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If you have been thinking about starting an online store for some time or are looking for a formula to do business on the Internet, you may be interested in knowing the system that I am going to define today.
It is about dropshipping, a way of selling through the Internet, in a very non-traditional way and that, as you will see in this article, does not require much investment and has very few risks.
As you know, the network is a world full of opportunities, but for succeed with an eCommerceAs with all traditional buying and selling businesses, you usually have to make an initial investment to acquire the most important factor: the product you offer in your store.
However, this link in the chain (investment in products) does not have the same role here, if you use the dropshipping sales technique.
But first of all, I would like to define this term and explain what exactly it consists of.
What is Dropshipping?
In its literal translation from English, it means “drop shipping”. This term may be quite well known by the denominations, also Anglo-Saxon: “dropship” or “drop shipment”.
Therefore, we can define it as:
Dropshipping is an online sales model that allows you to buy products individually from a supplier, so that it is the supplier that sends them directly to the final customer.
Instead of acquiring a large amount of inventory, you partner with the wholesale manufacturer, also called “drop shipper”, by prior agreement or negotiation.
This method has been revolutionizing the way traditional logistics works for a few years now, since the online store should only be in charge of carrying out purely bureaucratic functions, such as order management, collections and customer service and possible interested parties.
Although most likely you will need a .
What is Dropshipping?
Normally, the process works as follows:
- Suppose you are the entrepreneur or eCommerce entrepreneur (retailer).
- You create your website and publish the products of your online store there, from which a customer places an order and pays for that item.
- Then, you inform the manufacturer of this order, which ships the products directly from its warehouse to the final consumer, with the signs or badges of your store (retailer), or even without visible badges.
In this way, the manufacturer only charges for the “net” cost of the product, adding a dropshipper commission on final price of this one.
Therefore, you would remain as a simple intermediary and your benefits would lie in the sum of the commissions that you manage to earn for all your sales.
Advantages of using the Dropshipping method
These are the factors why it is recommended that, if you are thinking of starting a business idea, it should be done using this technique:
1. Start-up costs
The investment in inventory is one of the biggest items of expense when establishing an online business.
However, this formula avoids this problem, eliminating the risk of spending money on items that may never be sold.
2. Items can be offered almost instantly
Usually, when a retailer wants to start selling a product, they have to wait until they have received it before posting it on their website.
With this sales model, when you decide you want an item on your website, you can start advertising almost immediately.
3. Wider catalog can be offered
Having the ability to offer a wider range of products is always something a digital business should aspire to and with this technique it is possible.
With Dropshipping there is no need to worry about the different colors or sizes to have in stock or where they are going to be stored.
They are simply published on the website and the supplier takes care of everything else, once the order is placed by the dropshipper.
4. New products are tested without risk
When adding new products to the catalog, the risk of not selling them takes a backseat with dropshipping.
Having to guess what customers want is often difficult for any business, so being able to test without making a real investment is always a competitive advantage.
This, without a doubt, can of your eCommerce, seeing the recurring user that you continually offer new products.
5. Time is saved in organizing tasks
Organizing stock and preparing it for delivery can be a time-consuming nightmare.
Using a third party in this process of shipping items saves handling, labeling, packaging, shipping, and other money and time spent on it.
This leaves extra time for the dropshipper to focus on other complementary tasks on his website, such as, where valuable content is provided for potential customers of his brand.
6. It is not necessary to have an inventory
One of the drawbacks of selling any item is worrying about storing the inventory, keeping track of it, that is, keeping track of it, and even allocating part of the money to pay the taxes related to it.
With dropshipping this does not happen, since all these logistical expenses are borne by the manufacturing or wholesale company.
7. Storage
You do not need a warehouse or any other space large enough to house all the products that are part of your online store.
This, likewise, will fall on the account of the manufacturing company.
Disadvantages of using dropshipping in an eCommerce
However, this sales technique also has its drawbacks. Below I am going to detail some of the most important ones, so that you can be quite typical when starting an online project based on this technique:
1. Scams
You have to be careful with the suppliers and get all the necessary information about them, before making the payments for the requested products.
My advice is always that, before agreeing to this shipping method, you personally meet, if possible, the person in charge or the team responsible for this supplier company.
2. Lack of quality control
The quality of the products may be worse than initially expected and may not correspond to what is indicated on the web.
That is why it is important to keep a firm grip on quality, control the rate of returns and other issues with customers as they will blame the business and not the supplier if they are not satisfied with the item they have finally received.
3. Confusing Fee Structures
If you choose the wrong company, you can end up with no profit or lose money. There may be so many payments that it’s hard to keep track of our money, even if we make the sales ourselves.
4. High shipping fees for customers
If items from more than one supplier are included on the dropshipper’s website, the customer may have to pay very high shipping costs, when ordering a large number of items.
The reason for this extra cost is that they will come from different points. This can one of the reasons for in your store.
In turn, it can discourage future acquisitions and therefore cause you to lose customers over time.
5. Order processing can be difficult
Many companies that use this type of shipment as a sales strategy work with multiple wholesalers.
Each of them imposes different requirements for order processing, billing and shipping. This can complicate things enormously.
The time between the sale of a product and its shipment can also take longer, as there are many previous conversations and actions.
6. Not having all the product information is problematic
Since they never physically handle the products being sold, the dropshipper has no real clear idea of what they are like.
Many times, the manufacturer does not give enough descriptions of the product, does not provide the exact dimensions, weight or ease of use.
The lack of data leaves notable gaps in the website and this is not good for the company, because the little information or the lack of it can deter consumers who could become potential clients.
7. Availability
The availability of a product is not always known until an end customer buys it.
This can be hugely frustrating for consumers, who are under the impression that they bought a product, only to discover that it wasn’t exactly what they expected (or how they expected it to be).
8. Automation
In order to eliminate the above problem, an automated system that regularly updates stock availability throughout the day is preferable.
It is also recommended to ask the supplier to send an email or make a phone call if a certain product is out of stock.
9. Customer service
With this system, there is less responsibility for shipping, but also much less control over the customer experience.
There is no way to ensure that a product has arrived on time and you only know when a customer calls to complain or ask.
At that point, moreover, the problem resolution process slows down, as staff will not have the necessary information at hand and the query or complaint will have to go through a third-party provider before the matter can be resolved.
10. Competition
Finding great products means there will usually be ample competition from other retailers in the industry.
The margins of dropshipping products can be quite low in these cases, because many manufacturers charge a price for the service that makes it very difficult to maneuver, to prevail over other competing companies.
11. Profitability
Ten years ago this sales technique was much more profitable.
The average profitability has dropped quite a bit, with the growth of stores like Amazon and the greater competitiveness in general in the eCommerce sector.
Therefore, it is recommended that, if you want to succeed with a model like this, you have a very powerful and original proposal.
On the other hand, as much information as possible should be offered with the products, while selling accessories and, if possible, complementing the offer with some items in stock.
12. Profit margins
Profit margins vary widely, depending on the products being sold. For high-end electronics, the margins are small, typically hovering around 5-10%.
But for low-priced accessories, the margins are often close to 100%.
However, on average, shipping gross margins are typically in the 10% to 15% range.
Examples of wholesale companies specialized in Dropshipping
Having seen the advantages and disadvantages that embarking on this online sales medium can have, and before concluding my article, I would like to give you some…
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