is the perfect model. With no upfront investment in inventory, middlemen, or warehouses, one can start a dropshipping business with practically zero cost going into it.
4. Retailers Looking For Validation.
Consider this kind of scenario where, you’ve got a product to sell, but you’re unsure if it will work in the marketplace. Making a warehouse and renting out space for it doesn’t seem like the wise thing to do at the moment. First and foremost, you need to test the waters.
With dropshipping, you can get the validation you need at practically no initial cost. If the response to your product turns out to be positive, you win and can now launch the product widely. If it’s negative, at least you won’t end up making huge losses.
Either way, you’ll be gaining ample experience and might get successful along the journey.
5. Side Hustlers.
If you’re in the pursuit of passive income or want to make money online, then dropshipping is a great option for you. You don’t have to lift a finger or store products. Dropshipping is an excellent way to sell products without storing inventory and earning passive income for years to come.
A beginner might face some challenges at the beginning, like marketing the product, reaching potential suppliers, etc. However, once they get ropes of the business, dropshipping can turn out to be pretty lucrative.
Now Ready to start dropshipping? Get started with a 14-day free trial of Shopify.
Finding Dropshipping Products to Sell.
Dropshipping is a pretty easy and straightforward business model. With the right partnerships, products, and a little patience, anyone can start it and reach the zenith of success.
However, the USP of any dropshipping business is ultimately the ‘product’ that you sell, and the value it offers in turn.
Choosing the right niche is going to help you tremendously. It will help you pinpoint your brand’s vote and eventually help you appeal to a specific group of buyers, like tech enthusiasts, body builders, etc.
Here’s an example of a dropshipping store that sells Bluetooth speakers:
Check out some of the trendiest dropshipping niche ideas for you to try in 2020:
- Tech niche ideas: Wi-Fi 6 products, Wireless tech, Wearables and accessories, 360-degree cameras & accessories, and VR devices
- Lifestyle niche ideas: Smart home devices, tourism gear, indoor gardening tools, swimwear, and water bottles
- Fashion niche ideas: Rattan bags, hair clips and barrettes, metallic clothing, women shorts, and lace clothing
Apart from this, you require a proven set of criteria to determine the type of product(s) you want to sell, including:
When you are dropshipping products, a massive part of your success and profit margins will depend on the retail and wholesale prices.
A low price can boost sales, but the profit margin won’t be much. On the other hand, a high price will dissuade most customers from buying, but the margin will be higher. Thus, it’s essential to strike a balance between the prices as you go forward.
The size and weight may manipulate and affect the prices of the product more than you anticipate.
A larger and heavier product will command:
- Higher packaging charges
- Higher shipping charges
- Handling charges (sometimes)
It makes sense to at least start with smaller products, and settle for a lower margin. It will at least help you avoid additional expenses that you’ll likely incur with larger and heavier shipments.
3. Cross-selling and Up-selling.
It’s better to choose a niche that makes it easy for you to cross-sell and up-sell your product(s).
Have a look at some of the key benefits of up-selling and cross-selling:
Both these techniques not only help you sell more, but they also help you obtain more revenue and push up your margins at no extra cost.
A great example of cross-selling would be selling shoelaces along with shoes or selling mobile phones with tailor-made, specific phone covers.
An example of up-selling would be the campaigns of Dollar Shave Club, which attracts you with the prospect of shaving at $1 and then displaying pricier options on their website.
Their selling point? Excellent value!
Both up-selling and cross-selling can help you earn excellent profits and make your dropshipping business standout.
It makes sense for you to sell products that have a moderate shelf-life. Products with low durability need to be replaced, and with any luck, more customer orders can come your way.
It’s like comparing a toothpaste with a refrigerator. While you may need a new toothpaste bottle every other week (low durability), you probably won’t replace your refrigerator in the next decade or do (high durability).
It’s all about playing at the margins, and it’s for you to decide what type of product you want to sell.
5. Grudge Purchases.
A grudge purchase is a product that the consumer doesn’t want to buy, but they have to since their options are limited. For example, products like hospital insurance, medical supplies, automobile tires, coolants, and engine oil are all grudge purchases. No one wants to buy them, but they have to, due to dire circumstances.
If you are selling products like tires and coolants, orders may be far and between, and selling points can also become a problem for you.
You should be careful while selling these products. They aren’t purchased in bulk either, and margins tend to be very low.
With grudge purchases, it gets challenging to sustain over a long period, so you may want to avoid such products at the beginning of your dropshipping venture.
Common Dropshipping Mistakes to Avoid.
Lucrative as it is, dropshippers tend to start expecting too much from dropshipping right from the beginning.
In anticipation of quick results, they end up making a lot of common mistakes.
Here’s a list of some common dropshipping mistakes to avoid:
1. Over-Reliance on Vendors.
Relying too much on a vendor is not healthy for a sustainable business. Make sure to set clear norms and point out the consequences in case of any breach. It’s essential to keep the vendors on their toes so that they put their best foot forward.
Better yet, don’t rely on a single vendor. For instance — if you only have a single vendor, they might stop dealing with you all of a sudden or could raise their prices out of nowhere. In such a scenario, you’d have no other option but to comply with their requests.
A relaxed and indifferent attitude from vendors is very detrimental to business, and more often than not, stems from over-reliance.
2. Wanting Easy Profits.
As dropshipping might sound easy. There’s no free lunch in this world.
Similarly, expecting easy money with little effort is something that doesn’t really work in the real world, more so in the dropshipping business.
Even though you can enjoy certain benefits in dropshipping over traditional retail, you’d still have to face the problem of intense competition.
For obvious reasons, a lot of online retailers are opting for the dropshipping model. Any complacency on your part can result in losing customers to your competitors.
Therefore, without expecting easy money, you should focus on how to create value through your dropshipping business and implement it professionally.
3. Limited Visibility (Not Investing In Promotional Activities).
Dropshipping, like any other business, requires enough promotion to be able to reach your target audience.
To reach out to the customers and boost sales, the first thing you need is visibility. Thus, you should invest in promotional activities and image building exercise.
You don’t want your audience to forget about your brand, which is why it’s essential to market yourself aggressively. As they say, ‘Out of sight, out of mind.’ Your core challenge will be to occupy the mind space of your customers.
Try to enter your name and address on the product packaging, or slip the latest product portfolio inside the packaging for advertisement. It’s also an excellent idea to follow-up with a ‘Thank you’ note or asking them about their shopping experience.
Take this “Thank You” email, for instance:
A follow-up email like this (with an additional discount coupon) goes a long way in engaging your customers and at the same time showing them how much you care about their experience.
4. Compromising Order Details.
You need to desperately avoid compromising order details. If you fail to satisfy your customers with your service and inadvertently botch up order details, they’re unlikely to do business with you ever again. On top of that, the chances are that they’ll probably give you poor reviews, which will again put off many potential customers.
A Walker study has predicted that by 2020, customer experience will overtake price and product as key brand differentiators.
Some of the things that can impact customer experience are:
- Delivery at the wrong address
- Wrong packaging for product
- Wrong product delivery
- Correct product delivered but the incorrect quantity
- Product specifications don’t match the order
- Broken or tampered product
- Delivering product after estimated time elapsed
The dropshipping retailer must provide timely and accurate information about the order. Otherwise, unhappy customers will simply migrate to your rival businesses, leading to your loss of revenue.
5. Selling Goods With Copyright/Trademark.
Selling goods that are trademarked and copyrighted without prior permission, albeit with no nefarious intentions, is best to avoid.
It could unexpectedly embroil you in a trademark infringement case that can be extremely time-consuming as well as costly.
Selling branded stuff with logos of brands like Giorgio Armani clothing, Nike shoes, or Rolex watches without clearance can result in a lawsuit or even getting your dropshipping business closed down.
Avoid this mistake by selling “white-label” products that can be easily rebranded and resold under your business umbrella, without the complications of legal cases.
You can refer to this guide to know more about white-label products and how the entire concept works.
6. Not Establishing a Proper Return Policy.
If you don’t provide a provision for the return of goods, things can get messy with your customers.
With so much variety in the market, a customer may want to buy something else, even after ordering a specific product. Immediately after an order is declined, returned or refund requested, dropshipping retailers should get to work and offer a prompt refund.
A swift and speedy collection of sold products and a refund in full is what can separate you from your peers in the marketplace.
Moreover, it’s also vital to add proper instructions on your site on how to return the product and collect a refund.
Many dropshippers make the mistake of not taking this process seriously, causing much pain and distress to the customers. Avoiding this by providing a proper return policy can help you run your dropshipping business run more smoothly.
Now Ready to launch your Shopify store? Get started with a 14-day free trial of Shopify.
It goes without saying that dropshipping suppliers are one of the essential cogs in your dropshipping business model.
You need to rely on suppliers for a variety of functions, like:
- Stocking up the product (exact specifications)
- Hassle-free last-mile delivery
- Efficient handling and shipping of goods
You just have to convey the order, customer details, and product requirements to the suppliers. After that, it’s the suppliers who have to do the entire groundwork.
That’s why it’s essential to your business that you team up with the right supplier.
First, make sure to check out my reviews of the 17 Best Dropshipping Suppliers to use this year.
So what should you look for while partnering with the suppliers? Four things essentially:
1. Find a Supplier Who is Tech-Savvy.
In today’s age, a tech-savvy supplier is no longer an asset, but a prerequisite to a great business model.
When choosing your supplier, it’s crucial to ensure that they are well-versed with all the tech required to keep up with the entire cycle.
2. The Supplier Should Be Punctual.
Shipping the product on time is extremely important for a dropshipping store. On top of that, it bodes well for your business if you manage to deliver the products within 1-2 business days.
With too many competitors in the market, you have no scope for a let-up, and must always put your best foot forward. Your customer won’t think twice before switching to your competitors if you take a long time to dropship products.
That’s why punctuality is one of the essential deciding factors when choosing a supplier. You can even try placing test orders to check whether the supplier is prompt or not.
3. Find A Supplier With An Experienced And Dynamics Team.
Since you won’t be the one making the last-mile delivery, you need to ensure that those who do manage to portray a positive picture of your business.
An experienced supplier who has a dynamic and efficient team of sales representatives and executives is likely to know all the nitty-gritty of the dropshipping business. If you manage to team up with such a supplier, you already have a great platform to succeed.
4. An Ideal Supplier Should Focus On Quality.
Like retail and traditional ecommerce business, dropshipping also hinges on the quality of the product. That’s why it is an important attribute to consider when evaluating your product supplier.
Suppose there are three suppliers to choose from, for the same product.
There isn’t any significant variation in the prices and delivery lead times.
So which supplier should you choose?
The supplier who provides the best quality, of course.
Naturally, the customers want value in exchange for their money.
Thus, it’s best to always go for a reputed supplier who is unlikely to ever compromise on quality.
A supplier who values and focuses on quality can ensure:
- The rate of return of goods is low
- Number of canceled orders is small
- Customer satisfaction is high
- Customer lifetime value (CLV) is high
Now the question is – there are probably thousands of such suppliers in the business world, so how do you identify the best fit?
You can use various dropshipping directories available on the internet that provide a credible database of suppliers that are often organized by niche.
Check out these examples:
Worldwide Brands is an excellent example of a dropshipping directory.
One of the best things about Worldwide Brands is that it ensures that every supplier or wholesaler it features is legit.
Once you reach out to the suppliers from online directories, evaluating the suppliers is easy. Simply ask them a few probing questions, and gauge their answers to determine whether they align with your expectations or not.
Here are some pointed questions that you should try to ask:
- What is the return policy, if any?
- How much price fluctuation can be expected?
- Are there any warranty periods for the products?
- What is the clause for free delivery?
- What level of customization in the products can be expected?
- What are the terms of pricing? Are the pricing terms negotiable?
Only after the responses align with your expectations and vision about the future of the business, should you take the negotiation to the next level.
While zeroing in on the ideal partner, it’s also important to not fall prey to cunning con artists.
You also need to ensure that you tie-up with a legitimate business supplier.
There are many indicators of a fraudulent supplier that can help you spot one very easily.
At the very first, you should obtain details about their registered address, speak to industry players, and look at online reviews.
All of these make it relatively easy for even a new drop shipper to separate the legit suppliers from the unscrupulous and corrupt ones.
It’s very important that you maneuver your way out of these traps, because not only can they impact your business in the long-term, they can also irreversibly damage your brand image in the marketplace.
Ready to start dropshipping? Get started with a 14-day free trial of Shopify.
You’ve done extensive research to start your dropshipping business. From finding the right product to teaming up with a suitable supplier, you are now geared up to start your business.
Finally, it’s time to run your dropshipping store.
However, you will soon find that starting a business and running one are very different ball games.
In time, you have to worry about issues like marketing, SEO, visibility, product quality, refunding and exchange, customer support, and much more.
Now let’s break them down here:
1. Marketing Your Dropshipping Store.
With a lot of competition out there, the need for effective marketing is very pressing.
Rather than waiting for your target audience to find your dropshipping store, it’s better to market your product in front of them.
You need to do thorough research on the domain area you are trying to cater to and do segmentation of the population based on behavior, psychographics, geography, and demography.
Once you identify the correct segment, you have to concertedly target the population, and carry out various activities, like:
- Customer engagement
- Brand building
- Image building
- Creating and highlighting product value
You can use plenty of channels to market your dropshipping store, including:
- Social Media Promotion: Promote your store on social media channels like Facebook, Instagram, Pinterest, etc. Here’s a list of some of the best social media management apps that can help you promote your dropshipping store effectively. You can also run Ads on social media channels to reach your target audience right into their personal social media feeds.
- Email Marketing: It is one of the most effective forms of marketing. Email marketing allows you to engage your customers by sending out welcome emails and other forms of follow-up emails. Other than this, you can also keep them in the loop about things like sales, discounts, price changes, etc. You can also use various email marketing software tools that can run automated email campaigns and produce in-depth analytics reports.
- Paid Advertisements: As mentioned above, you can run paid ad campaigns to promote your dropshipping store directly in your target audience’s feed. From social media ads to Google Ads, there are plenty of options available out there.
2. Maintaining Inventory.
While the dropship business model doesn’t require you to store inventory, it’s a good practice to keep a tab on the inventory of the suppliers’ warehouse since you’ll be selling their products under your brand name.
The good news is that numerous advanced inventory management software and multi-warehouse dropshipping management software tools are available on the internet to help you manage and track the inventory easily.
Take the example of Ecomdash.
It has revolutionized the automation software market for dropshippers with multiple order fulfillment centers.
Keeping track of your inventory with a tool like inFlow Inventory can help you:
- Avoid unpleasant surprises after a customer places an order (that could have been avoided if the information was available that it was out of stock)
- Helps you make re-orders in time
- Helps in improved two-way communication with customer (improves customer experience).
3. Provide Impressive Customer Support.
A 2014 study by Gartner revealed that by 2019, 50% of all organizations would compete on customer service.
With the global income levels rising, and massive competition across all forms of businesses, there has been a standardization with respect to the product and service they provide.
One of the differentiating factors is expected to be excellent customer support.
Some of the common platforms you can use to provide exceptional customer service are:
- Social media platforms
- Live chats
A 24/7 help-desk is also an aspect that you should look into as your business continues to mature.
4. Product Exchange And Refund Policy.
Your exchange and refund policy is a glaring touchpoint of the dropshipping business that can make or break your business.
With the popularity of social media, communication is no longer a challenge. However, in the case of online retailing, positive word-of-mouth marketing can do wonders for your business, but negative word-of-mouth can prove to be detrimental.
If you want to earn the goodwill of your customer, then make sure to take prompt action any time a customer requests for product exchange or refund.
Handling customer complaints and product exchange and refund policies reflect the culture of the company and how much they prioritize their customers.
Providing a high level of satisfaction to customers here can result in improved Customer Lifetime Value (CLV) as well as the generation of new customers.
Here’s an example from the return and refund policy of Gymshark.
As you can see, the return policy makes it effortless for the customer to return the wrong product.
However, refunding dropshipped products is a bit different than a traditional ecommerce site.
Here, you’ll have to collaborate with the supplier to successfully collect the product from the customer and then issue an exchange or refund.
These points are by no means a comprehensive insight into what you must do to run a dropshipping business. But following them will help you tremendously in setting up and running your dropshipping business.
How to Grow Your Dropshipping Business?
One thing you should always keep in mind — the dropshipping model is a slow business model.
Expectations of a very steep growth and large profit margins in a short span of time are unrealistic. Instead, the business model requires long-term investment for it to grow into a profit-generating entity.
But that doesn’t mean you should let up on all the impressive work you’ve done over the days. Now, you need to focus on scaling up and growing the business.
Taking the following measures can help you grow your dropshipping business:
1. Use Multiple Channels.
This way, the number of customers you can reach out to increases exponentially. Catering to such a broad audience is impossible if you use only one channel.
However, when you are using multiple channels, you must ensure your top-selling products are always stocked and ready for shipment. Otherwise, if you sell the same product on different online stores, and the number of purchases is very high, the product can quite easily run out of stock. Out of stock products give rise to backorders and may cause a significant delay in delivery. This may create a negative customer experience.
Once you’ve ensured that you are stocked-up, you can even target audience globally.
2. Build Your Dropshipping Store.
While using multiple channels can definitely help with the profit margin, it’s also essential to build your own dropshipping store to enhance your brand image.
Building your dropshipping store has many benefits attached to it, like:
- Greater control over website’s user-interface
- Greater control over products, stocking, and marketing
- Better decision making when it comes to discounts and bundled sales
- Control brand positioning and brand imagery
Having your own store also means you don’t have to pay a commission to online stores to showcase your products. As a result, the profit margin per product increases, ultimately translating into higher revenue.
You can use several online websites and ecommerce store builders to create your store. Most of these builders come with attractive templates and various marketing and analytical tools to help you grow your store.
Check out my review of some of the best ecommerce platforms to choose the best option to build your dropshipping store.
3. Leverage Email Marketing.
According to email marketing statistics by Oberlo, at $32 return for every $1 invested, email marketing offers one of the highest rates of ROI.
That’s why it’s essential to focus on your email marketing strategy if you want your dropshipping business to grow.
For that, first, you need to build an email list that consists of a relevant audience. The best part about email marketing is that it gives you direct access to the leads who have willingly subscribed to receive your emails.
To build your email list, you can pique your audience’s interest by offering something valuable for free.
Take a look at my email form:
To encourage my readers to subscribe to my email list, I offer them a free email course upon registration.
After you build your email list, make sure to engage your audience regularly. Send out follow-up emails, offer discount coupons to give them a nudge to buy from your store, and more.
However, don’t go about flooding your subscribers’ inbox every other day. Let them know how frequently you plan to send email newsletters and then follow through the promise. A very high frequency of emailing can work against you and make customers unsubscribe.
4. Use Right Channels For Advertisements.
While proper investment is required for your business to take off, spending money in the right places is imperative for the money to pay dividends.
That’s why, before increasing your marketing budget, you should spend time doing appropriate market-research. Try to identify the advertising channels that can help you maximize customer visits on your website.
For a dropshipping business, where you lack a physical shop, it’s crucial to take advantage of online advertisement modes like pay-per-click (PPC). Running ad campaigns is easy across several social media platforms like Facebook, Instagram, and Twitter, among others.
Make sure you don’t waste your money spending it on websites that bring in low traffic.
5. Use Video Advertisements.
Video marketing is the new medium of reaching out to your customers.
Here’re some statistics that will make you realize the amazing advantages of video advertisements:
- 82% of Twitter users use video
- More than 500 million hours of video are watched on YouTube every day
- 33% of online activity is spent on watching videos
- 85% of US internet audience watches online videos
Video has the power to reach a massive audience, thereby increasing your reach by many times.
Apart from advertising your products and brand, video advertisements have the power to do a lot more, such as:
- Customer engagement
- Making your leads click-through and arrive at your store
- Influence your potential customers to buy your product
To reach your target audience, you can stream your video on social media platforms, YouTube, or purchase advertising space on a third-party website to increase your visibility.
Ready to start dropshipping? Get started with a 14-day free trial of Shopify.
The business landscape is littered with success stories from dropshipping companies.
Contrary to popular notion, the examples aren’t far and few in between, but quite large in number.
One of the best examples that immediately come to mind is Wayfair.
Started by two University graduates in 2002 in Boston, Massachusetts who didn’t have the luxury of deep pockets like their rivals, Wayfair turned out to be a huge success.
Over time, they understood the dropshipping model, and eventually started making around 25% to 35% profits year-on-year and quickly became one of the most acclaimed dropshippers.
Today, they boast of more than 10 million items in offerings, and over 14000 suppliers. In 2018, Wayfair’s revenue exceeded $5 billion.
Another example here is Justin Wong, the owner of So Aesthetic.
After trying multiple business options, Wong decided to set up a dropshipping store. He needed zero investment to start the store, and guess what? Within a month of starting, he had already made $12,000 through the business.
More and more people are now making profits using the dropshipping model.
Here are some real-life examples of many more dropshippers who’ve made a successful career out of the dropshipping business model.
Common Dropshipping Questions For Beginners: FAQ.
Here are some quick answers to the most frequently asked questions:
How does the dropshipping model work?
As you may already know. Dropshipping is a business model where you can sell your products online, without having to stock, supply, distribute, or deliver the product yourself.
Dropshipping requires you to act like a mediator between the consumer and the supplier.
It’s simple! The customer puts an order at your store, then you forward that order to the supplier, and finally, the supplier delivers the order straightaway to your customer. Your role as a drop shipper is to focus on marketing and promoting the product, while the supplier fulfills the entire supply chain cycle, including maintaining the inventory, packaging, shipment, etc.
What are the benefits of dropshipping?
Dropshipping is a profitable business model. The best part is that you don’t require massive capital or spend money on things like inventory management, warehouse rent, and shop rent, among others.
You can expect a profit margin of 20-30% and a conversion rate of 2-3%. These metrics might change according to the industry and situation.
How to start a dropshipping business?
To start your dropshipping business, you can follow a step-by-step process:
- Decide what type of product(s) you want to sell.
- Partner with a supplier.
- Either register with dropshipping sites like eBay or build your own website.
- Market your dropshipping store
- Promote using social media platforms and paid ads
What is the investment needed to start with dropshipping?
Not much since you don’t require any shop, and you won’t hold any stock, you don’t need a substantial investment at the start.
Can I sell globally?
Yes, you can. The beauty of dropshipping is that since it’s online, you can target the entire global target. Your customers could be from anywhere in the world.
Can I use multiple channels for selling?
Of course, you can. In fact, it’s highly recommended to sell your products across multiple channels, such as eBay, Amazon, etc.
What is the profit margin that I can expect from dropshipping?
The margin primarily depends on the cost of the items that you sell, and the volume of items sold. However, on average, you can expect to make a profit of anywhere around 15% to 20%.
Do I need to pay taxes?
Taxes are subject to the local governance of the areas that you will deliver to. Usually, you are required to pay taxes for international delivery.
How can I promote my website?
There are several ways to promote your website. You can buy advertisements on websites, ecommerce stores, and social media platforms. You can also buy YouTube advertisements, get involved in customer engagement on social media platforms, conduct webinars, and more.
How can I select the suppliers?
While choosing your suppliers, go for someone punctual, tech-savvy, has an in-house team of experienced sales representatives, and has the reputation of providing top-notch quality products. Make sure to look at online reviews before selecting suppliers.
Should I use my own online dropshipping store, or should I rent someone else’s space?
At the start, you can rent shop space on sites like Amazon, eBay, and Alibaba. But if you are looking to scale-up and build your own brand, it’s better to have your own online store. You have greater control over the user interface and display of your products and can boost your brand image accordingly.
Should I work alone or hire assistants?
At the start, when the business is small, you can work alone. However, as the business starts to expand, it will get difficult for you to manage all aspects of the business. Keeping expansion in mind, hiring assistants for specific roles is recommended. You can hire virtual assistants from websites like Upwork, Fiverr, Guru, and more.
This article gives you an in-depth insight into the entire dropshipping business model. As outlined, it is not for someone who is looking to make money very fast and exit.
Sure, dropshipping seems like easy money. You just have to act as a link between the customer and the wholesaler/supplier, and take a cut for yourself. However, when you consider all the cons, challenges, effort, attention, and work, dropshipping doesn’t sound as easy.
You need to stick to your business plan to make it work, and then reap the benefits.
With no initial outlay, rent or cost of inventory, dropshipping can provide the perfect environment for someone to test their business acumen, try out their new products, and gauge the product viability and market scenario.
An excellent option for entry-level entrepreneurs and budget businessmen, dropshipping is also a very safe platform. Even if you fail, you don’t stand to lose a lot of money. On the other hand, the process helps you gain precious business insight and market knowledge.
I hope the article was useful and will spur you on to starting your first dropshipping business.
What type of product would you like to sell using the Dropshipping model? Let me know in the comment section below!
Ready to start dropshipping? Get started with a 14-day free trial of Shopify