As a new e-commerce entrepreneur, inventory management and investment should be a concern. Therefore, dropshipping is becoming popular in the e-commerce field. Furthermore, many veterans in the e-commerce business will also choose dropshipping to test a new product before deciding to sell it wholesale.
However, whether you're a new e-commerce entrepreneur or a veteran, before starting your dropshipping business, you should ask yourself these questions: What is dropshipping? Why should I choose this model? Is dropshipping worth it?
In today's post, your questions will be answered. I'll also teach you step-by-step how to start a dropshipping business.
What is dropshipping?
Why choose dropshipping?
Three disadvantages of dropshipping
Frequently Asked Questions About Dropshipping
1. What is dropshipping?
Dropshipping is an online retail order fulfillment model that doesn't require a physical store or extensive inventory. The dropshipping process involves three parties: the end customer, you, and the third-party supplier.
Let's explain how dropshipping works with the help of an example.
① An end customer places an order to purchase a T-shirt from your e-commerce store at retail price.
② You place the same order on your supplier's e-commerce store or by phone at the wholesale price.
③ Your supplier packages and ships the package directly to your end customer's address.
This means your suppliers will handle all processes on your behalf, including packaging and shipping. All you need to do is simply open an e-commerce store and receive an order from customers, then purchase the same product from your supplier.
2. Why choose dropshipping?
After learning what dropshipping is, you may wonder if it's a good model for your business. Absolutely, it's a good option for inexperienced entrepreneurs. There are four reasons to choose this model.
Less capital
When beginners want to start a business, for traditional retail businesses, a large capital requirement is the biggest challenge they'll initially encounter. However, the biggest advantage of dropshipping is the minimal start-up costs. You don't need to invest a lot of money in stocking inventory upfront.
Easier start
For dropshipping, you'll be fine even if you have no business experience. You just need to spend a little time learning the basics before starting the business. Plus, since you don't need to prepare inventory in advance, you don't have to rent a warehouse to store products. Plus, you don't have to worry about shipping.
Low risk
If you are a new entrepreneur, it is advisable to start with dropshipping, as you do not need to bear the pressure of a large inventory.
Or if your business is relatively mature and you want to develop a new product to sell in your e-commerce store, dropshipping will be a better option for you. This is because you can spend a small amount of money testing the product's market before entering the market, minimizing the risk of failure.
For example, if you want to sell a certain type of shoe in your store but aren't sure if it will get a good response from the market, you can dropship the shoe first to test the market and then decide whether to buy it wholesale. It can also help you test whether the supplier is suitable for long-term cooperation.
Flexible management
A dropshipping business can be run and managed well from almost anywhere. If you're partnering with a supplier who will handle returns, all you'll need is a computer to communicate with suppliers and customers. But if you need to manage returns, you may need a storage space to do so.
3. Three disadvantages of dropshipping
Limited profit margin
When we talk about the disadvantages of dropshipping, the first is the limited profit margin. Since the initial cost is very low, there will be many competitors selling the same product as you. Sometimes, they may set a very low unit price due to poor quality.
But you might have this idea: the quality of your products is better than that of your competitors, so it's reasonable to set a higher unit price. In fact, even though buyers may be aware of the quality difference, they'll still compare prices. Therefore, you need to lower the unit price to achieve the desired sales volume.
Furthermore, when you place dropshipping orders from your supplier's store, the unit price will definitely be higher than the wholesale unit price. Consequently, your profit margin will be very limited.
Quality control problem
In the dropshipping model, you simply place an order based on the customer's requirements on your supplier's store. The supplier will fulfill the order on your behalf. Therefore, you cannot see the product throughout the entire dropshipping process and cannot perform quality control.
Quality control
Sometimes, some suppliers lower their quality standards for dropshipping orders. The direct result of this is that you'll receive poor customer feedback, which is bad for your business in the long run.
Supply chain control problem
Typically, in standard e-commerce, you can address all potential issues in the business process, such as customer complaints, returns, etc.
But in dropshipping, you can't properly control the supply chain. Once there's a problem, all you can do is simply contact the suppliers and let them resolve it. And there will be a delay in processing time, as you not only need to communicate with the suppliers but also with the customers. Therefore, time-consuming after-sales service can generate negative feedback from your customers, which will negatively impact your sales and the long-term development of your store.
4. Frequently asked questions about dropshipping
How can I start a dropshipping business?
There are mainly 4 steps to start a dropshipping business:
① Select a product to sell in your e-commerce store.
You should spend enough time researching the product and analyzing whether it is profitable.
A niche product is a good option for you. The reason is that there will be fewer competitors selling the exact same products as you. Also, since there aren't many identical products on the market, buyers will be willing to spend more money on those products, allowing you to make more profit.
2 Select a reliable supplier to cooperate with.
A good supplier is very important for a stable, long-term business, as they can guarantee product quality. Due to the price advantage of products made in China, many beginners will choose to import from China. AliExpress will be the first website they choose to find suppliers.
But there are many other good platforms in China where you can find reliable suppliers. I've summarized the top 15 dropshipping suppliers in China for your reference.
③ Create an e-commerce store.
The most widely used platform for creating an e-commerce store is Shopify. There are three pricing plans to choose from, and there's also a 14-day free trial.
Shopify Pricing Plan
4 Marketing
Customer sources are important for your dropshipping business. But how do you acquire customers? Instagram, Facebook, Google Ads, or other social media?
You can actually create a Facebook account and share a few posts about your product to gain some customers. But no matter what method you use to gain customers, it's best to research it thoroughly and choose the right one.
In a nutshell, starting a dropshipping business is easy, but running it well isn't easy. You need to do a lot of work in many aspects, such as choosing products, finding good suppliers, advertising, and so on. But there may be some dropshipping scams you should avoid.
Is dropshipping legal?
Dropshipping is definitely a legitimate business model and is simply a form of fulfillment where suppliers handle shipping. Furthermore, many experienced entrepreneurs choose it as an additional sales channel.
But some countries will have specific rules for operating the business. For example, in the US, if you want to operate a dropshipping business, you must obtain a US reseller permit.
Therefore, to enable you to operate your dropshipping business smoothly, you should learn the dropshipping policy in your local country before starting.
Is dropshipping worth it?
Of course, dropshipping is a worthwhile business whether you're a new beginner or just want to develop a new product. As I mentioned earlier, there are many advantages to this business model, for example, it only costs you very little to start the business.
But if you want to run it well, you need to spend time learning how to run a store. Only then will you be able to make a lot of money with your dropshipping business.
How to deal with product quality problems?
Since you can't touch the product, having a good supplier seems very important to ensure product quality. Manufacturers are usually required to conduct regular quality checks. But sometimes, a quality issue is unavoidable. Therefore, before deciding to cooperate with a supplier, you should communicate with them in detail about their return policy.
When you receive a return request from your end customer, you should address it according to the agreement between you and your supplier.
To finish
I hope you benefit from my post and gain the knowledge you need. If you find this post helpful, please share it with others. Also, if you have any questions about dropshipping or experience with dropshipping, please feel free to share it with us by leaving a comment.
We, the leading sourcing agent in China, can not only help you wholesale products from China, but also provide dropshipping fulfillment services. This means we can help you ship products to your end customer, saving you significant time and money. If you'd like to learn more, please don't hesitate to contact us.
