What is DropShipping?
Great question, now let me answer that for you!
DropShipping is a great way of creating an online or e-commerce store, without the need for inventory! It is a form of retail fulfilment, in which the e-commerce store isn’t required to hold any form of inventory.
The packaging and postage is dealt with by the manufacturer or wholesaler, who will ship their product directly to the customer.
This model basically flips the standard retail model on its head and allows businesses to purchase items directly from the 3rd party merchants without ever having to see or touch the product.
As with any business idea or fulfilment, there can be pros and cons – so here they are!
Pros to DropShipping
Low Startup Costs
Compared to a standard model for shops or e-commerce sites, DropShipping does not require you to invest thousands of £/$s in inventory and in some cases tens of thousands.
When researching things that I could do to earn extra money at Uni, DropShipping was one of the top ideas that kept on popping up!
For example, a private label company or a new store using a wholesaler would require them to pay for the inventory they would be selling on their store, up front before they could even begin to think of selling.
A DropShipper does not require this, and you could easily start a DropShipping site with just a few hundred £/$s or less.
If you start using Orbelo and Shopify to run your DropShipping store, you could essentially run a store for 14 days for free, and then only start paying if it’s profitable. If you then decide to increase your conversions and go at it seriously, you can look into better themes such as eCom Turbo (read the review here).
Or if you are a bit more tech savy and want to use sites such as WordPress to do your DropShipping then you can get a site set up and going from as little as $79 using plugins and themes such as AliDropShip (read the review here)
Low ongoing costs and overheads
As you don’t have any inventory to hold, you don’t have to invest in inventory management software, fulfilment companies or warehousing. One of my DropShipping sites currently costs me $120 a month to run and another costs me just $39 a month to run! And I run them all from home, on my laptop. I have even taken my laptop to other countries with me and run them from there. A standard brick and mortar business could run you into the thousands each month, and that could just be the rent.
Again running a store on Shopify cost me the base price of $39 a month, and I required no additional apps as the eCom Turbo Theme had them all added too it. I also didn’t need to run hosting or anything like that as Shopify deal with that for me.
Switch it over to my AliDropShip store and I still only required about $79 but that site requires a higher level of hosting due to the traffic, and I added a number of paid for apps on too it to increase conversion, which I am slowly starting to turn off as AliDropShip increase the apps that they offer as part of the app!
Can be run from anywhere
As mentioned before, you only need a laptop to run a DropShipping business (well and a phone) and that gives you the freedom to run it from anywhere with an internet connection.
Set up and go with ease
Having inventory, or brick and mortar store can make it a lot harder to set up your business. As said before, running DropShipping store means you don’t have to worry about;
- Managing, paying or trying to keep track of your stock levels
- Warehouse costs, or fulfilment costs
- Packaging or shipping the orders (or taking into account the cost of these items when setting prices)
- Returns, or inbound products – You will have to deal with refunds or sorting out broken items, but you don’t have to get them sent to you!
So many products to choose from
Depending on the niche you decide to go for, or even if you decide to run a general store, you are not tied down. Because you don’t have to buy the item to start with, you could fill your store with hundreds of products and give your potential customers so much to choose from! When a supplier you work with has a new product, boom so have you.
Grow grow grow!
Unlike a traditional business, taking more orders or dealing with more customers, doesn’t mean you have to hire more packers or expand your warehouse out. Those types of costs are dealt with by your supplier.
You will, of course, have to spend more time dealing with customers or spend some extra time sorting the orders out, but this is a minimal amount of money or work compared to a more standard fulfilment method.
By using the DropShipping model, you can allow yourself to grow with relative ease, and spend the money you gain as profit on areas such as hiring a Virtual Assistant to deal with customer service requests or someone to put the orders through.
As you can see, DropShipping does come with some great advantages, especially lower entry costs and more flexibility, but as with all businesses, there are risks and disadvantages associated.
Cons to DropShipping
Problems with inventory
You may not have to hold the inventory, but you still have to keep an eye on it. If you are using apps such as Oberlo or AliDropShip then you can at least try to keep your stock levels pretty much on track, but big suppliers deal with hundreds if not thousands of people a day, and their own tracking software can cause hassle.
Items are not always cheaper
People perceive DropShipping as a high margin and easy to do business. This is not always the case, due to the low barrier of entry, it is easier and easier for people to create a website, find some products and start advertising them!
Because the cost to start up was so low, some stores sell their products with very small margins, and sometimes will even accept a small loss just to get customers and revenue.
You can mitigate these problems by providing value above and beyond the physical product. For example providing an easy to navigate store, with simple to use tracking pages and good customer service will instantly give you an advantage over a website that has rock bottom prices, poor sales pages and awful customer services (or in some cases…none)
Bundling items doesn’t always work
When creating your store, you will more than likely work with more than 10 different suppliers. One of my stores has over 100 different suppliers, and they each have their own warehouse, shipping companies and time frames.
This makes bundling customer orders together impossible. If your customer buys Item A, B and C, and they are all from different suppliers, you will firstly incur 3 different shipping charges, you will then also be given 3 different tracking numbers and lastly, you will have 3 different potential time frames for the items to arrive.
You can mitigate or at least make this issue smaller by using a fewer number of suppliers as well as explaining to customers beforehand that shipping in smaller quantities or separate packages can reduce tax… but I would read up on the legalities of that (it may be seen as tax evasion)
Someone makes a mistake
It does happen, and it will happen. DropShipping does add a new level of complexity when it comes to making mistakes.
Suppliers do and will make mistakes when it comes to orders, they might send out the wrong colour, the wrong size, sometimes the completely wrong item and you are the face of that company. You are the one who has to sort out the issue by talking to both the supplier and the customer, you have to find a way to solve the problem and fix it for the customer.
By finding a good supplier you can reduce this risk, so look for ones who have lots of orders, high feedback ratings and have good store pages. Ones who are just starting out or don’t have much in the way of feedback or reviews may cause you problems and sometimes can’t handle the sheer volume of orders that you can be giving them (trust me, it’s happened to me). One place to look for a good supplier is Salehoo, they provide access to around 8,000 different suppliers who have all been vetted. Check out the review and see why I decided to start using them for both my DropShipping and eBay side of the business.
All said and done, is it worth the effort?
For me, it was the next step on from having my own inventory and it allowed me to expand and start making money while at uni. For others, the unknown quality of a product, long waiting times and for some the inability to be able to control every aspect of their business can be a major downside too them.
As you have seen above, I have tried to find ways to mitigate some of the problems or at least find ways of reducing them to ensure that you can start running a profitable online DropShipping business.
James started The Online Student as a typical blog telling people about his struggles and woes with DropShipping, Amazon FBA and even Affiliate marketing. He then decided that blogging about it all would give people the skills, knowledge and apps to get up and running (while making a little extra on the side). After a few months he realised it was quite lucrative and decided to work his ass off making it a bit more than just a hobby!