Dropshipping is a business model that lets brands sell products without stocking inventory. Usually, dropshipping suppliers are responsible for delivering goods so that retailers can focus on other management aspects.
In the article, we describe the advantages and disadvantages of this business model and explain how it works and how to start your dropshipping business. We also provide useful tips on improving the performance of such companies.
Dropshipping Advantages and Disadvantages
According to Grand View Research, the dropshipping market is expected to grow more than 3.5 times from 2020 to 2025. These inspiring statistics highlight the perceptiveness of this business model. Discover more about its pros and cons below.
Let’s start with dropshipping advantages.
- It is easy to start. It doesn’t require much time and effort to launch your company. You don’t need to ship orders, track inventory and manage returns and exchanges. Find suppliers you will work with, register an account on social media or the marketplace and start selling.
- It is scalable. Dropshippers don’t need to develop new products for months if they want to increase the sales volumes. They can find a few new suppliers and offer a wider variety of goods for a larger target audience. Also, dropshippers may spend more money on marketing and raise the number of sales without worrying about product availability.
- It requires a little start-up capital. You do not need to purchase inventory and store it at home or rent a warehouse. The only spending you will have while starting a business are ecommerce platform fees and marketing costs. You may also need a domain if you would like to create a brand’s website, but it isn’t necessary as you can sell through social media.
- You can fulfill orders from various locations. Dropshipping is an online business that lets you communicate with suppliers and clients from anywhere. It leads to high mobility and allows you to combine running the company with other aspects of your life.
- It is a flexible and low-risk model. Dropshipping lets you react to the changes in your audience’s needs and preferences and offer only relevant products without having them in stock. You can adjust your online store assortment anytime it’s needed. Also, such a business model allows you to sell goods from multiple platforms, such as marketplaces, social media, or your website. In such a way, you can diversify risks and be agile.
Now let’s turn to the disadvantages of such enterprise management.
- The dropshipping market is rather competitive and often has low margins. People can launch their businesses fast and without huge spending leading to enormous competition in the sphere. Most business owners try to attract buyers by setting low prices, which hurts potential profits. Dumping is widespread, so you will need to sell many products to earn enough money.
- It may be difficult to track what products are out of stock. Inventory management isn’t dropshippers’ responsibility, which can lead to problems with fulfillment orders. If a client buys something in your store and you find out that there are no such goods at your suppliers’ warehouse, it will dissatisfy a customer and create a poor experience. If such situations happen regularly, it will influence your brand’s reputation negatively.
- You don’t have control over the product quality and the supply chain. The reason is the same: you can’t pack and ship orders on your own. If a customer purchases a few products available from separate suppliers, it will be difficult for you to fulfill such an order and not overpay for the delivery. Moreover, sometimes your buyers may receive goods of bad quality, which will harm your reputation.
- There are limited opportunities for customization. Branding is vital, as it helps raise your consumers’ awareness. Dropshippers can’t always control the product and package design making the goods they sell less distinguishable. Also, they are limited in providing discounts and special offers and have to discuss them with the supplier.
Keep in mind all these benefits and drawbacks while starting your dropshipping company. Continue reading to study how this business model works.
How does dropshipping work?
Shift Shop states that dropshipping is a business model of approximately 33% of online stores. It lets retailers sell goods and fulfill orders without having products in stock. The process goes like this.
- Dropshipper finds a supplier on a database or special application, signs an agreement and discusses all the peculiarities.
- Dropshipper creates a website or social media page, promotes the products, and attracts clients.
- Consumers order goods from a dropshipper.
- The brand’s owner forwards these orders to the supplier who packs and ships them.
- Clients receive products and pay money to the dropshipper.
Such a model is beneficial for both supplier and retailer. The first one can collaborate with multiple stores and reduce marketing efforts, while the second one buys goods at a wholesale price and sells at a retail one. Usually, contractors share the areas of responsibility: the dropshipper deals with the promotion and the supplier works with product development and order fulfillment.
This business model can be extremely effective if you prepare carefully and do everything correctly. We provide a step-by-step guide to launching your dropshipping company in the next section.
How to start your dropshipping business?
Launching a company may seem complicated and terrifying, but it isn’t so. Here we will prove that establishing a dropshipping business isn’t difficult and give some tips to start it successfully.
- Choose your niche and analyze the competition. We recommend you focus on one sphere, such as clothing, cosmetics, technology, or household appliances, and offer the product assortment connected with it. Pay special attention to this step. Although the dropshipping market is highly competitive, some industries are easier to work with. Evaluate companies that have already been on the market and identify their strengths and weaknesses.
- Study your buyer personas. Once you find the niche, describe your ideal clients. You should study their demographics, pains, needs, and behavioral patterns. Segment the target audience according to their preferences and consider how you will interact with each group.
- Find suppliers and test their products. You can search for wholesale businesses on your own or register on an ecommerce platform. Be attentive to the people you are going to work with: they should be reliable and trustworthy. Then evaluate the products they offer. You can order a few goods from every supplier to study their quality, shipping time, packaging, etc. Note that wholesale prices should be at least 30% lower than average retail ones so that you’ll be competitive and make profits.
- Register your brand’s name and fulfill other legal obligations. Once you find suppliers to work with, getting permission to trade from official structures is vital. The legislative nuances vary from country to country, so we suggest you consulting with a lawyer to ensure you do everything correctly.
- Сhoose platforms to work with. You can sell products through ecommerce marketplaces, such as Amazon, but the competition there is rather high. Also, you can start working from a social media account. Many dropshippers do so, but such a model requires continuous qualitative content marketing. We recommend create a handy landing page with SendPulse drag-and-drop builder. Having your website can help you stand out from competitors and attract more clients by using SEO.
- Create a brand platform. Describe the distinctive features of your company to gain a strong competitive advantage. Highlight your brand’s values and purpose, and identify visual language and tone of voice. Remember that all these elements should resonate with the buyer personas’ preferences and the lifestyle they aspire to. Show people how your products can make their lives better.
- Launch your company and promote it actively. It is critical to develop a strong marketing strategy to start sales immediately. Reach the target audience through the channels they use the most often. Combine different approaches to advertising, as it takes 5-7 interactions to remember the company. Use email, SMS, and web push campaigns from SendPulse to catch up with consumers on several platforms.
Now you are almost ready to launch your dropshipping company. Empower existing strategy with the insights we provide in the next section.
5 Dropshipping Tips
Dropshipping is a scalable business model that can help you earn much money. However, to reach such results, you should work hard and develop your company constantly. Below we provide some tips on improving your business and making it more profitable.
- Develop accurate workflows. Good organization is a key to qualitative service. Build your business processes in a way you’ll be able to manage them easily. It will allow you to serve customers better and provide positive experiences. It will lead to word-of-mouth marketing, as 58% of consumers share positive impressions with friends and family. Try our free SendPulse CRM to organize workflows and streamline sales.
- Pay attention to your content marketing. It is especially important if you run your business on social media. According to HubSpot, 90% of marketers with a content plan will continue their strategy. Remember that all photos, videos, and posts you produce should align with your brand platform and be engaging.
- Automate routine processes. Dropshipping may seem easier than a regular retail business, but there are still plenty of things you should care about. Use automation platforms and tools to reduce the number of repetitive tasks and focus on your company’s development. There are more than 300,000 chatbots on Facebook, and this number is growing. SendPulse offers an easy-to-use chatbot builder for you to automate answering FAQs and create sales funnels that don’t need the human element.
- Monitor the trends in your sphere. One of the main dropshipping advantages is high flexibility. When you discover a new trend, you can get in touch with a supplier and start selling such goods very quickly. To promote only actual products, check Google trends and other similar platforms regularly. They will let you find out the things people are interested in now and study the ones that are only gaining popularity.
- Provide high-quality service and be ready to own supplier’s mistakes. In the competitive dropshipping market, it is critical to deliver only positive experiences to consumers. It will help you reduce brand switching and turn new buyers into regular ones. Remember that even the best suppliers can sometimes make mistakes, so you should be able to solve these problems. It is better to consider how you can fix various issues in advance.
Congrats, now you know what dropshipping is and how it works, understand its advantages and disadvantages, and the ways to improve your performance. Start your business and empower it with SendPulse products to skyrocket your company on the market.
Last Updated: 22.03.2023
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