“Dropshipping! Drop shipping! Step up! Find your greatest freedom as a business owner – sit somewhere on the beach and coordinate your entire business remotely with little effort! ” – this is probably what a snake oil seller would sound like if he preached drop shipping…
However, leaving preaching aside, there is something you should know before you drop drop and build your whole business around it.
In this comprehensive guide, we will cover all the ins and outs of drop shipping as a business model that you should know if you are considering the path for you.
Chapter # 1: What is direct shipping (dropshipping definition)? (Overview)
Dropshipping looks simple on the surface. This implies that you create your own e-commerce store and contact suppliers who receive your orders and send those orders to your customers. It is a little different than e-commerce compliance.
In short, it is designed so that you don’t have to store any inventory and don’t have to worry about shipping or logistics costs.
It looks great, right? Well, not that fast.
Here’s how it works exactly:
In the direct shipping scenario:
- (1) The customer pays for the product.
- (2) Only after you receive money from the customer, do you pay the supplier to place the order.
- (3) The supplier sends the final product directly to the customer.
In the classic trade model:
- (1) You get the materials or product elements from the supplier + at this stage you also need to pay the supplier.
- (2) The customer pays for the product.
- (3) You send the product to the customer.
As you can see, the most significant difference between drop shipping and the classic way of operating is that you don’t have any product inventory . Instead, you only pay when the customer has already given you the money for the order.
This makes drop shipping one of the few business models where you don’t have to spend money before the customer actually pays you, which minimizes many of your risks.
Chapter # 2: Pros and Cons of Dropshipping
The retail side of e-commerce is worth more than $ 220 billion and is expected to increase to $ 370 billion by 2017. Much of this pie will leave carriers.Retail ecommerce marketMarket sizein $0100,000,000,000200,000,000,000300,000,000,000400,000,000,00020142017
|Year||Market size in $|
|Good earning potential with a reasonably low barrier to entry.||You outsource much of your customers’ satisfaction. Someone builds and ships the product. This is just a big part of the overall customer experience. If anything goes wrong with your supplier, the customer will continue to blame only you. In general, you lose quality control as you cannot see or use the product before going to the customer.|
|Independent location (mostly). For one person small businesses, most of the time you just need a laptop and an internet connection.||You are more likely to meet copycats – people trying to do exactly what you are doing.|
|Less capital needed for initial investment. With direct shipping, you don’t manufacture anything, so you don’t need to invest in inventory, materials, tools or anything else related to creating a product.||Returns can be difficult. Based on the contract you have with your suppliers, customers may be required to return the products to you and then you must take care of the return / claim process yourself. During that time, keeping the customer happy can be difficult.|
|You buy from your suppliers only after you have made your money.||You lose control over the quality / speed of the shipment. In a business where you do everything from A to Z, you also control (almost) everything. This includes all things related to shipping. With a drop shipping business, basically by definition, the Shipping part is out of your control.|
|It is easier to scale your business. Quite simply, as a shipping company, increasing your sales volume is not so much linked to higher product / operating expenses. You have your suppliers doing the heavy lifting in that department … with one exception – more on that in the corresponding cell »||As you grow, more sales means more customer support. This is the only area that you cannot escape. Even with service provided by your suppliers, customer service is still in you. This is just simple math. While selling 100 products compared to 10 products is no longer costly for you, 100 x 10 customer support is.|
|Less overhead. There is:no storage is necessary as you do not keep any products with youyou don’t need to pack anything,no need to track your inventorythere is no need to hire more employees to handle more products or sales.|
|Easier to rotate or change direction. If your current shipping business model doesn’t do well, it’s easier to change routes and start offering something else. Compare that to the traditional model … where you would need to invest in new tools, materials, processes and whatnots.|
Action Tip # 1:
Scroll through the list of pros and cons above and think about how you feel about each one. Are any of them a show-stopper or game-changer for you? The goal is to learn something about you and your approach to the dropshipping business model. Having your mindset and a good idea of how significant you think these pros and cons will help you decide whether direct shipping is something for you – which is the topic of the next chapter.
Chapter # 3: Is drop shipping for you?
Did you know that, according to E-DSS.org, about 27% of retailers on the Web have transitioned to drop shipping as their primary order fulfillment method.Retailers vs drop shippingAre drop shippingAren’t27%73%
|Are drop shipping||27|
The first honest answer you really need to give yourself is whether drop shipping is something you really should , and not so much if it is something you can do. You need to consider all the pros and cons, and also check that the model is in line with your vision, objective and real market / niche.
To help you with this, let’s start with the most common misconception in land transport and probably also the main cause of failure for many shipping companies.
Drop shipping is not
Let’s define something straight. Contrary to what that fictional snake oil salesman told you, failing to ship is not doing anything while sitting on the beach. Far from it!
“Drop shipping = easy money” is a very wrong mindset.
Think of it this way:Drop shipping is mainly about outsourcing the most inconvenient parts of producing and / or selling a product.
In such a scenario, you allow professionals to take care of what you are not good at or what you cannot afford to do.
Just to give an example – and it will be a recurring example in this guide, since it is easy to understand – if you want to sell designer T-shirts, but do not know how to sew, you have two options:
- (a) Learn to sew or hire someone who can.
- (b) Outsource the production process entirely to someone who masters it and takes care of other aspects of the company.
In other words, the business is still yours – you are the brain behind it all. The only difference is that, instead of handling everything in-house, you outsource product development / assembly and order fulfillment.
Drop shipping seems like an incredible concept when you look at it, but to really take advantage of it, you must find your own place in the market, and choose a niche that you can really serve well.
And it may not be as simple as you might think.
Action Tip # 2:
What do you think your main struggles can be when it comes to the challenges of dropshipping? Write down your main concerns with 5. Having them on paper will help you decide if they are really serious enough to prevent you from trying out the direct shipping model in your business.
Chapter # 4: Choosing your niche, market and finding suppliers
Another misconception about drop shipping is that you can start in almost any niche imaginable, and that you will be able to make it profitable, no matter your previous experience.
This simply is not true.
Keep in mind that no matter what market you are in, you will find several competitors – competitors far more experienced than you, who may have been in this market for years and who probably have a much better understanding of customers and their needs.
The fact that your initial costs are low – due to the shipping delivery model – does not mean that you will be able to compete effectively with them.
That is why you should really choose a niche that you know and understand . This will give you some additional advantages over competitors who may not have invested the same amount of research or personal experience.
And don’t get me wrong, you don’t necessarily need the salesperson’s niche experience, but the following would help a lot:
- you are a consumer in that niche – you have bought several products in that niche, and you understand what is good / bad about them and how to make things better;
- you have professional or academic experience – you are educated in that specific area, which allows you to approach it at a more professional level;
- you’ve done research in that niche – even if only among your friends and family, but the point is that you have some first-hand understanding of the target audience;
- you have witnessed other businesses in the niche go up and down, you know the mistakes + how to avoid them;
- and so on.
Having some kind of understanding of the niche will not only help you compete and serve your customers better, but it is also especially important when it comes to suppliers who send products directly to their customers.
Without any knowledge of the niche, you will not be able to pick up anything suspicious about the quality of the products, the process, the price, or anything related (read: you will fail).
How to find suppliers / senders
This is the case in most industries, and even more so in drop shipping: finding quality suppliers is crucial to your success.
Let me say it again… finding quality suppliers is crucial to your success.
How about we go back a little bit? If you work on the traditional model – where you keep the stock – and spoil something, then at least you have the means to fix things and do everything for your customers. After all, you control the entire process.
But in the direct shipping model, if the orders delivered to your customers are substandard, it’s basically back to the drawing board for you. As much depends on your suppliers, you can’t just fix what they did wrong. The only thing you can do is find new suppliers. However, this is not always feasible on the spot, and your brand’s reputation can suffer in the meantime.
That is why working with the right suppliers is so crucial.
Okay, so how to find these suppliers:
1. Think local
Thinking locally is my first recommendation, simply because it is the most manageable solution and, in most cases, facilitates contact with the supplier.
Specialized drop shopping companies found on the web are great for finding more competitively priced suppliers or for finding niche products that may not exist in your region – and we’ll talk more about them in just a minute – but they may not necessarily be the best choice for your specific market.
Sometimes, or often, you can find local suppliers willing to send to their customers, if you just have a conversation with them and offer them a good deal.
For example, there is a home-made bakery in my local area that, over the years, has transitioned to the role of a direct delivery provider. Basically, they started baking amazing cakes and selling them at local cafes, where they were sold by the piece (standard model).
But then, these cafes noticed that customers loved those cakes so much that they started asking how they could have them whole. Then, the cafes started taking orders from customers and sent them to the bakery.
In this model, cafes receive the order, receive payment from the customer, buy the cake from the bakery and the bakery delivers the cake at the customer’s door. Classic drop shipping.
This is just an example, and may not be applicable to your specific situation, but I hope you can see that the possibilities are really endless for local businesses.
The easiest way to get started would be to think about how you can make a deal with a local supplier, which would allow them to sell your products to a wider audience through your online store.
2. Try online suppliers
Another place to look, after exhausting all the local possibilities, are several online providers.
The good news here is that there is actually more than you can shake a stick. The world leader, Aliexpress offers the largest directories of Chinese suppliers, while platforms like Salehoo or Oberlo not only connect you with suppliers but also provide more value.
Salehoo has great training resources, a support forum, and market research tools that help you estimate profit margins and look for trends. Oberlo, on the other hand, is an integrated Shopify platform for direct shipping.
You can find some of our favorite product shipping companies (vendors and software) that operate on the Web. But don’t treat it like the gospel, be proactive and do your own research. It is a good start, however.
Things to watch out for when choosing suppliers
No matter where you go looking for suppliers, you should also pay attention to some red flags that may indicate that a supplier is not that good:
- Browse online reviews and sites like Trustpilot, or even Google. Stay tuned for any negative opinions or opinions about your suppliers.
- Be careful with ongoing fees. Suppliers that require ongoing fees just for the chance to work with them can be a scam.
- Do your math when dealing with minimum order sizes. This is something that you can find with larger suppliers.
Action tip # 3:
Create two lists:
- The first is for local companies that can potentially abandon the ship for you. You do not need many entries on this list. Even 1-3 is enough.
- The second list is for online senders who have the types of products you need. Having 3-5 entries would be nice.
Scroll through each list and plan how you will reach these companies.
Okay, with suppliers ready, it’s time to think about the products you can offer. You probably already have some ideas … that’s when the next step comes into play. Hold your seat:
Chapter # 5: Don’t think about products – think about how you can add value
I’m sorry to be the bearer of bad news, but thinking that you can be a simple go-between won’t work.
If you don’t add value, you will not succeed.
“Wait wait! Isn’t this delivery shipping thing supposed to get someone else to fulfill the order after I collect payment?! There’s no room to add more value to that, right?!” – you ask.
Well, actually, there is a lot of space.
Here are the possible approaches to 4:
Method # 1: “The Teen Method”
Among many things that teenagers want – as far as I know – is to be different from their peers, or at least to be perceived as different (although positive).
Translate this to drop shipping … you must position the specific products you are selling to be somehow different from everyone else.
The ultimate goal is to be able to stand out and be unique, even if, at some point, a competitor starts using the same charger.
If you don’t add value in any way, it will be impossible.
Let’s take Teespring as an example.
(Some argue that Teespring is an affiliate company – where you’re just promoting other people’s products – but the line between affiliates and drop shipping can be very thin, so let’s stick with it for the purpose of this guide.)
Teespring is a place where people go if they want to buy cool t-shirts. But the interesting thing is that the market is oriented by the community. Everyone can come, create their own t-shirts and put them up for sale. If someone buys, it is Teespring that takes care of fulfilling the order.
If you want to sell with them, what you bring to the stage are their unique designs. These unique designs are your added value. It’s what makes you unique, and what differentiates one seller from another, even if they both use Teespring.
The key here is to position your product to be different and / or customizable in some way. Many shipping providers allow this type of thing.
In addition, you need to think about profit margins. In general, the more customization you introduce into the product – the more your input – the higher your margins can be. Even following the basic example of t-shirts. White drop shipping t-shirts don’t give you much room for margins, but t-shirts with original designs can go up to 3x-10x the order price for a blank tee.
Method # 2: “The angle grinder method”
Make your offers directed by angle, rather than guided by bare product.
Let me use another example to illustrate what I mean.
And it will be a very boring example: selling car insurance.
Now, any type of insurance is technically a virtual product, since the customer does not receive a product that he may have. They just take a promise . However, it is still a product in itself.
So, if you are selling car insurance in a simple way, you will probably market your offers like everyone else… “cheap, safe, reliable, no payment gimmicks, etc.” Basically, you are focused on the product.
Another way is to take this generic product and try to look for an angle that you can use while marketing it.
For example, you can investigate all insurance plans, analyze them thoroughly and create a list of those that are best for high performance cars and car modification enthusiasts. The plans offered by your business serve only that specific customer – the customer who likes to drive fast and modify his car.
By providing them with tailor made plans, you are taking an angle on a niche. At the end of the day, you’re selling something similar to your competition, but you’ve invested your time to find out what really suits your target audience.
You can do something similar in most niches.
Method # 3: “The Cleanex Method”
The third method is simply to clean up the mess and make the product clearer overall.
Many suppliers sell products that do not have a well-defined goal or target market. Other products have unclear manuals, or even unclear sales materials, so that customers don’t know what to do with them, or even why they should buy.
You can make all of this clear.
- Market the product through your own personalized descriptions and promotional materials.
- Create a “Getting Started Guide” for the product.
- Create a “Best Configuration” package where you tell the customer what is the best way to configure the product (when dealing with technological tools, machinery or even vehicles, for example).
- Offer additional support and customer service packages.
Method # 4: “The supplementary offer”
This applies to those who already run an e-commerce store and are looking for ways to expand their inventory.
You can treat direct shipping as a good way to complement your current offer.
A good start would be to research the types of products your customers buy most often and try to look for senders who can provide complementary products (products that track what you have).
That way, you can add new products to your portfolio and at the same time, you don’t have to produce them yourself.
Example: selling custom workout clothes? How about adding exercise equipment at home?
Action Tip # 4:
Which of the above methods seems most likely to you?
Order them from the most likely to the least likely.
Take entry # 1 and brainstorm specific ideas on how to bring it to life. Where are you going to start? How will you add value specifically? What will you customize? Etc.
Final product considerations
At the end of the day, the product is obviously the most important element and the differentiating factor. Without good products, you won’t get very far.
But the message I want to leave you with is not to wait for you to hit a big prize on the first try. Any business – including direct shipping – involves a lot of trial and error.
Chapter # 6: How to create a website for direct delivery
Okay, so everything above was still what I would call preparation on your way to launch a shipping company. What comes next is the technical material related to the site.
First things first, you need a website to do all of this work. This website will serve you in several ways:
- This is where your customers see the products and can order them.
- This is where you collect payments from customers.
- This is where you manage orders.
- This is where you can configure the pipeline to send these orders to your suppliers.
- It is where your suppliers can communicate with you and inform you that the order has been fulfilled.
In one sentence, the website boosts your entire shipping business.
Now, before I scare you, building a high quality website for this purpose is no longer difficult, especially in 2016.
You do not need to hire a designer or another “website pro”. You can do most of the work yourself.
For example, Shopify has a great guide on direct shipping, and they made it very clear that they created a system that caters to those who deliver shipped products. What this means is that you can securely sign up for Shopify – a hosted website service – and they will help you create and launch your direct to A to Z website with minimal technical problems.
Action Tip # 5:
This is simple. Shopify offers a free trial . Just get them on that offer and test the platform for yourself. If you don’t like it, there is no problem. there are some alternatives out there as well.
Chapter # 7: Marketing your online store
Setting up a successful e-commerce business with dropshipping is not just about finding the right suppliers and listing your products online. In most cases, you won’t be able to just list your product and assume that audience members will find it, like on Amazon or eBay.
Dropshipping works best when you know how to market products successfully sold online. Once you’ve found the ideal product and created a store that encapsulates your brand, it’s time to market with everything you have.
If you’re starting out on a relatively tight budget and don’t have much money to spend to make your business stand out, don’t panic. There are many things you can do to promote your company that don’t cost a lot. Here are some ideas to get you started:
- Advertising on social media : You can easily spend thousands of dollars on social media advertising – but you don’t have to go that way. You can advertise your dropshipping store on platforms like Facebook, keeping your budget low and targeting only the most specific people you know who will love your products. It is a good idea to focus on a small target area with your store initially as well. Even if you can ship worldwide, it will be cheaper to work with a dropshipping company in the country where you and they are. The smaller your target area, the less you spend on advertising and shipping.
- How to redirect ads : If you are on a very tight budget, redirect ads are great for keeping your costs low, but still attracting people to your business. Redirect ads work by reactivating customers who have already seen your products and businesses online. There are many tools that can help you redirect when you are setting up your e-commerce platform. The idea is that you advertise again the products that your customers have already seen, encouraging them to return to the shopping cart.
- Influence marketing : Starting a dropshipping business will require a lot of upfront work. However, having an influencer campaign set up is an excellent way to boost your business. Influencers are brilliant at getting your product to the right people. Remember, it is best to keep influencers smaller at first, as these people are generally less expensive. The right micro-influencers are yet to help transform your retail business, yet get more customer orders.
- Content marketing: Content marketing can be an expensive way to advertise your dropshipping products in some cases. If you’re paying professionals to write your content, it’s easy to run out of money quickly. However, if you know your e-commerce site and your brand well, you can write your own content and start there. While content marketing may not help you get much benefit from dropshipping initially, it will improve your position on search engines. This means that you will get more organic traffic in the long run.
- Comments and testimonials : Finally, if you have a successful dropshipping company that delivers products as quickly as traditional retail companies, ask your customers to give you feedback. Reviews and testimonials from satisfied customers are perfect for generating social evidence for your brand and offering new ways to connect with your audience. You can even ask your customers to leave their reviews on several leading sites.
When you start to master your small business’s marketing process, remember to optimize too. Just like content marketing, it is crucial to optimize your website with meta descriptions, backlinks and other essential SEO signals. While SEO is more of a long-term strategy than a solution to attract more dropship customers instantly, it is essential if you want to develop a successful long-term brand.
Many of the best online retailers spend a fair amount of time and effort to ensure that they can connect with search engine intermediaries when trying to reach customers.
Chapter 8: Shipments and Returns
We have one last point to be covered in this dropshipping guide and it is especially important. Remember that you still need to make sure that you are handling shipments and returns correctly, even with dropship suppliers. While it is true that your dropshipping companies deliver products to your audience, it is up to you to ensure that they are providing the right experience.
Choose the wrong dropshipping suppliers for your supply chain and you could end up with products that never reach your customers. It is up to you to deal with the complicated refund process.
Start by choosing a dropshipping supplier based not only on the wholesale price of your products, but also on the type of service and the fast delivery they can offer. Choosing someone who offers multiple shipping options, such as expedited shipping, etc., is also a good start.
Once you know which shipping providers you can trust, the next step is to find out how to handle dropshipping returns.
Returns are never fun in any business, but if your customer decides they don’t want your item in a dropshipping situation, they will need to ensure that you get your money back from your supplier and will need to re-deliver your products as well. This is one of the few disadvantages of dropshipping. Here are some steps to get you started.
Know the return policy
When shopping for dropshipping suppliers, pay close attention to the terms and conditions they have on the website. What kind of process do they have to accept returns. Do they immediately refund your credit card or are there other issues to consider?
- How long do you have to return the product after a sale?
- Does the customer need to pay return fees?
- Will error requests be returned free of charge?
- How is the return experience handled?
Create your return policy
Once you know how your suppliers handle returns, make sure you have a policy that matches theirs. You should use your supplier’s policy as a framework and ensure that you are not giving your customers promises that you cannot keep. For example, if your supplier has a 30-day return window, do not give your customers 40 days.
Ideally, you want to give your customers a little less time to return the product, so that you have time to deliver the product to the supplier, in order to take into account any delays and problems in shipping. If you have multiple suppliers, try to meet all your policy requirements. For return times, use the supplier with the shortest return period as a guide. That way, you will get all products back with plenty of time.
Another good idea is to ensure that you do not provide a product return address in terms and conditions or on the contact pages. Instruct your customers that, if they want to make a return, they can contact you. This will allow you to provide the customer with the dropshipping supplier’s address, saving time and postage. You really don’t want your audience to send it to you first, as it just wastes time.
Only accept returns that also have a tracking number. The last thing you want is for your customer to claim that they sent the item, but ended up “lost in the post” without proof. You need to ensure that a tracking number is included to be able to track the product every step of the way.
Handling the return process:
With your return policy in place, the only thing to do is ensure that you know how to handle returns from start to finish. The average return policy should look like this:
- Your customer sends an email or message requesting a return. You find out why the customer is sending the product back, then contact your supplier and request a return merchandise authorization number. You will need to apologize to the customer and take responsibility for the customer not being satisfied with your product, if you want to have any chance of getting him back in the future.
- We expect your supplier to approve the return. They will provide the return address and the requested number, so that your customer can send the product directly to them. Depending on the supplier’s return policy, you may need to include your number on the shipping label instead of the shipping box. A tracking number will also be essential to ensure that your customer actually ships the product.
- When the package arrives, you have a few options. If your customer sends the package to you, inspect the item and take pictures to find out exactly how you are returning the product to the supplier. If the supplier receives the item, just keep in touch to see when the package arrives. You should get a refund then.
- After you receive your refund and everything is resolved, deal with customer support. This may mean that you send a refund to your customer or request that a replacement item be sent, if the customer requests it.
Now you know exactly what direct shipping is and how you can become successful with your own direct shipping website. Just to recap:
- (1) It all starts with finding a niche that is relatively untapped and validating.
- (2) Then, you must locate suppliers who are going to be reliable and helpful in your dropshipping journey.
- (3) Find out how you can add value through the products you will be offering.
- (4) Launch a website to connect all the dots together.