Still do not know exactly what Dropshipping is, what it is for and how it works or what are its advantages for a digital business? Don’t worry, because today you will discover what this powerful sales technique is all about and why more and more users are opting for it to start their own businesses on the Internet.
Contrary to what happened until a few years ago, now anyone who decides to create an online store can also go to a Dropshipping provider, instead of having their own products or warehouses to serve their customers.
Therefore, given the popularity that this concept has reached today and how relatively easy it is to have a business for buying and selling products completely online, I think you should know and better understand what it is, what it is for and how this technique works.
What is Dropshipping?
Dropshipping or “drop shipping” is an online retail sales model in which the products or items that we distribute to our end customer are not kept in our inventory but are bought from a third party (the wholesaler or dropshipper) who dispatches the goods directly.
In this business model, the retailer is only an intermediary who never sees or manipulates the product but buys it directly from the inventory of its supplier, who is the one who completes the orders. Your profit as a retailer consists of a commission on the final price of the supplier or dropshipper. So you do not need to store or invest in having your own stock, just manage orders through your online store and start generating profits.
How does Dropshipping work exactly?
In a Dropshipping, orders are made directly to the manufacturer or supplier, and the latter is responsible for sending them to our store’s customers.
- People access your online store.
- They make a purchase.
- You send the purchase details to your supplier.
- The supplier makes the shipment.
- The customer receives the product.
Imagine that you set up an online store for pet supplies. Now you need products to sell through that store. The normal thing is to buy a stock of products and upload them in your online store and when people visit your store and buy a product, you make the shipment .
So far so good, the normal operation of any online store. You buy stock, you store it, and when someone makes a purchase, you ship it.
Now, the operation with Dropshipping is different than usual. Instead of buying and storing those pet products, what you do is find a wholesale supplier with whom you reach an agreement to package and ship the items on behalf of your online store.
What is the benefit for each of the parties?
The business for the eCommerce owner is that you can sell products without stock and earn a commission on the manufacturer or wholesaler price.
The benefit for the Dropshipper is that you can sell more products on the Internet without having to worry about positioning and / or managing your own online store.
What advantages does a Dropshipping service have for your business?
There are many indisputable advantages of this business model and all are related to the stock and the amount of investment required.
Do you want to know what they are?
1. Limited investment
The risk of creating an online store from scratch is much lower with dropshipping than with a traditional online store.
At the lower cost that online businesses have compared to physical ones, with this model, you can still have a lower income.
The investment that you must finance is limited to the creation of the store, communication strategy and different elements that you want to use to generate more sales.
There are no inventory costs, no warehouse costs, and no shipping costs. There are also no waste, no outdated products, or any type of storage risk (floods or deterioration of any kind).
You just have to worry about selling, selling and selling.
2. Unlimited stock
While the investment is unlimited, the stock is “infinite.”
Your supplier, as long as it is reliable and of a considerable size, will always be ready to respond to your shipments whatever the magnitude of these.
Traditional stores have to face:
- Out-of-stock problems.
- Make exclusive offers on products that do not sell well.
- Change prices to get certain types of products out.
You can choose which products to offer regardless of stock and you will not have to be “forcing” sales of those that are left in the warehouse.
Imagine you have an online t-shirt store that you create yourself.
What is the scalability of your project? Would you be able to respond to an order for 50 t-shirts tomorrow and get it to your customer in 3 days?
The answer is most likely no. However, with Dropshipping your e-commerce can grow at any rate . No matter if a customer orders a product or 20, the supplier will almost always be ready to ship the order and meet deadlines.
Here the selection of a good dropshipper is more important .
4. Enhance your strengths
When you are starting it is normal to feel overwhelmed, there are too many things to take into account.
One way not to jump in the dark at first is to start dropshipping. If you are good at the commercial part, dealing with clients, attracting, etc., you can focus on your strengths.
By removing the logistics part of your concerns, you can focus on the core of your business, selling.
The dropshipper takes care of the rest .
Choosing a good dance partner is important, but it is not the only challenge you will face. Here are some more.
5. Reduction of fixed expenses
As a business, the fixed expenses it generates are much lower than if the business were physical. Variable expenses are subject to successful sales, so little risk is taken in creating this business.
6. No need for hiring
In theory, it does not entail personnel costs, as it does not have a warehouse, it does not need personnel to be able to manage it and keep it up to date.
Disadvantages of Dropshipping
As with practically all new sales techniques that are developed online, they also have some possible drawbacks that you should consider:
Requires a lot of SEO and SEM work
Poor web positioning will cause the business to have mediocre sales. It requires a little budget and dedication to work on SEO and SEM Positioning in order to promote sales.
Taking this into account is essential: without a very good visibility on the Internet, thanks to an organic SEO strategy and a minimal advertising budget in Google Ads or Facebook Ads, there is no type of testing system that can be profitable and survive in time.
Double shipping costs
If the retailer has two or more Dropshipping providers, the downside is that you buy a couple of items from different distributors and thus have to ship two different packages.
This entails assuming a double shipping cost and advising the customer that their packages will arrive independent of each other.
This issue reduces the profit margin that could be obtained by sending a single package, since there are two.
Lack of seriousness and commitment
No matter how hard the retailer tries, gets traffic, or offers excellent after-sales service, the business also depends on the seriousness and commitment of the supplier.
If this does not meet the stipulations, it can lead to a disastrous experience for the customer that makes him go to the competition the next time he buys online.
The responsibility for the reputation of the store is shared, however the final responsibility to the customer rests solely with the retailer .
In reality, this would not have to happen, the dropshipper is benefiting from a new sales channel and it does not suit him to “destroy it”, since many times this type of business is only dedicated to wholesale.
Being a type of business with high growth, competition may suffocate us, which can force us to lower our profit margin , in an attempt to get sales up.
Hence the great importance of the initial decision to choose a profitable niche, with demand but little competition.
Very low margins
By not having to store merchandise and buy stock, the costs will apparently be very small, since you will not have to invest in the product, but be careful because your margins will be too.
Actually the bulk of the product margin is being taken by the supplier, who is the one who has bought or manufactured the product. Let’s see an example:
Suppose we set up an online store and we have the following data:
15% Margin (Looking for a product with a medium-high margin)
0.5% Conversion ratio (Normal ratio in an ecommerce that starts)
To calculate the billing we would simply have to apply the following formula:
Turnover = (Traffic x 0.005) x (Average Product Price x 0.15)
For example, if we have 30,000 visits in a month (a good amount for an ecommerce) and our average price is € 30, our billing will be:
(30,000 × 0,0005) x (30 × 0.15) = 15 x 4.5 = € 67.5
Remember that you do not send the product, but you are selling it, in the case of returns this product «you eat it» you, so it is perfectly feasible that of 15 sales that we have had the first month, at least 2 people return the product, at an average price of € 30 we have already eaten all the billing .
But you have to take more things into account:
If you want to make discounts, this is at the expense of your margin, that is to say that 15%, that is, although theoretically you have 15%, the reality is that this percentage will decrease.
Keep in mind that even if you don’t have to buy products, an online store has other costs that are also borne by the billing you make , such as setting up the store, accessories, advertising, marketing actions, customer service, etc.
You have to bear in mind that you are not the only one who is selling these products, just as you will have many other stores with the same product and the same price, if you want to sell more than them you will have to compete in price since you will be equal conditions, this means that the best-selling products (Every store has a few products that represent almost all its turnover) will be super competitive and this will make the margins much lower still.
Highly competitive products
Like you, many other online entrepreneurs will have created their ecommerce based on this system, the barriers to entry are very low and therefore almost anyone can set up an online store, find a dropshipper and start selling on the Internet, and this it is very bad.
You do not have the ability to negotiate with suppliers, or too much ability to lower margins, but there are larger companies that do, and you are competing directly against them.
The only thing you can do is offer more value than them, in other words, if a consumer is looking for a new computer or mobile, why would they have to buy it in your newly created online store instead of buying it in PC Components or in another of the 200 sites that sell this mobile? If you can give an answer to this, you may have a chance to make your online store viable.
You have no control of the supply chain
In a normal ecommerce, you have a stability in the supply of products, a well-defined shipping and returns policy and generally you tend to know well the product you are selling.
Dropshipping is a system that you totally depend on your supplier, if he makes a mistake, you will be responsible, either for problems in the supply or in the shipment. You could try to contact this provider, but think about it, if you have a low volume (At the end of the day you are starting) the case that they are going to do to you will also be very low.
A separate issue is returns, which, as we have already mentioned, you answer, they are your customers and therefore you will have to give them a guarantee and offer a good return policy (If you want them to buy from you again), and on many occasions (Approximately 15% of the sales of a Dropshipping store end up being returned according to our internal data) the customer will return the product, and you will not only lose the sale but you will have to pay for the product.
It should be said that this is not a very common problem in Dropshipping stores, but it can happen.
Imagine that your provider sends your client a pirated / illegal product or that simply violates the intellectual property of some company. Who is responsible for this? Exactly, YOU who have sold the product.
This can be solved with a contract between you and the provider in which these types of situations are specified but it is not usually done in most cases.
Difficulty making a mark
If there is a firm trend in ecommerce in 2020, this is differentiation through the brand, consumers like to visit well-known stores, and especially brands they know and trust (How many sites that you did not know have you bought a product online last year?)
And this is one of the biggest weaknesses of this system, since the supplier simply limits himself to shipping the product without any visible brand or logo. Yes, we have seen some suppliers that can include your logo but require an extra payment or a significant volume, even so, it is not only the brand, but the details included in the package, the presentation of the product … These details are what make a difference!
These are mainly the great disadvantages that this system has to sell online, but we can also use it in other ways that makes it a very smart system to use:
Types of Marketing Strategies for a Dropshipping Business
The main activity of the retail creator and owner of the Dropshipping business is to attract a lot of traffic to their website to promote sales.
Capturing traffic and converting those visits into sales should be the main objective of the strategy.
An SEO strategy must be implemented, to enjoy a very good positioning and thus be able to gain more visibility on the Internet, since, however beautiful and prepared we have the web portal, if it is not possible to sell, nothing makes sense.
Strategies on the Blog
It is highly recommended that the sales portal have a blog section. This will allow adding value to users or customers with posts related to information about the items for sale, promotions, curiosities and any other topic in accordance with the purpose of eCommerce.
The important thing is to be able to enter content with keywords, both in the articles and in the photos of the catalog and product descriptions, to work on SEO.
Making comments on blogs with similar topics or solving doubts on other pages by providing the knowledge they have, also help to make us more visible.
Strategies with sending emails
When you already have a moderately strong number of customers, you can distribute a newsletter in order to promote sales, send them the latest news, best-selling products section or related news.
Another option that does not require much expense that will enhance the strategy is email marketing.
Social media strategies
Social networks should be used as a platform to spread our product catalog.
It is not advisable to open all the existing and existing profiles, only those that best combine with our business model in this system.
They can be used to publicize the latest news, promotions, product information or even as a post-sale service channel and thus achieve customer acquisition.
Investment strategies in advertising
When starting the business, it is advisable to carry out a paid positioning campaign that gives us an initial push while the SEO strategy does not bear fruit.
It is about getting more sales, so even if the investment is small, it is very necessary. We can also use Google Ads to gain visibility on the search engine results page or create Facebook Ads for social media.
Winning Strategies with Dropshipping
It is true that a characteristic that these strategies have in common is that they require a significant volume of traffic and sales. Let’s see them!
Dropshipping, as we have seen, does not seem the best system if we use it as an end, but if we use it as a means, things change … Look. We can use Dropshipping to conduct market research, and see if our consumer is willing to buy certain products. Well! How, for example, when these cases occur?
You are considering setting up an ecommerce and you are not very clear about the type of products to invest in or in which sector to set up your store, you can use dropshipping to test the sale of certain products.
You already have a running store to put smartphones on it (Be careful with the technology sector, which is one of the most competitive sectors on the Internet and with less margin), if you want to test other types of products before introducing them in your ecommerce, such as smart watches, Dropshipping can be very useful for this.
The idea here is to use this system to have real data to work on and not use hypotheses or ideas, but real data. For this, Dropshipping is a really good and effective strategy.
You have your ecommerce but you don’t know exactly how much product to have, inventory management is complicated…. But the Christmas season is approaching (Or any strong sales season) and there is a risk of selling the products and then not being able to meet this demand.
For this situation, Dropshipping could be used as “safe”, that is, if you sell all your products and you run out of stock, you can use a Dropshipping provider that sends these products that you do not have in stock. In this way you can buy a little less stock and you will not incur so many costs.
Complicated or problematic shipments
When you have an online store and you sell in many countries you can have some complications with shipments, two super common cases:
Shipping is too expensive or it may be that you simply do not pay for the cost of storage and shipping for what you are going to get for it.
Extra fees or taxes, this when you send many products to other countries is a fairly common problem, there are certain sites that impose duties and taxes on products from outside the country.
For this, Dropshipping is also an excellent system, it allows you to have the support of an operator (surely global) that does not have so many problems to send to these countries or that has such a volume of shipments that it can allow to send any product, no matter how cheap that is.
You can even go further and use Dropshipping to test new areas or countries that you are not yet covering. You have nothing to lose!
There are some times that we find products that are complicated to store, care for and ship, so for example we can find:
- Too heavy products : In this case, their transport can become very complicated, and involve large costs if you do not have a good shipping rate.
- Too big products : If a product is too big you have to bear in mind that you will need a good warehouse to store it.
- Fragile products : In these cases, these types of products require very careful shipping, and it is possible that they will not arrive in good condition to your client, so you will have to be very careful with shipping and handling.
- Very valuable products : In the case of expensive products you will have to take into account to keep them properly.
- Products that require certain conditions : For example in food, it is generally required that the products be stored under certain conditions.
For these types of products, it can be very interesting to assess the inclusion of a Dropshipping provider, which is most likely better prepared to store and ship this type of product.
You already have traffic and want to improve its monetization
If you already have users interested in your brand, either because you have a blog where you talk about a certain type of products or because you have a Facebook page with a large number of followers, you can use this system to, instead of having to invest on product and see if your community or your visitors respond, you can first try Dropshipping, and from there you can start building your store, with the sales information that this system is providing you.
Tips when you start with a dropshipping store
- Study the profitability of the product you want to sell , the demand and the saturation of the market, as it is done (or should be done) with any type of business.
- If you choose a provider’s online platform, investigate not only the final profit margins that you can obtain per sale, but also how SEO works (or if it lets you manage it), how its design is, etc.
- Preferably, negotiate directly with manufacturers or official distributors, and so you can agree on the percentage of profit that you will take on each item.
- For the architecture of the store, study which is the platform that best suits your needs, depending on the number of articles, images and descriptive texts that you need, which allows mobile versions, etc. Magento and Prestashop are among the most popular. Shopify is another highly recommended.
- The success of your company depends on your relationship with wholesalers and dropshipping providers . They take care of the shipping of the products, but also of the returns. Try working with multiple providers.
- When applying your profit margin, take into account where the supplier is located : there will be shipping and customs costs if he resides abroad. Not everything that comes from China ends up being cheap.
- Create a community around your store. Invest in SEO and Social Media strategies, and create a blog (or several) with quality content related to the store’s niche.
- If you are just starting out, use Google Shopping to start selling, while the store improves in positioning.
- Depending on the type of product, try to also sell through eBay or Amazon, as it will help you position the store.
- Sell products that interest you too, avoid getting into unknown matters. In this way, you will transmit your personality to the store to differentiate it from the competition.
- Incorporate a chat in your store, it is a simple contact method for users and that they will appreciate when they have any questions about your products. A highly recommended tool for this is Tidio.
How to choose a Dropshipping provider?
It is important to bear in mind that when you start working through this system, you are in a partnership or alliance with another company, in this case with the supplier you have chosen, and this has control over critical areas in your sales process (Quality, Shipping time and even legality), this is why it is important to choose carefully and not “marry” the first dropshipping provider we find.
A very important advice that we can give you is that before starting to work with a supplier that you do not know, make a test request, for yourself and for another person, so you can see first-hand the experience that your client will have when he receives the your ecommerce package.
However, there are several things that you should clarify before starting to work with one provider or another:
- Does the supplier respond to returns? What conditions does it give you? What if they send you a damaged product?
- How long has it promised to take to prepare and ship the order?
- Have you asked if there is going to be a trace of your company or on the contrary is it going to send it without any type of mark?
- How is your customer service? Do they respond quickly? This is one thing you could try yourself
- Do you insure the orders? What would happen in case the order was lost?
- Do you offer any kind of guarantee to avoid fraud or counterfeits?
Remember that it is always very important to read the opinions of other dropshippers who have previously worked with this supplier in order to know “what foot is limping on” and not get caught again. It is also important to sign a Dropshipping Agreement Contract to prevent this seller from breaking the rules you have set with him.
How can I negotiate with a droppshipping provider?
If you get a lower purchase price of your product you can offer the products at a lower price or keep them at the same price but increase the margin, so this strategy of negotiating the price with your supplier can seem very attractive, you just have to ask yourself a question. Who has the bargaining power? You or him?
It is important to know this because if you are starting with your online store and you still do not have too much traffic and your provider is a giant it will be impossible for you to negotiate with him because you do not have negotiating power, but if instead you are a store that you already have enough traffic and your provider is small, you are the one with the most negotiating power and you can make a proposal to increase your margin and be more competitive, in exchange for bringing you more sales.
What do I need to know about Marketing before setting up my store?
It is important that you define if you are going to follow a product or category strategy, if you are going to focus on selling certain products and you are going to put the focus there or on the contrary if you are going to follow a category strategy and include many products that have a category in common and work these categories to offer a set of products to your customers.
The product strategy
If you are looking to work on a product strategy, you are going to have to modify the URLs and their descriptions. It is important that before doing so you define an objective for each type of product.
Once you have the product SEO strategy for each of them, adapt the text and URLs to their specific characteristics.
It is also very important that you make a good internal linking and that you measure it in each product, so that you can know the lists in which a product stands out more and in this way you optimize it in the best way.
It is preferable that if you use this strategy you have a product with a good distribution price, including shipping. Keep in mind that in terms of SEO for products, it will be a fundamental factor to work with comparative models, so the price will be the fundamental selling factor.
The category strategy
This is a very effective strategy for stores that carry out this system since normally the products are the ones with the most searches.
The way to carry out this method is by modifying the name and the description that appears in the pagination of the categories. We are not going to need to go in depth with all the products, but only with the most purchased.
Once we have this done, we will be able to move on to the next step. We will have to give a new concept to each category. To do this, the best thing is to form subcategories of the keywords of the main categories to work the long tail on each of them. Once this is done, we will have to create a descriptive text for each category and subcategory and we will have our strategy in place.
We must take into account the use of canonicals, so that our pagination is on the first page of each of the categories created.
Finally, it is recommended that the main categories do not have lists of the products that make up other subcategories. In this way, you will not see duplication in the created text. Also, you can put the products with the noindex tag until you make sure that the content is changed and is unique.
Platforms to set up your dropshipping store
This is one of the most frequent questions that we have to ask ourselves when starting our online business and being able to sell online. Choosing the right supplier for this type of situation is something that will have a direct impact on the proper functioning of our store.
Therefore, it is convenient to know the budget we have (taking into account that setting up a dropshipping store is relatively cheap) and calculate the necessary margins of the products we want to sell. Once we know this, we will be able to compare between the different providers to be able to choose the one that best suits our sales needs.
Create an online store with Shopify
- With Shopify you will be able to open your business quickly without having to worry about anything.
- You will be able to save on storage and space, also you do not pay for the products until you have sold them.
- It sells globally with a wide variety of providers offering their services around the world.
- It has a cost of € 29 per month.
- Possibility of installing the “Oberlo” extension to have access to a large catalog of Dropshippers.
Create an online store with Mabisy
- With Mabisy you can create an online store for free.
- You can create your ecommerce quickly and at no cost, you will only pay based on the products you sell.
- They include more than 100 products , videos, tutorials, integrations, blog or tools.
I have no idea what product to sell. Any ideas?
If you are going to create an online store it is important that you do it with a product that you really like, that you feel comfortable with it, since it is a process that will cost you, but if you are very comfortable with the product, it will be easier, however after our experience in ecommerce, we can give you a recommendation of a series of products that can inspire you:
- Cloth backpacks, mugs and personalized shirts.
- Motivational or themed posters
- Cheap jewelry material
- Any merchandising object
How do I get traffic for my store?
This is one of the most important parts, without traffic you will not be able to have visitors in your store and therefore you will not be able to have sales. We are going to analyze the main ways by which you can get traffic to your store:
Paid advertising or PPC is a very good way to get traffic for your store, here we find two main platforms:
Facebook works very well for spontaneous purchase products, that is to say that the customer does not know what they want, for example this can be a very good channel to sell mugs, t-shirts, jewelry … These are needs that your customers have but do not usually actively seek.
Google Ads works very well for the needs of your consumers who know and search, for example a wine store, a technology store.
You have to be careful with obtaining traffic through these channels since the low margins that Dropshipping offers us may not compensate for the costs of advertising, it is important to test and assess the return on investment (ROI) of these campaigns.
Social networks ( YouTube , Facebook , Twitter …) are a great tool to give your brand visibility and reach more users who still don’t know you. Here the main tools are: Facebook, Twitter and Instagram.
If you are good at social networks, have a unique style and know how to communicate well, with a little patience you will get a good community on social networks that you can take advantage of to create a store through Dropshippping and be able to better monetize this community.
This strategy is widely used by influencers , who use their base of followers as customers of their dropshipping stores.
Creating a blog / SEO
You can also get traffic through SEO, for this, all you need is to position either your dropshipping store or create a blog in which you talk about topics closely related to your products, so that when you open the store you have a constant flow of visitors consuming content on your blog.
Positioning yourself in Google is not impossible, you can position yourself at the top of the search engine for the words you want but you will have to bear in mind that depending on the sector you are in, it will be more difficult or easier.
SEO tips for your Dropshipping store
Some SEO tips for your online store that we can give you are:
- Create unique texts, both for the categories and for the most important products.
- Fulfill the search intention on each page , that is, that you have each page focused on positioning a certain keyword.
- Link building or link building is very important , make sure they talk about your store in forums, newspapers .
- Avoid incorporating content (Texts) that the provider gives you , these texts will already be used by a large number of stores, show Google that you are unique.
- It offers buying guides, it is a good way for the user to understand what they need and apart from helping to drive more organic traffic.
What is the difference between a Dropshipping website and an affiliate website?
The truth is that these two store models work in a fairly similar way. Let’s see the differences.
In the affiliate online store
The merchant who owns the online portal charges a commission for each sale that is made from its sales portal, but does not close any sale, it simply redirects customers to the website of the partner or affiliate companies .
The Dropshipping store
It does take care of closing sales, even though it is also selling third party products. Therefore, you must have payment gateways to charge the customer and then be able to pay the provider.
The closing of sales, that would be the substantial difference between one business model and another, since otherwise, everything is similar:
- They sell other people’s products.
- They do not have to have stock and, therefore, storage.
- They require little initial investment.
In practice, many affiliate businesses end up leading to Dropshipping stores since the profit margins are higher in the latter business model and the remaining advantages continue to be maintained.
Conclusions about Dropshipping
With this guide we have touched on the main points for you to know about the Dropshipping business. Without a doubt, it is an online business that allows you to work from anywhere in the world or from home, and we like that very much.
Like any business worth its salt, the beginnings will not be easy, at first it will take time to see the profits, it will not be from one day to the next. It requires training, work and perseverance.
Dropshipping is nothing new, it has been operating for years, in fact, in the United States it moves millions of dollars a year. You can find many videos and information of people who do dropshipping in this country generating large sums.
Not only in the United States, in Spain, Italy, UK, Canada, India, China, Japan, Norway, Belgium, Denmark, Germany, Holand and in many other countries there are also many people dedicated to dropshipping, from established companies to digital nomads who carry their work in their backpack or mothers and fathers who work from home. There is room for everyone, yes, the competition is high and finding your niche and supplier will be an experience.
Have you ever tried dropshipping? Thinking of opening a store? We would love to read your opinion in the comments.