Have you ever thought about running your own business? Maybe you have looked into it, suddenly realising you would need a massive amount of capital to get off the ground. Business licenses, office space, inventory, staff. The list (and the costs) go on and on and on..
BUT, what if you could start a business online, without ever leaving your coach, and do it all without purchasing one unit of inventory?
Welcome to the world of Dropshipping.
Anyone, literally anyone, can start a dropshipping business in 2019. Thanks to this glorious thing called the internet, you never have to leave the comfort of your living room to start making money. Better still, you don’t even need to purchase any inventory to start selling!
We can thank Tim Ferris and his revolutionary book ‘The 4-hour Work Week’ for the immense popularity in dropshipping website and businesses. It seems everyone wants a piece of the pie, but the majority of us don’t know where to begin or how to start. Well, your salvation has arrived, after painstaking research and experience in the field, this guide will tell all in a compact way to give you the do’s and don’ts of the industry.
Dropshipping is one of these things that on paper, seems so easy and too good to be true. To be able to sell products online that you don’t even own or have to buy before hand? Sign me up! No messy storage fees and no huge starter funds necessary, you never even touch the product yourself! It appears to be the perfect business to start without too much risk involved.
You do not need to be an investment tycoon or business mogul to start dropshipping. Whether you are a full-time worker looking for a side-hustle or a stay at home parent looking to make some extra cash, dropshipping just might be the route to take! All you really need is a computer, a bit of know-how and plenty of motivation to succeed.
What is dropshipping and how does it work
First, let’s go through the basics. Everyone is a beginner at one time or another, and in order to progress to the next stage, some research and reading is involved. Here are some terms for you to learn..
Manufacturer/Wholesaler/Supplier/Vendor (the company/associate you order from)
The very basic process of dropshipping is as follows:
Step 1: Consumer purchases product from merchant.
Step 2: Merchant buys product from vendor/supplier.
Step 3: Vendor/supplier ships directly to consumer.
Sounds straightforward, right? Well, yes and no. On the surface the entire industry is geared towards the Merchants success, but running a successful dropshipping business is hard work and needs constant adaptation, maintenance and care.
Let’s break those three steps down further.
1: Consumer purchases product from merchant. Okay, so this sounds simple, but one of the hardest things in the dropshipping game is to get consumers on your website, let alone buying products. There is a bunch of stuff that goes into this, and we will be discussing how to attain a client/customer base further along in the article.
2: Merchant orders product from vendor/supplier. You the merchant are required to order from your supplier whenever an order is placed from a consumer on your dropshipping site. There are many ways to do this, and the most simple (and most expensive) is to pay for automated software to automatically order the product from the supplier once it is ordered by the customer. Using this technique requires a developed website and you would need to pay someone to set this up for you. The benefit of this would be that you don’t have to log on and physically order it from your supplier, saving you time and effort better spent elsewhere. First time dropshippers who do not have any capital to invest will simply order it from their supplier with the consumer shipping details on the order.
3: Supplier ships product directly to consumers: This is pretty straightforward and the easiest part for you (the merchant) as it requires no input or capital from you. Once you have ordered the product from the supplier, simply add the customer's shipping address on to the order and the supplier will do the rest.
Where does your profit come from?
Retail Price: The total price charged for a product sold to a customer, which includes the manufacturer's cost plus a retail markup.
Wholesale prices are the prices charged by producers to retailers whereas retail prices are the prices charged by retailers to end customers.
It’s extremely simple, you buy your product at wholesale price and you sell it at retail price. If you are selling battery powered bike lights, then you buy from the supplier or manufacturer at $2.50 and sell at $13.95. (This is a random example of pricing)
The Pros & Cons of dropshipping
- Low start up costs: Starting a regular, traditional business requires a massive amount of investment to just get things going. For people with limited capital or investment potential behind them, dropshipping is the cheapest way to start a business. There are countless examples of dropshippers starting their websites with just a few hundred dollars and succeeding.
- Minimal Maintenance: Once up and running, the website should become almost self sufficient. This is the dream for all dropshippers, and the main goal that you should be striving for when starting the business.
- NO inventory costs: One of the biggest selling points drop shipping has, and why it is becoming so popular is the little to no money needed to spend on inventory This means no storage or warehouse fees, fewer shipping costs. There will be no useless or obsolete inventory and therefore no money wasted.
Flexibility to change/update product: With no inventory comes no backlog of costs or useless units sitting in warehouses costing money Instead, drop shippers can change their inventory/product list quickly and easily depending on trends in the market. If there are seasonal trends appearing such as christmas memorabilia, you can jump on the bandwagon for a few months or so.
Increased Product Variety: Through having no overheads for inventory, you as the dropshipper can offer a wide range of items, maximising your profit. Studies have shown that when added together, sales of multiple, low-demand items or products actually surpass those singular products with very high demand. Drop shipping enables you to take advantage of that strategy very easily. For example, a record seller using a drop shipping supplier can easily market 200,000 different records. You are able to make money by selling a lot of low-demand products without any risk or storage inconvenience. This gives the record seller eg dropshipper a massive competitive edge over traditional record stores.
The Industry only Growing: As high streets stores become less and less viable, more and more people each year are choosing to buy products online than ever before. Big companies will be moving exclusively online to match the demand for products via the internet. Beat the big chains and establish your dropshipping business now.
Minimal expenses of fulfilment: With dropshipping, the main emphasis and body of work and effort is not with you, the dropshipper, but your supplier. It is up to your supplier to ship each and every product to your customers, saving you precious time and effort. It is also up to the supplier to package the product, saving you more money on packaging costs.
Less control: One of the main selling points is the lack of maintenance, but this is also one of the biggest downfalls. Merchants are at the mercy of their suppliers. If your supplier makes a mistake then you will pay the price. As so much responsibility is on the supplier to deliver the product you sold on time, with nice packaging and all the rest, make sure you choose a respected supplier.
Reviews can break you: If your supplier messes up and you get a few negative reviews or ratings on your sellers account, this can drastically affect your sales and position within the dropshipping world. Even if it is the suppliers fault, you will be held accountable by the customer.
Out of stock items:I know what you’re thinking. How can I be out of stock when the whole point of this is not to own any stock in the first place? It is very hard to keep track of the inventory levels of your supplier. If you don’t sync up with your supplier, and they turn out to be out of stock, then this could be quite problematic for you and your rating may suffer. If a product if suddenly popular overnight and your supplier sells out, make sure you know about this so you can update your website.
Less competitive pricing: In order to run a business with little to no risk, you only order an item from your supplier once it has been ordered from you. The benefit is no inventory, the downside is you pay a premium price from the supplier. By not buying in bulk, the individual cost of each items goes up. This makes it very hard to sell products against the big sellers of amazon and ebay as they will be buying in bulk and offering the same product for less money than you can afford to sell it at.
Low profit margins: Before gaining a customer base and a following within the industry, first time dropshippers have to lower their prices to attract new business, resulting in extremely slim profit margins. Reduced profits means a reliance on selling a lot of items, which is very difficult to do consistently.
Can dropshipping websites make money?
Dropshipping has been around for a long time, but has only gained mass popularity in the past five or so years. Before that, it was a niche that a lucky-fre business savvy entrepreneurs were enjoying for themselves. Now, it is extremely popular and thus extremely competitive, with many believing the market to be too saturated for any decent profit to be made.
So, the question has to be asked, can dropping websites actually make any money in 2019?
There is no direct, yes or no answer. Every drop shipping business is unique and depend highly on the person running it. What is obvious and can be applied in any industry, is effort. If you have enough determination and perseverance to stick with drop shipping, then your chances and succeeding are better than someone who will give it a go and lose interest after 3 months or a dodgy week of sales.
What is rigged in your favour is the fact that drop shipping requires little investment to begin with and to maintain, with potential high returns. It doesn't cost thousands to start up, thus you can begin to see profit at a way earlier stage than a traditional business. $1000 in sales does not sound like a good amount to a regular business, but to a drop shipping who started with a $300 investment, that’s not a bad return!
It is your choice as the owner on how much to spend on digital marketing and Facebook Ads. These are money makers but can be costly and you may have to wait to earn some capital first (from your first batch of drop shipped items) in order to reinvest it into the website or on a marketing campaign.
Seeing as drop shipping merchants don’t buy the products in bulk form the supplier, they have to pay a higher price for each individual item. This automatically prices drop shippers out of competition for mundane, little objects that the bigger e-commerce sellers are selling for a lower price, as they bought the items in bulk.
Selecting the niche and sub niche - How to find/research your niche and sub niche
You may be asking yourself, ‘what is a niche and sub niche?’ Well, it is how you differentiate yourself from your competitors and what your dropshipping store becomes known for.
There is no point in selling customizable light bulbs alongside Star Wars toothpaste and kitchen spatulas. These things do not go together, therefore you will have to market and appeal to multiple audiences, either of which are unlikely to cross-over and be interested in such contrasting products.
On the other hand, customizable light bulbs and lamp shades are very well suited and fit into the same niche, therefore it is likely that customers will be interested in both items. There are themes and subjects that can be classed as a niche, and there are loosely connected products that can be classed as a niche and sub niche. Finding your niche is crucial to your success as dropshipper.
Next we will take you through several bullet point concerning niche and sub niche.
How to find your niche.
A sure fire way to find your dropshipping niche is to use analytical tools to assist you. These downloadable tools are designed to compile data based on market trends and save you a lot of time by doing all of the research you will need to choose a niche. The best tools to download are the following.
Using Google Trends allows you to see the backend of the search engine. You can type keywords in and see the results, thus showing you how popular this keyword is and how much traffic it is generating per day, per week, and per month. The website uses graphs to compile all of the data, and you can specify your search to one region or worldwide, depending on where you want to sell. This is the ultimate tool to figure out how much interest your niche generates.
For example, if you are interested in ‘camping’ as a niche, then you can search this keyword and see how many times the word camping has been tied into google. You can also search for five keywords at once, this allows dropshippers to know how many people who search for ‘camping’ also looked at sub niches such as tents, sleeping bags and other camping related items.
Facebook Audience Insight
This is one of the most powerful analytical tools at your disposal, so long as you know how to use it. We will stay on the niche of ‘camping’ for example purposes. As a dropshipper you want to find out who is searching for camping groups on Facebook
You can customise your search in countless different ways to attain the data you want. You can search either worldwide or by country, depending on your chosen market. The Facebook tool will then compile the data based on your potential audience and customers. Data such as age, gender, job title, relationship status. This way you know exactly who is interested in camping how to market your products and who to market them towards via Facebook ads.
Don’t rush in, take your time researching your Niche
There are too many dropshippers who watch 1 YouTube video and believe that money is there to be made that day, only on the rarest of occasions does that happen. The dropshipping websites that make money and stay consistent are run by those who did not rush researching and choosing their niche. Once you decide on your genre or subject of products, then it is very difficult to reverse and reinvent your website to a new audience, as this would mean changing your marketing campaign, Facebook ads and your supplier all together.
Consider the following Niches:
Toys - The niche of toys has countless sub niches depending on age, gender and location. The toy industry is a consistent high seller and parents are unlikely to send toys back if their kids do not want them.
Homeware and Furnishings - This niche is not dictated by phases or seasons. Homeware and furnishing are niches that seem to take longer to go in or out of fashion. People are prepared to wait for important items regarding their home and it is unlikely they will change their opinion of the item, so people don’t tend to return items within this niche.
Baby Products- Another solid seller and a target demographic of parents is easy to locate using analytical tools and Facebook advertising. There is not so much brand domination in comparison to sportswear and parents are looking for money saving options in regards to baby clothes and products.
Avoid the following Niches:
Seasonal products - People are impatient with seasonal themed products. Units shipped from China (the most common country to find suppliers) take a few weeks to arrive, so the craze, hype or phase may have finished and you could be expecting a high percentage of returns.
Electronics - High risk and low profit margins, combined with technical issues galore. The niche is dominated by well-known brands and mega-companies. First time dropshippers should stay away.
Personalized/Stylized products - Personalized items and products have a very high return rate, as people changed their taste and opinion on pattern and style almost daily. Something they like online and order could take several weeks to arrive, and by then their preferences have changed entirely.
Ask yourself,’what are the last 5 items I have purchased online? Ask your parents, your friends, your neighbors, your colleagues, anyone! Conducting your own market research is a great way to scope what niche people are interested in and how you can apply yourself to it. Best of all, asking people you are close to these types of questions is free market research!
The market research should give you a list of niches that seem popular and you have some kind of connection to. Now is the time to whittle this list down. Go through the list and put them under the microscope. Eg - Competition, how popular is this niche already? Is one brand dominating the market of this niche? How much are people paying for products in this niche? How heavy are the products in the niche/how much would I have to pay in shipping costs?