Last updated: What is dropshipping? Definition, examples, benefits

What is dropshipping? Definition, examples, benefits

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Dropshipping has become more and more popular in recent years.

Forrester Research data found that over 40% of retailers were already dropshipping even before COVID sent e-commerce sales soaring.

And according to a 2020 report, the market is projected to reach $591.77 billion by 2027. Even large online e-commerce businesses such as Stitch Fix are reportedly considering adding elements of dropshipping to their mix.

What is dropshipping: Definition

Dropshipping is a retail fulfillment model where the store doesn’t actually have any products in stock. Unlike a traditional retailer, with dropshipping there is no inventory to purchase, no packages to send, no warehouse to maintain. Instead, a dropshipper sells products and fulfills orders by buying items from a third party that ships them directly to the customer. Shoppers place orders through the dropshipper’s e-commerce website, which are then routed to the third-party manufacturer, distributor or wholesaler who packs and ships.

In an age when e-commerce has grown more fiercely competitive, dropshipping offers entrepreneurs a tantalizing way to get up and running quickly with less risk and deeply reduced costs, since there’s no investment in inventory.

Many use commercial e-commerce platforms to set up their shops and then promote their chosen products widely on Facebook, Instagram, and other social media networks.

Not surprisingly, you’ll find dropshipping spelled several different ways:

  • Drop shipping
  • Drop Shipping
  • Drop-shipping

No matter how you choose to spell it, however, there’s no doubt that dropshipping doesn’t require a brick-and-mortar store or a warehouse, nor does it require a full-time commitment.

But whether it’s a side hustle or a day job, this fulfillment model can offer retailers the opportunity to build a low-risk, flexible, scalable e-commerce business.

What is a drop shipper?

A drop shipper is a business or an individual that uses the drop ship model to source inventory, fulfill, and ship the orders from a 3rd party, instead of warehousing the products, and then fulfilling and shipping the orders themselves.

How to become a drop shipper?

Dropshipping can help retailers compete with the “Amazon effect.” That is, customers have come to expect fast delivery, free or low-cost shipping and endless options — just what they get when they shop at Amazon.

Success with this model isn’t a slam-dunk, however.

Store owners should keep the following steps in mind when it comes to setting up a dropshipping business:

  1. Find dropshipping products that are in demand
  2. Choose a supplier that’s right for you
  3. Select a channel to sell your products
  4. Create your dropshipping website
  5. Advertise and sell your products online
  6. Prioritize customer service and support

Step 1: Find dropshipping products that are in demand

Finding the right products to sell in your online store can be a tedious process, especially if you are new to the e-commerce business. In order to be successful as a dropshipping e-commerce business, you will need to ensure that your ecommerce store merchandises inventory with products that are in high demand.

Finding the right products involves in-depth research to understand what products trending are; additionally targeting a niche market with your dropshipping store can be a great way to generate revenue.

There are many resources available to conduct research on the right products for your dropshipping store, for e.g., Google Trends. Another strategy can be to research top-sellers and new releases on suppliers’ websites. You can also employ competitor research to uncover what products work best for other sellers; some of the competitive channels you can conduct competitive research are  eBay, Shopify, Facebook Marketplace etc. Another place to conduct product research is social shopping sites like Etsy, Pinterest etc.; you can also conduct research by searching product hashtags on social platforms like TikTok.

Step 2: Choose a supplier that is right for you

A dropshipping supplier is vital to every dropshipping e-commerce business.

Without the right mix of suppliers, your dropshipping business will have a difficult time sustaining itself. That’s why it’s essential that you know how to find dropshipping suppliers that will help your business to succeed without bottlenecks.

When conducting research on the right mix of suppliers, you may come across two sets of suppliers generally speaking – dropshipping vendors and dropshipping wholesalers. Dropshipping vendors are suppliers who typically provide product in a particular niche or product range and charge a higher price per unit, whereas dropshipping wholesalers are suppliers who sell products in bulk at a low cost. Working with them means you’ll be able to offer low prices to your customers.

It’s essential for you to conduct research on each of your suppliers, understand their technology, and essentially be sure to speak with suppliers and get to know how they do business before you commit to working with them. Look for red-flags and stay away from suppliers that insist on monthly or ongoing fees to do business with them. It’s normal for suppliers to charge a pre-order fee, and it can tend to be higher for complex orders, but be on the lookout for suppliers who charge higher than normal pre-order fees, as these are the ones to stay away from.

Step 3: Select a channel to sell your products

You have conducted research on products that are ideal for your dropshipping business, you have also identified the supplier that is right for you – the next step is to select the channels where you can market and sell your products.

The sales channels are not all equal, and as a result many selling channels may not be right for you. For example, if you’re selling a very niche product that’s relevant to a specific demographic, then you should probably choose a platform that’s dominated by the specific demographic you are targeting with your niche product.

Understanding your product, its target market, and as a result by narrowing down to the right selling channels, you’re likely to find your target audience – this is critical to the success of your dropshipping business.

Some of the popular selling channels are eBay, Shopify, Facebook Marketplace, and Wix.

Step 4: Create your dropshipping website

A dropshipping website is an online commerce platform where you sell your products. This is where your suppliers connect with your business, your customers find your products, and the technology in the platform manages all of the business processes for you.

One such platform is eBay where you can create a free seller account, and customize your store front according to your business needs. Similarly, Facebook Marketplace is another venue where you can create a free seller profile but lacks the store front customization that eBay offers. Although Facebook Marketplace offers a feature called Facebook Shops, which is an eCommerce platform that lets businesses easily sell their products on Facebook and Instagram.

Another category of eCommerce platforms are Shopify and Wix. Unlike eBay and Facebook Marketplace, the burden of generating organic traffic to your websites can be challenging. However, you have the potential to increase your profit margins by incorporating proper branding, product offers, and promotions in your custom website storefront.

Step 5: Advertise and sell your product(s) online

Now that you have your dropshipping website, you need to drive traffic to the store. You can’t just create a website and expect your customers to find it. You need to promote your dropshipping store, and since your business is set up online, you’ll need to employ tactics beyond just word-of-mouth with your friends, family, or your immediate community.

Hopefully you were thorough in conducting your research earlier in the process – the time you’ve invested in conducting research on your dropshipping products and its target audience will play a major role in your decision making on the right channel, tactics, and right levels of investment needed to drive traffic to your website.

Consider joining relevant social media groups and start participating by adding value for the community members by answering questions that they may ask. Become an expert in the community, and be seen as a trusted resource. Build out specific business pages on Instagram, Facebook, TikTok ,and other social platforms. Engage regularly with the community through regular posts about new products, promotions, or tips-and-tricks specific to products that are of interest to your target customers.

In addition to social media platform efforts, consider investing in paid ads via Google or Facebook Ads. Start with a small budget establish baseline goals, then test your campaign messaging, offers, and pricing. Leverage organic content marketing and search engine optimization (SEO) tactics so that your customers can find your store when they’re searching for products of interest to them.

There is no silver-bullet that will drive traffic and generate sales – you’ll need to employ several of these marketing strategies to get eyeballs to your dropshipping store.

Step 6: Prioritize customer service and support

Customers who receive great customer service are more likely to do repeat business with your brand, even when other companies have similar offerings at lower prices. But on the flip side, bad service experiences can stop the relationship in its tracks.

Customer service has many moving parts to it, besides customers have myriad ways to communicate with you – for example: phone, email, messaging apps, chat, and social media. Make sure to streamline your communication with customers in a personalized and proactive manner. Your “Contact us” page should be visible and easily accessible by offering customers multiple ways to reach you. Response times to customer service requests is key to exceptional customer experience. Test out your customer service experience as your customer would; identify the bottlenecks in the process that need special attention.

Set customer expectations upfront, be transparent on what’s possible and what’s not – especially when it pertains to customer returns. Avoid trying to find ambiguities in your terms & conditions as a way to cut losses. If a customer wishes to return an item within the timeframe stipulated in the terms and conditions, then process it immediately. It will benefit you if you establish a standard for customer returns upfront.

Use negative feedback as learning opportunity to improve your customers’ experience, and make every effort to turn a negative situation in your favor through a positive customer experience outcome. As a best practice, create FAQ content which addresses commonly asked questions relating to product, shipping, delivery, and customer returns.

Of course, dropshipping has both benefits and challenges to consider before getting started.

The biggest benefits of dropshipping

  1. Dropshipping is a low-cost model: You can sell thousands of items, but you don’t have to spend any money until you receive customer payment. In addition to saving money on purchasing inventory, dropshippers do not need to invest in storage or rent.
  2. It’s easy to get started: Since products are handled by outside suppliers, it’s easy to go from zero to 60 with a dropshipping model. No product development, no storing inventory, just selling.
  3. Flexible expansion: Expanding an online store is as simple as adding new brands, sizes and color options to the website. Testing new products is also a snap; if one product doesn’t sell, it can be removed and replaced with another.

Top dropshipping challenges

  1. Loss of control: While a dropshipping business doesn’t keep inventory on hand, it’s fully dependent on third-party distributors or wholesalers following through on orders. If not, customers will complain to the business they ordered from.
  2. Building a brand and product website can be time-consuming: Dropshipping doesn’t mean selling is a snooze. Creating a successful business means building an attractive online store brand and all the landing pages, product descriptions, taglines and links that make a professional e-commerce site stand out.
  3. Competition is fierce: Dropshipping may have low overhead, but competition is also sky-high. Dropshippers don’t have exclusive contracts with suppliers, so it can be tough to keep prices low, while choosing the right product niche can be a challenge.

Brands and retailers can win new customers and retain current ones by considering what a great customer experience involves when it comes to ordering online – adding models like dropshipping should be strategically developed, thinking of each aspect of the customer journey.

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