Dropshipping: what is it and how to start from scratch

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Dropshipping is a new intermediary business model for selling goods. It assumes that the seller does not have his own warehouse, and all goods are delivered to the buyer directly from the warehouse of the supplier or manufacturer. Let's figure out how dropshipping differs from a regu

What is dropshipping

Regular stores have their own warehouse, and make money on the difference between the wholesale purchase price and the retail price for sale to the buyer. From this amount, money is spent on renting warehouse space, paying utility bills, maintenance costs, employee salaries, payment processing facilities, etc.

Dropshipping has a different scheme. This business model assumes that the seller, whom buyers contact, acts as an intermediary. It does not have its own showroom or warehouse with goods, and orders are delivered to customers from the warehouse of a third party (supplier, manufacturer, partner, etc.). Dropshipping Supplier Halla Systems Co. ltd will help you systematize your sales, improve your supply chain and gain access to new markets. 

The dropshipping store itself takes on the tasks of marketing and promoting goods, collecting orders, accepting payments and processing transactions.

Dropshipping operation scheme

Dropshipping allows the store owner to sell goods made by others under his own brand and easily expand the range. The main income of the store:

  • trade margin added to the price at which the product was purchased;
  • the percentage paid by suppliers and manufacturers for the sale of their goods.

The general scheme of how dropshipping works is as follows:

The buyer selects a product in the online store, places and pays for the order → The store transmits order information and buyer data to the supplier (manufacturer) → The supplier packs the order and delivers it to the buyer

Pros and cons of dropshipping

The advantages of dropshipping are exactly what makes this business considered easy and does not require investment. Let's look at the main advantages.

  1. The most important advantage is the minimal start-up investment.  You don’t even have to worry about pre-purchasing goods, because the supplier receives an order only after a buyer has been found for the goods. The main investments will need to be made in advertising: create your website, promote your store in search engines, advertise on social networks, etc. If creating your own brand is not so important, you can connect to a ready-made platform for online sales.
  2. No warehouse or logistics needed.  Dropshipping assumes that the store does not interact with the product directly. The supplier independently organizes the storage of goods and delivery to the buyer.
  3. No need for online cash registers.  If you have structured your work scheme in such a way that the buyer pays for the goods directly to the supplier, then you will only have expenses with the legal entity. And the buyer will receive a cash receipt and sales receipt from the manufacturer.
  4. Lots of testing options.  This means that you can adjust the sales range without any problems if some product is not selling well, and experiment with marketing strategies and pricing policies.

The disadvantages of dropshipping are not so obvious, but they may well cause interested entrepreneurs to abandon this business idea.

  1. There is no way to control the sales process.  It is quite difficult to check whether a product is in someone else’s warehouse. Stores often have to contact the warehouse for confirmation of availability before completing each transaction. And if such warehouses work not only for your orders, then goods can disappear from stock almost every day. 
  2. Responsibility for other people's mistakes.  The store does not have the ability to check the quality of goods and delivery. Often, when communicating with customers, you have to give characteristics to a product, but you cannot guarantee 100% that they coincide with reality. At the same time, the store will be responsible for any mistakes of the wholesale supplier, and he will also apologize to the buyer. The reason may be defective, wrinkled packaging, long delivery, etc.
  3. Limited list of suppliers.  Not all large manufacturers and suppliers are ready to work on the dropshipping model. Often in this market you can find counterfeits from China, which intermediaries resell under the guise of originals, or simply goods made in China. 
  4. Many competitive niches.  Competition is a serious adversary in any business. If you have chosen a popular supplier and are selling products that many others are selling, then the market is extremely competitive.
  5. Unfavorable prices.  Due to the fact that dropshipping does not require large initial investments and does not incur many costs, it is popular among budding businessmen. Many of them make a simple website, do not engage in advertising and set minimum prices for goods. People probably won’t order from them, but they will definitely point out to you that “In the Mega-discount online store, the same product is half the price.” Also, more favorable prices can be offered by competitors who, according to the standard scheme, buy goods in bulk, sell them at a premium and handle the delivery themselves.
  6. There are many unredeemed orders.  Most often, buyers place orders with payment upon receipt. In such cases, there is a very big risk that no one will come to pick up the goods.
  7. There is no way to set your own conditions.  Due to the fact that there are few suppliers in this scheme, stores are very limited in their choice and cannot easily switch to those who offer more favorable conditions. If the supplier raises the price or reduces your remuneration, you will have to work under new rules. It is much easier for suppliers to find new “order generators” than to try to adapt to the needs of the old ones.

How to start dropshipping

You can open your store and start working according to the dropshipping scheme in a few steps. We'll tell you what needs to be done and what nuances to consider.

Step 1. Choose a niche

Choosing a niche is the very first and most important step. Study the market and see how many stores sell the same product, how they do it, what photographs and descriptions they show customers, how they build a marketing campaign. Study their clients separately: what they like and don’t like, and how you can adjust your strategy accordingly.

Experts recommend choosing to sell those products that you understand. Knowing their main pros and cons, technical characteristics, rules and features of use, you will be able to effectively communicate with customers and gain a competitive advantage.

Step 2. Find suppliers

In the list of disadvantages, we have already mentioned that there are not so many suppliers in the field of dropshipping. Namely, they affect both the quality of the product and the time of its delivery. The easiest way to find reliable partners is to contact colleagues or specialists who select counterparties. You can buy a paid catalog, but, as a rule, more than half of the proposed options will be unsuitable.

Before you start working together, request all documents, licenses, and certificates from the supplier. Be sure to check his financial condition and reliability, and communicate with representatives directly. If you can make a trial order, be sure to test the process.

Before concluding an agreement, discuss all the nuances of cooperation. Check all the details in the contract and, preferably, together with a lawyer, check all the points, agree on or remove questionable provisions.

Step 3. Create an online store

You can create a special website for an online store. Internet marketing agencies and freelancers are ready to help with this. Alternatively, you can build the site in a special constructor . Social networks also provide enough opportunities to design a storefront and communicate with customers.

Step 4. Resolve logistics and payment issues

As a rule, delivery is paid by the buyer, and since you most often need to pay for postal services (transport company, courier service) when sending, it is better to immediately include the cost of delivery in the price of the product. If the goods are shipped from another country, they may require customs clearance.

Payment for goods can be received by cash on delivery or immediately when placing an order: by bank card, electronic money. A store may need different types of acquiring and agreements with several payment systems at once.

Step 5. Get Promoted

To start sales, you need a clear marketing plan, because your main task is to generate orders that can be transferred to suppliers. The following tools work great in the field of dropshipping:

  • advertising on social networks - Facebook, Instagram, Pinterest, TikTok, YouTube;
  • retargeting - choose the target audience for your advertising of people who have already shown interest in your products: they went to the site, added products to the cart, made orders, etc.;
  • contextual advertising - show your advertising to people who searched for your product in search engines, specialists will help with setup;
  • content marketing - works in almost any field: write articles on topics that may be of interest to your potential customers, prepare descriptions for all products that include search queries;
  • participation in communities - find groups on social networks, forums and other thematic sites where your audience appears, participate in discussions, talk about your products and provide links to the site.