Running an online store in 2018 is a remarkably easy experience in 2018, especially if you’re using dropshipping, where inventory is sent from the manufacturer’s warehouse direct to your customers. You only need to find a good supply chain and your business is ready to take off, especially if you have spent time on building a great-looking site and focused on marketing.
Dropshipping is a great point for new online moneymakers to get started, as the upfront cost is low and the painful logistical operation is removed from the equation. Read on to discover how you can get started dropshipping today – the smart way!
What is “dropshipping” anyway?
In a nutshell, your inventory is held elsewhere and you never need deal with it. That’s a huge plus, as inventory is a huge time and cash sink. Factories usually want you to buy a huge chunk of product upfront, and that means $$$. You’ll then need to store this mountain of product somewhere, which means more $$$. Add in having to keep tabs on inventory and restocking, and it soon becomes a headache.
Dropshipping kicks all of that nonsense right out of the door. When you get an order, you simply place it with a wholesaler who then deals with the shipment as you pocket the profits. It’s smart, easy, and doesn’t require you to go through all the hassle above!
So… what’s the catch? Is it more expensive?
You’d think so, but it’s actually cheaper as you don’t spend money on storing inventory, buying packaging and posting, and even on equipment (especially for larger products). Instead, that’s all left at the factory who uses “epacket” shipments.
Epacket shipments are an agreement between the USPS and Hong Kong Post that allows for faster delivery on all packages weighing up to 4.4 pounds, and the cheapest way to get products from China to the United States (30 days on average). If you use AliExpress, then that epacket pricing is usually priced into the total, so you don’t need to make extra calculations.
It’s a great way to start a brand – but the 30 day deliveries make it unsustainable for if you really want to grow. But bear in mind by this time you’ll have a lot more experience, cashflow, and ideas of how to push ahead.
30 days? Yikes!
Nothing’s perfect! However, YOU save time here. Consider this. For companies, product development and brand creation and growth are the biggest time sinks and headaches. With dropshipping, you don’t need to bother with either at the beginning as you’re selling pre-existing products – so long as you can create a store and grab a domain, you’re on business.
Now, your customers aren’t going to be thrilled about waiting weeks for their products in the long run, so you do need to start thinking early about how you’re going to drive that waiting time down to keep their custom – but when you’re just starting out, dropshipping is a fantastic way to test the viability of your store idea.
How can I test my brand with dropshipping then?
Test, test, and test again. The beauty of dropshipping is that you can sell anything and test the viability of a new product fast. Use the supplier’s images and let them ship out inventory as you discover whether people want it – or it’s a flop – with a minimal outlay.
If you’re looking to startup quickly and want to run through a bunch of products to find your golden goose, dropshipping is the best way to do it. Again, in the long run you will need to find better solutions due to shipping times: but as a jumpstart to discovering your brand and best products, its unbeatable.
OK, so is there anything else about dropshipping that isn’t so great?
Dropshipping lets you build up quickly, and you’ve probably seen the hype around coaches who built a six/seven figure business in just 12 months. But for every success, there’s a lot of failures, and nobody likes to talk about those!
The biggest issue with dropshipping is that it is a churn and burn business – throw up a site, upload some images, pay for ads, and wait. No sales? Well, if you give up it’s going to stay like that! It’s also worth remembering that dropshipping customers tend to disappear after they’ve picked up their product and are unlikely to return.
Another issue to consider is that your brand is going to be thin. Your products are not your own, nor is your supply line. Sure, you have an audience, but you’re basically a glorified middleman. This is not a long term business model, but it is a great starting point.
So, anyone can do this, right?
Yes, you’re right. That’s good and bad. It’s great that anyone can start up their dream store and make an effort to run a real business, but that’s the crux: anyone can. Competition is fierce, and if a product sells well, competition will go even more insane.
No matter what you’re selling, there are people out there whose job is to scavenge the web to find the new selling products and quite literally throw up a store overnight to cannibalize the market. In other words, if you get successful, don’t be surprised to see competitors mushroom up everywhere – and potentially destroy your business.
OK, and what about the products themselves? They’re Chinese…
Chinese products can be a mixed bag. Sometimes their quality is great! Other times…. Well, not so much. As you’re not in control of your supply chain, you have very little control here. That means if your supplier’s quality suddenly plummets, so will your store’s reputation, and there’s little you can do about it.
Your best hedge against this happening is to carefully vet your suppliers on Aliexpress – while there are definitely some bad apples, there are some real gems there.
So what’s my bottom line after all of this anyway?
Your profit margins are the most interesting part of the dropshipping equation to you, and really, the formula you are most concerned with is gross margin to cover the cost of acquisition of customers. Most dropshippers go at margins of 30%.
That’s quite low, primarily because there is usually a middleman between you and the factory, and they’re taking their own cut. If you want to cut that out, then you’ll need to go private label, direct to the factory. Note that this is an entirely different business model, so I won’t cover it here. But it is something to consider.
So what happens if something goes wrong with the delivery?
Logistical issues do happen, and it’s one of the biggest headaches of dropshipping – you simply have no control over it. It could arrive in just ten days, or it could take the full thirty with a few extra. Just for added fun, epackets don’t have the best tracking, and we all know how we feel when deliveries run late.
Many of your complaints will be related to this, even though it’s almost entirely out of your hands. This is one challenge you need to understand well to tackle properly, because it definitely will happen – you can only hope it doesn’t happen often.
You said that customers only shop once – is that really true?
Many businesses are built on a relationship and bringing people back time and time again. Dropshipping, not so much. With low profit margins, potentially low quality products, and slow shipping times, customers don’t tend to return, which means your relationship with them is low, if truly existent at all.
What about rip-off products?
Glad you asked! China’s a hotbed of products that look like well-known brand products, and if you ship those to the US, you are liable to a lawsuit if you don’t hold the rights. This isn’t a common issue, thankfully, but it’s something to be aware of when you’re setting up your store and choosing products.
It’s best to stay on the right side of the law here – so when in doubt, seek legal advice or follow a cautious path.
What about returns and refunds?
The biggest issue here is shipping stuff back to China. Your customers aren’t going to want to do that, and it’s unlikely you will, too. Now, you might be thinking that you can just keep the money as you know that many customers simply don’t return after…
…but don’t forget that orders can be cancelled and charged back, leaving you footing the bill.
So, should I dropship?
That’s a question only you can answer. This is a great way to test a business idea quickly, but in the long-term, it’s a nightmare fruit tree that’s impossible to scale due to the challenges above. My recommendation is to use dropshipping as an entry to ecommerce to start learning.
Once you’ve got a handle on the ropes, it’s better to start focusing on building a real store where you have a lot more control of what you’re doing. Use dropshipping to figure out what interests you and what you can sell, then use this new knowledge to build a real ecommerce store!