Dropshipping is the easiest way to start your online store and sell products globally. But that also means competition is fierce. Here is how you succeed in the dropshipping world.
What is dropshipping?
Dropshipping can be a great way to start a business with little upfront investment. It differs from the standard retail model as you don’t need to buy large inventories before selling anything, so that also means you avoid having to deal with storage and shipping logistics.
Instead, if you open an online store using the dropshipping model, you simply display items from other suppliers. When a customer does purchase something, the product is bought from a supplier and shipped directly to the customer. You only purchase inventory when you need to fulfil an order which lowers the risk of opening an online shop significantly.
Finding reliable suppliers is critical. You are still the one dealing with customers so you want to make sure products can be delivered in a smooth fashion and the quality of the items is consistent.
There are a few different platforms that help you find and partner with suppliers, but if you are opening your online store on Shopify then they recommend using Oberlo. It is a marketplace developed by Shopify to help business owners find products to sell from reliable suppliers, and the system integrates with your web shop to make the operational side as smooth as possible.
Low investment upfront
Perhaps the single biggest advantage of dropshipping over the standard retail model, is that getting started is easy and accessible. It is entirely possible to launch an ecommerce store without needing to invest a huge amount of capital in buying up inventory. You only purchase the product from the supplier when you have made the sale and have been paid by your customer.
If you’re in Hong Kong and planning to target Mainland China, the BUD Fund may help lower the costs even more.
Low operational costs
Since you don’t buy inventory or manage stock in a warehouse, you avoid one of the larger cost centres of running an ecommerce store. Especially in the beginning, you will likely be able to run your online store from home working on your laptop keeping your recurring expenses at the bare minimum. Overhead will increase as your business grows, but the idea is that revenue grows along with it.
Easy to test and grow
Another great advantage of the dropshipping model is the ability to do rapid testing. As it’s easy to list products from suppliers, you can quickly test the demand for the product and decide to change your selection if the data shows you there is little consumer interest. That means that you should be able to build up a very appealing catalogue in little time.
And when things do take-off, scaling your online business is much easier as a dropshipper. Say you have found your niche and sales triple overnight, most of the additional work will be carried by the suppliers you work with as they are the ones processing the orders.
Time to kick your feet up? Not quite.
The downside of dropshipping
Low profit margins
No model is perfect, and dropshipping too has its disadvantages. All that convenience and flexibility isn’t free. Overall, the margins are quite low as many competing stores sell items at the absolute lowest possible price – they have invested very little money so they don’t need to inflate margins to make a profit. Plus, every platform or app you use to make things more efficient will come at a cost – some at flat monthly fees some at a percentage per item sold.
No inventory, but you can still stockout
Even though you don’t have your own inventory, you can still stockout when the suppliers you work with stockout. That’s not a unique problem, but as a dropshipper that can get messy quite quickly if you work with many different suppliers at the same time. If you are using a platform to help you with managing this so that you can see inventory in real-time, that can make a huge difference.
Shipping is not easy
When you’re fulfilling orders, you or the suppliers are bound to make a few clerical mistakes here and there. Either way, since you are operating the storefront, you will be the one that needs to take responsibility and deal with customer complaints. Even when they complain about the quality of a product, you are the one that sold it to them so you are the one that needs to take care of customers and protect you shop’s reputation.
But it can get a little more complex than that. As a dropshipper, you will have items in your store from multiple suppliers and 1 customer could purchase items from 3 different suppliers all in a single purchase. To the customer, that’s one purchase so they expect only a single shipping fee. In reality, you would incur 3 shipping fees in total, but you can’t pass that on to the customer. Likely you will have to bear the costs or calculate this into the pricing strategy without hurting your competitive position.
You might be wondering how you can make your dropshipping store work. There will be a lot of competition, and some will offer rock-bottom prices that you simply can’t meet. But the good news is, you don’t have to join that race to the bottom if you are adding value in a way the competition isn’t.
Curate like it’s an art
There are hundreds and thousands of suppliers all over the world that you could work with as a dropshipper. But what you need to do is find your niche in the products you sell, work with reliable suppliers that you can count on, and most importantly find the gems that few other stores offer. Curate the world’s selection and offer your customers something they can’t find elsewhere.
Hook people in with your brand and website
Whether you’re specialising in a product niche, or taking on multiple product categories, making your store stand out will be a lot easier if you lead with a compelling brand. Supported by a powerful brand, you are offering customers more than a store, you are offering them a way to meet their own goals in life and feel good about it. Once you have developed your brand with a story, tone of voice, character, values, colour palette, logo and more - you use all of that to create the most stunning ecommerce website that people can’t resist but explore.
Lastly, you need to put in the work to make sure the world knows about your online store. Digital marketing can be very cost-effective, if you have a strategy and set clear goals for what you want to achieve by when. This is more than a few search ads and paid listings, you need to get in touch with KOLs, build your presence on Instagram, if you’re targeting China you have to own your WeChat game, and it certainly helps to have a launch campaign to kick things off with a bang.
Yes, it can be a lot of work. No, you don’t have to do it alone. We are here to help you get the most out of your business and build a brand that people love…and your competitors envy. Get in touch to find out how we can help you.