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Dropshipping Business Model Explained
Sample Dropshipping Product
What is Dropshipping?
Dropshipping is a type of e-commerce business model that allows you to sell products that are stocked by third party suppliers/companies who will ship the product directly to your customer. You only pay for the product after you sell it. As a result, you're able to run an e-commerce business without the need to hold any inventory or handle shipping and fulfillment.
Dropshipping allows site owners to focus on marketing and customer service without the risk of having to pay for inventory that they're not able to sell. This is a very attractive business models for those who are new to online businesses as it reduces the risk and overhead normally associated with traditional business models.
From a vendors perspective, dropshipping is also attractive because it allows them to increase visibility and sell more products through the dropshippers relationship.
How It Works
The dropshipping process is very straightforward. Here's how it works:
Conduct keyword research to help identify your target market and determine your niche for the business
Research/spy on competitors to identify products that your target market would be interested in purchasing
Create your dropshipping e-commerce store, integrate with suppliers and add products to your site
Use Google Adwords, FB Ads, SEO, etc.. to help promote your new dropshipping business.
Pros & Cons of Dropshipping
Dropshipping is an extremely appealing business model because it allows site owners to launch an online business with minimal risk. However, because the entry barrier is so low, it does come with it's own share of disadvantages. See the comparison below of the advantages and disadvantages of a dropshipping business.
Popular Dropshipping Categories
Dropshipping is often criticized as either oversaturated or unreliable. Trends spark and die in a matter of months, leaving sellers looking for new trends or for more reliable products. A steady product niche can minimize a seller’s stress around whether their products will sell the next month.
The top steady categories of products are:
- Women’s Clothing and Accessories
- Home & Garden
- Beauty & Health
- Men’s Clothing and Accessories
These are also the highest performing niches of Dropshipping products. Within these top categories are some interesting popular item types. Within Beauty & Health, facial sprays and eyeliner stood out as most-purchased. In Women’s clothing, intimates were purchased more than any other clothing type. And in Jewelry, necklaces were hot.
Understanding the categories that perform highest is crucial to setting up a successful dropshipping business. While keeping up with changing trends can also pay well, it is wise to offer a combination of steady and grossing products.
There is also incredible value in capturing unexpected segments of the market. A store with hard-to-find items will pull in customers needing that item and lacking other options.
How Much Can You Make with Dropshipping?
Dropshipping can be a profitable business venture, with some owners making up to or beyond $100,000 a year, with very little investment. A successful dropshipping business can be run from home — or anywhere — for a few hundred dollars each month.
However, the success of a dropshipping business depends on a number of factors:
- How aggressively the owner markets their store (Facebook, AdWords, SEO, etc)
- Brand strength
- Products sold
- Understanding of dropshipping business/markets
As mentioned above, profit margins for products can be slim, and most of the price of the sale will return back to the manufacturer. By keeping prices low (accepting a smaller margin), a shop owner can become competitive in their market and increase the chance of a sale — thus relying on volume to drive revenue. By prioritizing the needs of customers through competitive pricing and high-quality customer service, dropshippers are able to see the pay-off in their profits.
Also choosing products strategically, however, a shop owner can increase their margins. For example, selling products that are difficult to store, or are heavy can give you a competitive edge over traditional retailers.
Most of all, a successful dropshipping business requires an owner’s commitment, creativity, and passion. Because the business relies heavily on front-end marketing, it is up to the owner to really sell the product, or someone else will!