Everyone is trying to start a aspect hustle these days. In fact, in step with statistics, as many as 44 million Americans have a aspect hustle. And this wherein dropshipping comes into the game.
If you need to earn a first rate passive earnings by using launching your personal ecommerce store however are skeptical approximately complexities like inventory, shipping, and preserving records, then dropshipping is the ideal option.
However, if implemented correctly, dropshipping will let you make a variety of money.
In this ultimate manual to dropshipping, we cover the whole thing from what it is, to a way to get started, to how to run a a success dropshipping business.
Let’s get started.
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 Best Buy, one of the biggest electronics retailers in the US. Suppose a customer walks into Best Buy, buys a new smart TV, pays the bill, and walks out. Essentially, Best Buy has to store the smart TV in their retail location so that the buyer can see it and make a purchase.
They also have to display the TV, 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 TV from their warehouse, and so forth.
This is where dropshipping is different.
In the case of dropshipping, the retailer doesn’t store the TV at all. Instead, when an online order for a TV processes on their website, the dropshipper automatically notifies the wholesale supplier who delivers the TV 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.
Have a look at these statistics:
- 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 put it quite simply, 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? Start now with nuvacart!
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.
Anyone with a small investment can start their dropshipping company.
Here’s a list of some of the pros of starting a dropshipping business:
1. MINIMAL STARTUP COSTS.
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.
You don’t have to worry about loss in revenue or holding excess inventory.
You don’t have to manage or worry about shipping costs or shipping times as much.
2. MINIMAL 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.
They’ll be responsible for the movement of the product along the supply chain. You only have you to ensure whether the customer received the product or not.
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 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.
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.
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 efficient partners 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. 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 an ideal way of entering the business world for budding entrepreneurs and novices, 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 scenario:
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.
Ready to start dropshipping? Start now with nuvacart!
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:
Here’s a list of 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
- Pets niche ideas: dog leashes, identifiers, toys, etc.
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.
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.
We recommend nuvacart for the ability to use the ecommerce system of your choice! It is very cheap and has a specialized support in dropshipping.
DROPSHIPPING FOR BEGINNERS: FAQ.
Here are some quick answers to the most frequently asked questions:
As already mentioned, 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.
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.
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 (www.nuvacart.com)
- Market your dropshipping store
- Promote using social media platforms and paid ads
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.
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.
Of course, you can. In fact, it’s highly recommended to sell your products across multiple channels, such as eBay, Amazon, etc.
Friday, January 31, 2020