What Is Drop Shipping And How Does It Work?
If you have experience buying things online then I am sure you heard about drop shipping. Drop shipping is a very interesting retail business model. You can start a drop shipping business with very low capital in a very short period of time. I will share with things that you need to know about drop shipping in this post. At the same time I will explain what is drop shipping and how does it work.
Although it is easy to start a drop shipping business but it doesn’t guarantee your success. You will still need to put in effort to build and grow your business. Marketing is the most important element you need to taking care of.
I got myself involved in the drop shipping business 6 months ago. The result wasn’t good and I would say I fail in the drop shipping business. My failure is mainly due to the fact that I lack of experience in market and manage drop shipping business.
However, it doesn’t mean that this is not a good business model. I would still recommend you to start a drop shipping business if capital is the main constraint to you. Without further ado, let’s get started to understand what drop shipping really is.
What Is Drop Shipping?
So, what is drop shipping? Basically, drop shipping is a retail fulfilment method where you don’t need to keep the products you sell in stock. Instead, you will purchase the product only when you receive an order from customer. You will purchase the product from a third party and have it ship directly to the customer. The third party is usually a wholesaler, manufacturer or another retailer.
Can you see the different between drop shipping and the conventional retail model?
In drop shipping, you don’t have to manage an inventory. In fact, you don’t own an inventory and you will never see and handle the products you sell. You purchase your inventory as needed from a third party seller. The third party seller will handles the orders fulfilment.
How To Start A Drop Shipping Business?
Select A Niche
Like starting any other kind of business, the first thing you must do is to select a niche. In other words, you must first decide the products you want to sell and the group of people you are targeting. For example, you can choose to sell fitness products and targeting on people who wants to lose weight. Ideally, you should select something that you are passionate about. It is much easier for you to work on something that you like.
Source for Supplier
Once you have decided your niche, the next thing to do is to source for supplier. Meaning you will start looking for supplier that can supply the products you want to sell. This is an important step. You should select a supplier with good selling record by reviewing the feedback from their customers. Shipping cost is another element you should taking care of because it will affect your profit.
AliExpress.com is a good choice for you to search for suitable supplier. AliExpress.com is an online retail service in China offering products to international online seller.
Select Your Selling Platform
There are 2 ways you can sell your products online. You can either sell your product on social media like Facebook or you can setup your own ecommerce website. When you sell on Facebook, you are relying on Facebook ads to promote your products. Whereas, your focus would be more on branding when you own a website.
If you like to have your own ecommerce website to show your online presence, you can consider using Shopify. Shopify is an ecommerce platform that allows you to set up an online store to sell products. With the help of plugin like Oberlo, you can easily import products from AliExpress into your online store. This is very ideal for people who wants to start a drop shipping business.
Promoting Your Drop Shipping Business
Once you have complete setting up your online store, the next thing to do is to start market and promote your products. Social media is the best place to promote your products. Facebook and Instagram are among the most popular social media to promote your products.
Setting up an online store is not difficult but running an online store that can bring you profits is a challenge you will be facing. Marketing is something you should really master if you want to success in drop shipping business.
If you are interested in creating your own online business, you may want to check out my article on 4 steps to create a successful online business.
Benefits Of Drop Shipping
Low Capital
Capital is the biggest concern and challenge for most of the people who wants to start an online store business. This is because you must invest money in your inventory up front. I am sure you don’t wish to tie up your capital on purchasing inventory.
With drop shipping model, you don’t have to purchase your product until your customer place an order and made a payment to you. In other words, you will only buy product when customer pay you money. With this, you can start a drop shipping business with low capital without buying your inventory up front.
You Don’t Have to Deal With Physical Products
With drop shipping, you don’t have to invest in inventory up front, it also means that you don’t have to deal with the physical products yourself. This will save your hassle in doing the following matters:
- Managing a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns shipments
- Managing stock level
Wide Range Selection of Products
With drop shipping model, you can offer a range of variety products on your online store at no additional cost. This is because you don’t have to purchase your products up front for selling. If your suppliers have that items in their stocks, you can offer it to your customers.
Run Your Business From Anywhere
Drop shipping business is so flexible that you can run it from anywhere as long as you have a computer and internet connection. You can manage your business and communicate with your customers anywhere in the world.
Drawbacks Of Drop Shipping
High Competition and Low Margin
Drop shipping is a highly competitive business because it is so easy to start the business with low capital. Everyone in the drop shipping business is competing to gain more revenue by selling at rock-bottom prices.
Shipping Issues
It is possible that you sell wide selection of products from different suppliers. If this is the case, you will face the shipping complexity issues. Your customers might receive their items separately from different shipment. This will also complicate your shipping cost because it involves multiple suppliers.
Difficult to Keep Track on Out of Stock Products
While you can source for your products from multiple suppliers, but you must know that the supplier is also fulfilling orders from other sellers. You will face the challenge in keeping track of in and out of stock items.
Supplier Errors
Below are some common mistakes from suppliers:
- Mistake in fulfilling orders.
- Low quality products
- Botch shipments and low-quality packing
- Missing items
Conclusion
Starting an online store business has been always been my dream. With drop shipping model, you can easily set up your online store with low capital selling wide range of products. For people who want to start an online store, it is really an ideal choice.
However, drop shipping doesn’t guarantee your success in the business. You must still put a lot of efforts to build and grow your business.
I hope my article could help you gain better understanding of what is drop shipping and how does it work. Lastly, thank you for stopping by and I have you enjoy reading my post. Feel free to drop me a comment below.
To Your Success,
Kwah Choon Hiong
