If you’re new to ecommerce, dropshipping might seem like an easy ride to the top. And, for many people, it’s a great method for building an online retail service. However, if you plan to build your business around it, there are a few things you should take into consideration before you jump off the deep end.
Dropshipping, simply put, is when you, as a retailer, do not actually stock the things you sell but, instead, have the items shipped directly from the supplier or manufacturer to the customer. There are obvious advantages to this. First of all, because you don’t have your own stock you don’t need to manage a warehouse, which means you have basically no storage costs. It also means you don’t have the hassle of packing and shipping your orders or keeping track of your inventory, which, in turn, means that you often need very little, if any, staff.
Because you won’t need to manage a warehouse or buy inventory, your overhead costs will be relatively low – many online retails businesses are run from home with just a laptop. Even more importantly, you won’t need reams of start up capital. Generally, the biggest hurdle for traditional retailers is that they need to invest a huge amount of money in inventory before they’ve even opened their doors. With dropshipping you only have to shell out money once the customer has already bought and paid for something, which makes purchasing basically risk free.
Other advantages include a flexible location and the ability to offer a wide selection of products. Because you don’t need a warehouse, as long as you have a reliable internet connection, your ecommerce business can be run from just about anywhere. Moreover, you can offer whatever products you can find suppliers for because you don’t have to worry about storage space.
However, dropshipping is not entirely hassle-free. First of all, while your start up and operation costs might be low, often your profit margins will be as well. Because it’s so easy to get set up, online retail is a pretty competitive market. Many people start their business for next to nothing and sell their products for about the same. Even though you might have a nice website and better customer service, buyers will often still go for the lowest price.
Another common problem is unreliable suppliers. Because the customer will be buying through your company, the supplier who ships the product is completely unknown to them. Therefore, if the item is late, damaged, or never even arrives, this will reflect badly on you – not the supplier. Also, if you work with more than one supplier, and most people in the business do, things can get complicated when a customer orders several items, all of which come from different suppliers. This can often result in several separate shipping costs, which you can’t pass on to the customer because, as they are unaware of the process, they will think you’re wildly overcharging them for shipping.
However, there are ways to get around most of these problems. To raise your margins, be sure to pick a product niche that will either bring in repeat customers or customers who are willing to spend a lot of money, such as hobbyists. Likewise, it’s better to choose a product that has many components or accessories. For instance, children’s dolls often come in collectible sets and have many outfits and accessories that will keep parents coming back. Moreover, if your product is relatively cheap – like dolls’ accessories – people will be less likely to put in the effort of comparing prices than they would be for a more expensive purchase.
To set your company apart from others, make sure to have an attractive website and to add value to your product with things like detailed product descriptions or, if your niche is a complex one, comprehensive buyer’s guides or helpful how-to videos. Going the extra mile will help you to ensure customer satisfaction and, more importantly for your profit margins, customer loyalty.
All in all, this is a great business model for online retailers. With a little patience and preparation, you can avoid common dropshipping pitfalls. By picking the correct product niche, choosing quality suppliers, and providing solid customer service, you can ensure the success of your online business.