THE ULTIMATE GUIDE TO DROPSHIPPING IN 2020
When managing a business, the cost of inventory could be overwhelming. Buying products, stockpiling them, and hoping that one day customers order for them take a great deal optimism – and yes, significant financial investment.
The enormous risk percentage of this business model is unappealing to aspiring entrepreneurs. However, with dropshipping, you are saved the migraine of owning and stockpiling products.
Dropshipping essentially leverages an on-demand business model where customers order products from you, and you simply connect with a supplier, shipping it to the customer.
The risk percentage is notably smaller in this case because you don’t have to own the product, waiting when the customer requires it. With dropshipping, you don’t have to pay upfront either.
Dropshipping gives you a soft landing into the world of entrepreneurship. It allows you to own a business without directly shouldering the traditionally associated risks.
With the world becoming more connected digitally by the day, dropshipping gives you a global market. When managed properly, you should be swimming in cool cash.
To better answer the question “what is dropshipping“, I have put together this emphatic guide on how dropshipping works, covering the finest details like how to source products, source suppliers, and avoid common killers in dropshipping.
Complete digestion (and application) of this guide is sure to help you build a dropshipping empire that not only pays your bills but enables you to live that beautiful life you have so terribly fantasized about.
Ready for the ride?
Why is everyone in love with dropshipping?
There are several reasons why you should be in the dropshipping business. Let us explore some of the selling points of this model.
You don’t need much to start
One of the major determinants of the economic viability of a business is the capital requirement. For dropshipping, you don’t need much; this is a low-barrier entry business.
You may only need to pay for setting up your ecommerce store. The rest pays for itself as you don’t have to worry about inventory.
Stockpiling is one of the biggest problems of traditional brick-and-mortar retailers. This requires sizable capital. But in dropshipping, you only buy when your customer has made his order and paid.
All these factors come together to make dropshipping remarkably easy to start, most especially in the absence of physical management of products.
This means you don’t have to make provision for a warehouse nor worry about stock level management, inbound shipment, or packing your orders.
What more, the flexibility of dropshipping makes it almost irresistible. Provided you have a stable internet connection, you can do business from anywhere in the world. Such an internet connection will suffice in sustaining communication with your customers and those supplying you.
Operational costs are incredibly low
To run a business successfully, your overhead cost should be significantly lower than your revenue. The cost of managing a dropshipping business is astonishingly low compared to a physical retail outlet.
You can manage this business on-the-go or in a dedicated workspace, possibly at home. How to start dropshipping? Just get your computer, internet connection, and online shop up, and you are practically good to go.
Due to its notably reduced operational cost, dropshipping helps you test a particular product before transitioning to full-blown operation. This way, you have a more accurate idea of customer adoption for that product.
Let us say you want to test a new product line, you wouldn’t need to roll out the full business – spending massively – and optimistically banking on your customers liking the product. This is flimsy and most times end up catastrophically.
Depending on how well that product line performs, in terms of how well your targeted market welcomed the product, you can choose to go full scale or possibly adapt your model with the practical insights derived from the dropshipping experiment.
Not a bad way to test the waters, is it?
The scalability of dropshipping is another massive selling point
Few entrepreneurs – if any at all – start a business with the intention of remaining small forever. Down the line, when you enjoy sustained growth, you would have to scale. The big question now would be the seamlessness of expanding the business.
Scaling a physical business requires far more effort, money, and strategic planning. You would need to procure more infrastructures from production to storage to delivery logistics.
However, with dropshipping, scaling up is more fun than work as you basically outsource the increased responsibilities to your suppliers.
Do your customers now need more? No problem, your suppliers will just supply more! Don’t you like it that easy?
You can sell just anything you want
Unlike in physical businesses, you don’t need to be limited to a specific bandwidth of products. In dropshipping, you are the sole captain of the ship and can decide to sell just anything that suits you.
The most important consideration here is if your customers will find the product appealing. Since there is no added cost for listing on your shop (and no need to stock that product), you can virtually sell anything.
Challenges of doing dropshipping today
Well, why we have emphatically looked at some of the most glistening attractions of dropshipping, let us state here that there are corresponding disadvantages that come with dropshipping.
Answering the question of what is dropshipping will require to objectively examine both sides of the coin – the good and not-too-good aspects of dropshipping.
Prices aren’t always attractive
If you spend a significant amount of capital in setting up a business, it is only natural that you wouldn’t sell your products for peanuts. The need to recoup your capital will directly affect the prices you set, right?
Given that dropshipping’s operational cost is low, there is a tendency from your competitors to reduce their prices drastically. Expectedly, prices will drop as your rivals strive to consolidate their competitive advantage with far-reduced overhead costs.
Some of your competitors don’t care much about how thin their margins are since they are not making considerable financial and mental commitment to their dropshipping.
You wouldn’t really blame them as they are spending peanuts on the business. Their websites are paltry, just satisfying all righteousness. Their customer service could be poor too.
Sadly, your customers will not consider the considerable investments you are making in your dropshipping. Painfully, they would measure your prices against those low ones from your lousy competitors.
In such circumstances, it would be almost suicidal to set prices far steeper than your competitors’ prices. This forces you to crash your prices to mirror existing market prices. Effectively, your margins could be low.
Also, considering that dropshipping can almost run on autopilot, some of these vendors have dropshipping as a side-hustle instead of their primary engagement. This way, they wouldn’t complain if they manage to scrape off crumbs for profits.
The competition could be overwhelming
The sad truth is that the lucrativeness of dropshipping is no longer a secret. Unlike in the early 2000s in the dropshipping industry’s infant days, today, the industry has remarkably exploded with swathes of players.
This isn’t shocking. The beauty of dropshipping is there for all to see, and given that the business is a low-barrier entry business, just anyone can get started tomorrow.
Bigger dropshipping businesses can criminally drop their markups, practically pricing you out of operation. This is possible because the dropshipping is entirely open source with almost no ultimate regulatory authority to peg prices.
Your prospective buyers have a larger spectrum of options because of such consuming competition, always gravitating towards the cheapest seller on the block.
If you regularly have to slash prices to keep up with the exploding competition, your margin would become so thin that your dropshipping business will ultimately become unsustainable.
The good news, however, competition is fiercer in more popular niches. With remarkable streamlining, you can trim down to build your dropshipping on one particular niche. This we will be learning down this guide.
It could be challenging tracking inventory
Yes, the fact that you don’t have to physically curate your inventory (in the case of dropshipping) is itself an advantage and disadvantage. On the gloomier side, not having a physical stockpile means more challenges tracking your inventory.
Considering that you are not physically administering your inventory, you can’t accurately and punctually determine which of your goods are out of stock.
Your customers can place an order, but you could discover that a specific product is out of stock upon reaching out to your supplier.
Undoubtedly, this will not only hurt the fluidity of conducting business but would eventually (in severally repeated scenarios) hurt your credibility and reliability in the eyes of your buyers.
This problem of syncing with your suppliers is common when you get supplies from more than one warehouse. Well, this challenge isn’t as notorious and devastating as it used to be.
With the increasing sophistication of dropshipping technologies, it is far easier to synchronize with your suppliers’ stock levels. These days, it is possible to monitor your supplier’s inventory level of your supplier.
Also, with more adoption of advanced automation technologies, it is possible to automatically delist a product from your online store once your supplier’s stocks hit zero.
There is the risk of legal liability
In dropshipping, you may not be able to tell the genuineness of your suppliers’ merchandise accurately. As a budding dropshipper, it is highly unlikely you will even have the apparatus to confirm their legitimacy.
You risk facing legal liability issues if your suppliers lack the intellectual property for the stock they supply you. There have been repeated cases of suppliers criminally adopting another company’s trademarked logo or even selling products whose intellectual property belongs to another firm.
In this case, you risk being prosecuted for complicity despite being completely innocent in the whole sham. This problem can be reasonably assuaged by using very credible suppliers or, better still, leveraging a robust Dropshipping Agreement Contract.
You may not have complete control over the supply network
One big challenge associated with dropshipping is that you don’t preside over the supply chain. The party in charge of the chain is your supplier.
Unless you have a myriad of suppliers (which is admittedly not easy to manage), your supplier typically decides if and when you get stocks.
There is very little you can do in dropshipping if your buyers are dissatisfied with the product quality. Yet you must answer to your buyers for such ugly scenarios.
You wouldn’t be able to do more than forwarding the complaints to the supplier and hope they promptly resolve it. Worse still, even in this optimism, you have to guarantee your customers that the problem would be immediately and permanently solved (and often it isn’t that promptly resolved), putting your credibility on the line.
In some cases of suppliers with lackadaisical customer service, they seem to take centuries to reply to your queries. With such rickety correspondence between you and the supplier, the issue may not be that promptly fixed anymore, costing you customers.
This is a substantial departure from conventional ecommerce, where the store owner is predominantly in charge of the whole process from determining product quality to return policies to controlling the speed at which the product is eventually delivered to your buyer.
So far, these are the most pressing challenges associated with dropshipping. But don’t fret, is there any genuine business without disadvantages?
It is relieving that having uncovered the landmines in the dropshipping industry that kills many businesses, we will outline the best steps to take to navigate your way to success in this industry.
Ensure you get your market research right
I can arguably say that lack – or inaccuracy of market research – is one of the deadliest mistakes dropshipping entrepreneurs make. What is dropshipping without quality market research? A risky gamble!
A sizable fraction of the challenges we pointed out can be eliminated with proper market investigation before you start.
If you get your market research right, you can manage to pick a very profitable product to sell without having to battle with enormous competition.
Agreed, you may not readily come across this type of product without doing exquisite due diligence and digging into the market’s nooks and crannies.
We will be emphatically looking at market research later in this guide, given the extremely critical role it plays in the success of your dropshipping escapades.
….to be continued