Dropshipping is a great way you can earn residual income working from home and later could become a full-time business if done correctly. Success is in the planning and execution and this article, I will cover what dropshipping is, the pitfalls and what I recommend when starting your dropshipping business. I will briefly touch on some useful tools and resources available to you today but for now, let’s unpack this.
What is Drop Shipping?
You may have heard about drop shipping and wondered what’s that all about? Dropshipping put simply, is a business run by you, selling someone else’s physical products on your online store using a third-party platform – you, never have to touch the products in the process.
When a customer places an order from your store, it passes to your supplier to process and fulfil including shipping the item(s) from supplier to customer directly from anywhere in the world! The main advantage is that you do not have to store items yourself, deal with packaging, or ship the products. This removes a lot of cost and overheads and can use this to update your store and any marketing costs i.e., Facebook, Google Ads, etc.
Here’s an example.
- You decide you want to sell pet products – Yay you!
- You find the supplier and enter into an agreement which can be a simple sign up for their products or a more comprehensive agreement that provides you with the flexibility to promote your products using your own branding. This often does require you to purchase a minimum number of products to be eligible.
- You then choose to sell a dog bowl amongst other products and after listing, a customer places an order (congrats!).
- After payment has been received, the details of the sale (product and customer details) are sent to your supplier (which can be manual or automatic depending on how you have set up your store – this will be covered separately).
- The supplier then charges you for the price of the dog bowl and any shipping costs (including a dropshipping fee if applicable).
- The supplier packs and ships the bowl directly to your customer.
- Customer receives the dog bowl – happy customer and dog.
NB: The price of the dog bowl you are selling on your online store must be more than what your supplier charges – that’s how you make a profit. As the logic goes, the more profit margin you add to a product, the more you will make. Here’s a simple overview that explains it.
Cost of Goods
- Dog Bowl – cost of Dog bowl from supplier $7
- Fees – Shipping and dropship fees $2
- The total cost of Dog Bowl + Fees = $9 (this is what the supplier is charging you)
Sell Price
- Dog Bowl listed for $15 – your margin is 40%
- Customer pays $15
- Your profit is $6 ($15 (sell) – $9 (cost))
How to calculate your profit margin – I always work on a 40% margin but this will vary on the products you sell – this is part of your research of the market and products.
Why Dropshipping?
- You don’t stock and handle inventory – That’s right, you do not have to stock and handle inventory. Stock is stored in warehouses of the supplier or the suppliers’ logistical partners such as Amazon. This also means that if items are damaged whilst in storage or during packing and shipping, you will not be held liable. Does this make you feel more at ease?
- You don’t ship – Simply put, you don’t ship the product(s). With any shipping, there will often be shipping fees, or this can also be described as a dropshipping fee. This is a better and cheaper option than if you had to deal with this yourself. You then avoid many of the overheads such as packaging, hiring staff to package items, and maintaining shipping facilities. This is the beauty of dropshipping when you choose the right supplier – I cannot stress this enough.
- Minimal Risk – You will see “No Risk” written elsewhere but let’s be real, there will always be some level of risk in business but with dropshipping, the risk to you is significantly reduced because your financial investment is low, and you don’t develop and produce the products.
In most cases, the supplier will have products in stock ready for you to sell and you only buy that product when you sell it. The great thing is that no pre-ordering is necessary unless the product you sell is out of stock at which point you then must update your store. If you get in the habit of selling out of stock products without informing your customers, this will create a bad customer experience and you certainly do not want this. Bad ratings = bad reputation.
What to avoid when Dropshipping
To become a successful dropshipper, please consider the following points that if not understood, will lead you down a maze of no return and will quickly kill your dream of selling online.
- A saturated market – Dropshipping has been around for a while now and various suppliers and selling platforms are making it easier for anyone to venture into this space which means setting up a dropshipping business with little money can be easier. The biggest advice I can provide is to conduct your due diligence by researching which niche you want to sell in the market. There are so many resources you can look at and I will recommend some of these further in this article.
- Cheap quality products – There are so many cheap quality products in the world – do you want to sell cheap quality – are you cheap quality? I would think NOT! If you can afford it, try to get your hands on samples for some of the products you want to sell from the same supplier. You will get a sense immediately if the products (and buying experience) from that supplier are worthy of you using them. Remember that if your experience is bad, your customers will share the same pain. Trust me, there are MANY suppliers you can shop from so choose carefully. In the process, always maintain the concept that your reputation as a seller is at the forefront of what you sell. Bad reviews = no sales. Therefore, choose the supplier(s) who provide good to high-quality products and complemented with a good fulfilment process (shipping and handling).
- Slow Shipping – Besides the cheap quality, slow shipping can quickly kill your store. To compete against others like you, fast shipping creates a better customer experience and competitive tension. Often slow shipping occurs due to stock availability and suppliers located overseas. When I have sourced products on AliExpress or Alibaba, I use their tools to determine shipping times (and shipping costs).
IMPORTANT! This is an important part of setting up your dropship business. Your business needs to be registered. This will vary depending on which country you live in – check out my article on how to register for an ABN in Australia. More articles like this will be posted. Stay tuned.
Setting Up Your Dropshipping store guide
- Dropship fees – Ensure you familiarise yourself with all dropshipping fees. My tip is to include these fees in the sale price including any other fees your suppliers may charge. Remember, to make a profit, you need to work out the cost price and then the sale price
Now that we have some understanding of what dropshipping is, the following is a simple checklist of what you need to consider when starting up. I have prepared this simply to provide that starting point but each needs to be researched in detail. Starting this type of business can take weeks to months – Absolutely not something fashioned overnight – you’re dreaming mate.
- Choose your niche – which market do you want to sell in? Examples are dog/cat products, garden tools, kitchen appliances, etc. – Here are 9 Niche Markets examples you may want to look at.
- Research the market and your targeted customers – what’s selling, who’s buying, where are they buying from, what volumes are selling, and when in the year are they selling. There are some awesome tools for this that range from free to paid.
- Research the supplier and products for you which was explained earlier – test and test!
- Selling platform – where and how do you want to advertise your product? Some examples are:
- An online marketplace such as:
- Amazon FBA and Amazon sellereBay, Facebook, or Instagram.
- You can also try using dedicated eCommerce platforms such as Shopify or WooCommerce, Wix, Alidropship (with integrations to your site) plus many more where you can personalise your store through easy to complex customisation.
- An online marketplace such as:
- Create your site and start adding your products – Domain and Hosting
Hosting providers
- Hostinger (who I personally used)
- NameHero
- Siteground
- Namecheap
- Shopify
Domain registers
- GoDaddy (also does webhosting)
- Only Domains (my personal favourite)
- Namecheap (also does webhosting)
- Hostgator (also does webhosting)
There are so many more so it’s a case of shopping around. I will have new articles on hosting and domains soon so stay tuned!
- Fulfill orders and send them to your supplier – manually or automatically – A great example is Alidropship. They can also build you a turn-key e-Commerce website at a cost. Check them out!
Summary
There’s no better time to start than now. But remember, to become successful, you MUST plan and execute well, or you will spend a lot of time and money for no result.
Please check out more of my articles on here.
