Dropshipping is often seen as a quick and easy way to make money selling online with little financial investment, but is it really that simple? In our guide to dropshipping we take a look at the benefits as well as the downsides, and talk you through the basics of setting up a dropshipping ecommerce business.
What is dropshipping?
Dropshipping is a fulfillment method for retail businesses where the seller doesn’t physically have the products they’re selling. When someone purchases from a dropshipper, the seller then purchases the item from a third party and it’s shipped directly to the customer.
What are the benefits of dropshipping?
Less money to get started: You don’t need to have a large amount of money upfront to invest in stock. Most of your money can go into setting up your website or marketplace account, and marketing.
Simple set up: Because you don’t have to deal with the physical products you avoid a lot of the logistical issues that you would have with a standard ecommerce business. You don’t need to deal with stock deliveries, or store your products. You also don’t have the responsibility for picking, packing and shipping the products - one of the most time-consuming processes for other online shops - and, you don’t have to do stock checks.
Low overheads: You don’t need to pay for somewhere to store your products, and you’ll be able to run the business yourself until it gets a lot bigger. You’ll also be able to work from pretty much anywhere, all you really need is a computer and phone to manage your business.
Possibility to expand: Most of the time consuming processes like packaging and shipping are completed by your manufacturer or supplier. This makes it easy for you to scale your business because an increase in orders doesn’t require as much additional work as it would for a normal ecommerce business.
Flexible inventory: As you haven’t invested a lot of money into buying large amounts of stock you can easily change what you sell.
What are the downsides to dropshipping?
Dropshipping, in theory, eliminates a lot of the stressful and time-consuming elements of running an online shop, so what are the downsides?
High competition, low margins: The things that make dropshipping so attractive also make it a lot more accessible. You’re likely to be up against a lot of competitors who are often trying to beat each other with extremely low prices.
Shipping costs: Shipping costs will vary for each supplier. When a customer orders several products from different suppliers you’ll have to pay the shipping charge for each one, but you shouldn’t pass this cost on to the buyer, so you’ll probably lose some of your already low margins to pay the shipping.
Issues out of your control: While the supplier has the responsibility to package and ship orders, you have the relationship with the customer. So, if something goes wrong with the delivery, it won’t be your fault, but you have to take the blame.
High product costs: Because you’re asking the supplier or manufacturer to send out individual items rather than bulk orders, you’ll probably be charged more than if you were buying wholesale.
Complicated inventory management: You have to make sure your suppliers have the items you’re selling in stock. You’re likely to have several different suppliers, so keeping an eye on all of their stock levels can get very complicated, very quickly.
Packaging: You’ll have little control over the quality of the packaging that your products are sent out in. Packaging is the first impression a customer will get of your business and an important part of your branding.
How can you dropship?
The first step towards starting a dropshipping business is finding and developing a good relationship with suppliers. Once you’ve decided what products you want to sell there are a few ways to go about finding suppliers: you can search online, contact the manufacturers directly to find their distributors, or use a supplier directory. A lot of UK suppliers won’t be able to facilitate sending out products individually, so you have to be prepared to spend some time and effort finding ones that are able to dropship for you. Find out more about how to find suppliers to dropship from here.
It can also be worth finding more than one supplier for each product that you sell, especially for your best selling items, so that if one is out of stock you can still deliver to your buyer from another supplier.
The other thing you need to set up is your website or marketplace shop. While it is possible to start a dropshipping business on eBay or Amazon, the seller fees will eat into your already very low margins, so a lot of dropshippers will set up their own website. The rules for dispatch times and feedback on marketplaces also mean that any issues you have with fulfilling orders from your supplier will affect your seller ratings.
When you first start your dropshipping business you should order and check out the products you’re going to be selling. It also helps if you’re selling a popular item to take your own product photos rather than using the manufacturer’s photos so that your products can stand out.
Overall, dropshipping appeals to many new online sellers as a quick and simple way to start a successful commerce business. However, the high levels of competitions and low-profit margins, as well as handing control of a large part of your business to a third party, means that it can be very difficult to grow a successful ecommerce business.