You’ve read the headlines — “How to make six figures selling products online through dropshipping” or “How I made $178,492 in 3 months by dropshipping” — but what is dropshipping, really? Is it still a viable business model in 2021? And if so, how can you get started?
If you’re already an e-commerce entrepreneur, you’ve probably realized that while unveiling your website and making your first sale are truly exciting milestones, challenges like streamlining operations and maximizing revenue can be daunting. From warehouse rent to spiked shipping costs during peak season, overhead costs can quickly pile up.
This is where dropshipping can come in handy. It’s a business model that can lower your costs and allow you to focus on what you do best — marketing, branding, and expanding your online presence. In fact, over 23% of online sales are fulfilled via dropshipping.
However, contrary to the popular perception that dropshipping is a simple, get-rich-quick side gig, it’s not easy to do right. Without proper initial investment, including finding the best suppliers and implementing appropriate tools, you might find yourself inundated with the responsibility of day-to-day management. Here’s the ultimate guide to dropshipping.
In this article:
What is Dropshipping?
How Does Dropshipping Work?
What Are the Pros and Cons of Dropshipping?
All the Dropshipping Tools You Need
Ready, Set, Dropship
What is Dropshipping?
An e-commerce dropshipping company sells products to its customers via a third-party supplier (typically a manufacturer or a wholesaler). Unlike standard retailers, e-commerce dropshipping companies do not stock any physical products. Instead, when a sale is made, they pass on the order to the supplier, which then ships the product directly to the customer.
You can think of the dropshipping company as a customer-facing intermediary that handles the marketing, promotions, and customer service.
Because the e-commerce dropshipping company usually purchases the product from the supplier at a discount, their profit comes from the difference between the initial purchase price and the higher-priced product they sell online.
How Does Ecommerce Dropshipping Work?
The steps to launching an e-commerce dropshipping business are not complex, though you have to execute every step to ultimately reach success:
- Research appropriate products to dropship. What products have high market demand right now? Are there products that would complement your existing e-commerce product catalog (if you have one) and meet your customer base’s needs?
- Investigate the market price for the identified products. How high (or low) are the margins? The lower the margins, the more product you’ll have to sell to make a profit.
- Find a reliable supplier. This is hands down the most important step of launching your e-commerce business. Dropshipping is a partnership between you and your supplier — as a dropshipper, you’ll have to rely on your supplier heavily. Do they ship products in a timely manner? Are products packaged nicely for a pleasant unboxing experience? Are they uncommunicative with you about delays or product shortages? Are their products legally compliant, or do they infringe on particular patents? If the supplier messes up any aspect of the fulfillment process, you’ll be the one fielding poor reviews and angry customer emails. Make sure to do your due diligence for each supplier you identify: Ask for product samples, read reviews, and request clarification on questions you may have.
What Are the Pros and Cons of Dropshipping?
If you’re on the fence about whether or not to dabble with dropshipping, we get it. As with any type of business, there are pros and cons of this sales model:
- Lower product storage and inventory logistics costs. With dropshipping, you can lower the overhead costs of everything required for fulfillment — no more renting a warehouse, hiring employees to stock and ship, paying for management software, investing in security. When added up, these costs are no joke, especially if you’re selling high-maintenance products that are heavy, large, fragile, valuable, or require special handling.
- Reduced startup costs and risks. As a savvy e-commerce entrepreneur, you’re probably aware of the importance of testing new product ideas and product categories before deciding to commit to them. Without having to own and pay for inventory upfront, dropshipping is an excellent opportunity to conduct product discovery and market research to test if certain new products will work well with your customer base. Armed with better data, you can then correctly estimate how much product you should stock.
- Protection from overstock. Overstocking is a common issue for e-commerce brands. Although we’re able to predict trends, unforeseen events and market fluctuations can quickly derail even the best inventory strategies. Take, for example, the COVID-19 pandemic, which caused shoppers to suddenly shun certain verticals (luxury goods, business apparel, large electronics) and flock to others (loungewear, entertainment consoles, home improvement goods). You can use dropshipping to fulfill seasonal overflows, ensuring you meet sudden surges without wasting money on unnecessary inventory costs. In other words, by only stocking the number of products you know will definitely sell and having your third-party supplier take care of unexpected demand, you can protect yourself from overstock.
- High competition and low margins. Thousands of e-commerce entrepreneurs have started to dropship, mostly because it’s so easy to get started. However, this means competition is tougher than ever. This isn’t helped by the fact that typically, dropshippers don’t have exclusive deals with suppliers, which provide the same products to other dropshippers. Given the fierce competition, you’ll see stores selling products for as low a price as possible to edge out other dropshippers. Without proprietary products, the only way to distinguish yourself is through stellar marketing and customer service — having a mobile-friendly website, providing timely responses to customer inquiries, and developing marketing content that resembles those of top retail brands. Choosing what vertical you operate in and doing thorough research into high-demand product categories are key.
- Difficult to build your brand. Dropshipping products are oftentimes unbranded or limited to a logo on the packaging (which will likely cost extra for the dropshipper). The lack of unique products and physical branding means you’ll have to work extra hard to develop your digital presence.
- Limited control over the supply chain. Dropshipping requires you to hand the reins of fulfillment — product quality, shipping speeds, proper packaging — to your supplier. That means you’ll be the one dealing with potentially unhappy customers without having the power to directly manage the issues at hand (beyond a sternly worded conversation with the supplier). Your responsibilities will include offering refunds, responding to bad reviews, and reassuring customers, while trusting that your supplier will implement the improvements you requested.
All the Dropshipping Tools You Need
Ready to try dropshipping? Use these platforms and tools to manage all the steps of the process:
Getting your store up and running
If you have yet to set up your digital storefront, you have several options to choose from:
- Shopify: As the biggest e-commerce platform, Shopify is a top choice for those who want to launch their store quickly and easily. Depending on your business needs, you can choose from several plans, with most of them costing less than $100 a month.
- BigCommerce: You can get your products online in minutes with BigCommerce’s robust store builder that offers a plethora of plugins.
- Magento: With an easy-to-use interface, Magento is a good option for those looking for flexibility when managing their site’s content and aesthetics.
- WooCommerce: If you have an existing site that uses WordPress, WooCommerce is a free plugin that offers powerful e-commerce capabilities.
Heads up: On top of these e-commerce platform costs, you’ll also need to pay for your website hosting.
Finding the perfect products
These tools allow you to research trending dropshipping products, as well as integrate them directly into your e-commerce site:
- Oberlo: You can access Oberlo directly on Shopify and quickly find and add products from suppliers to your product catalog. The app includes different tiers that allow you to sell up to a certain number of products a month — perfect for those who want to try dropshipping with minimal investment. Membership includes digital courses, resources, and tools for you to get started on your dropshipping journey.
- Spocket: Once you have an e-commerce store set up, whether it’s with Shopify, WooCommerce, or BigCommerce, you can integrate it with Spocket, which allows you to view the dropshipping catalog of hundreds of suppliers based mostly in the U.S. and Europe.
Researching suppliers and products
What if you want to work with wholesale suppliers directly, instead of having products directly ported into your e-commerce site? Use these resources to conduct market research and find the most appropriate suppliers for your needs:
- SaleHoo: For just $67 a year, you can access SaleHoo’s directory of 8,000+ wholesale companies in any industry you’re interested in.
- AliDropship: With AliDropship, you can connect with suppliers in the Ali Express network, which are all primarily based in China. It costs $89 for a lifetime subscription.
- Chili-Hunter: To find out what’s hot and what’s not, use Chili-Hunter to discover new trends, find what dropshipping products have the largest margins at the moment, and see what others are dropshipping. It’s a useful tool if you want to maximize your profits and boost a lackluster dropshipping performance.
As a dropshipper, it can be challenging to make sure your site’s order processing and product selection widgets are integrated perfectly with your supplier’s inventory management, especially if they’re located overseas and communications are frequently delayed. The last situation you want is for your website to incorrectly display an out-of-stock product as available.
- Dropified: This software application automates all the processes you need for your dropshipping business to run smoothly, from order fulfillment to delivery. You can quickly import and manage your dropshipped products into your e-commerce platform — no more manually updating product images and descriptions, keeping track of vendor price increases, or determining tracking numbers.
- AutoDS: This is a super helpful all-in-one plugin that you can input directly into Shopify. You’ll have the ability to automate inventory monitoring, customer review collecting, competitor price point comparing, and more.
Building your brand
With order fulfillment and operations happening automatically behind the scenes, you can now focus on the fun part: marketing, advertising, and brand building.
- Canva: Use Canva to create simple graphics, animations, and even videos for your website, social media, or paid advertising. With its drag-and-drop interface and premade templates, you don’t need to be a design guru to develop something eye-catching.
- AdRoll: AdRoll is the go-to marketing platform solution for growing e-commerce brands. Whether you’re interested in email marketing or personalized retargeting, we’re here to help you reach your audiences, wherever they are.
- Google Analytics: If you have multiple marketing channels, it can be a huge pain trying to pinpoint exactly what’s working in driving conversions and which touchpoints are moving customers through your funnel. Here’s where Google Analytics comes in handy — use it to glean insights from the most important metrics regarding your site, from bounce rates to loading times to cart abandonment numbers.
Ready, Set, Dropship
Whether you’re launching a new e-commerce dropshipping business or looking to use dropshipping as a way to support your existing e-commerce operations, one of the biggest challenges you’ll face is making your brand distinct and memorable.
How can you surprise and delight your customers? How can you optimize your website to make it as compelling as possible while still encouraging your customers to click on the CTA? How can you elevate your digital ads so that it stands out rather than get lost in the noise? For more resources on how to grow your brand and make your marketing top-notch, check out our Marketing Resource Library.
Last updated on December 2nd, 2022.