A dropshipping business is a business in which the merchant never handles products. The merchant establishes a relationship with a supplier. The merchant holds no inventory. When a sale is made, the merchant places an order to the supplier who ships it directly to the customer.
The dropshipping model consists of a manufacturer, a merchant, and a customer. The merchant is the middleman who handles the online store which sells the products. This model dramatically reduces the cost of starting a business as you do not purchase inventory ahead of time. Your only overhead is that of setting up and managing the online store.
If you are considering starting a dropshipping business, here are some things you need to consider:
- A niche store is easier to manage and market than a general store. If you handle too many types of products, you will find yourself dealing with numerous suppliers. You will also find yourself competing against online retail giants like Amazon.
- Make a careful decision about what type of product you want to sell. There are some categories of products to be avoided in dropshipping. Those include:
- Copyright products. You will have to do intensive research to find a reputable supplier to avoid knock-off products. Even with a reliable supplier, profit margins will be slim.
- Technically complex products. You will be responsible for issues that arise with the products you sell, and may not have the resources or knowledge to provide excellent customer service on complex products.
- Avoid things that are hard to ship due to weight or fragility. Broken items will leave a string of unhappy customers who can then damage your reputation. Heavy items are complicated to ship and eat away at profit margins.
- Choose a reliable supplier. Nothing can create chaos and frustration faster than a supplier that is unreliable. Again, your business reputation is at stake, so do intensive research before deciding on a supplier.
- Decide which e-Commerce platform you are going to use. Most platforms charge a monthly fee. Decide which options you need, and make sure they allow for expansion as your business grows.
There is one more thing to consider in starting a dropshipping business. Do you want to build your business from the domain name up, or purchase an already established business? If you want to consider purchasing an existing business, check out exchange.com. They are a marketplace for those looking to invest in, or purchase, existing Shopify stores. If you are considering buying an established store, be sure to investigate suppliers and the reputation of the store. Also, do a quick check to make sure that Google or other search engines have not penalized the store.
Important things to know before you invest:
If you decide to build your own dropshipping business, consider how much you can do yourself versus any areas where you may need to buy assistance. As with any new business, dropshipping does require some start-up capital for website design, marketing, and other expenses. Do you have the funds available? Create a simple business plan to outline your goals for your new business. Have one section about getting started, 90 days in, and where you want to be at the one year mark.
You will want to sell products in an industry that is trending upward. However, don’t base your entire business model on the latest trends. Instead, you want a stable industry that has shown consistent growth. Then you decide to dedicate a portion of your store to the latest trends. For example, phone cases are not something people are going to stop needing, so that is your niche. Phone cases with a retro design is a trend. You will sell a certain amount of trendy merchandise, but your business is in an established market.
Make sure you have the time to devote to keep your store running smoothly. Running a new business will take time. You will have to process orders, place orders with suppliers and keep meticulous records. Do you have the time to invest? If so, dropshipping can be a great way to make extra income.