Dropshipping is a business model that allows business personnel to resell products without maintaining stock or inventory. A dropshipping supplier usually sells third-party products and sends products directly to customers.
Dropshipping suppliers can also order products from distributors or manufacturers and then ship the product directly to the customer without handling the product themselves.
Not worrying about inventory stocking, inventory management, order packing, and shipping troubles makes dropshipping a suitable option.
How Dropshipping Works
Dropshipping involves four parties that include:
- Product manufacturers
- Dropshipping supplier aka wholesaler
- Retailer
- Customer
During dropshipping, the manufacturer creates the product and then supplies the product to the distributor or dropshipping supplier (wholesaler). A dropshipping supplier doesn’t stock products or maintain an inventory.
They only acquire products from the manufacturer or distributor after receiving product demand from the retailer end. The product then reaches the customer after the dropshipping supplier passes it to the retailer.
Pros and Cons of Dropshipping
Just like any business model, dropshipping comes with advantages and disadvantages. Here are the pros and cons that you need to know about dropshipping:
Pros
Low Cost
Dropshipping is usually cost-effective as there is no need to stock the product. Stocking a product not only requires space but also needs resources to manage and maintain the inventory. Other than this, stock management also brings other expenses such as shipping costs, etc. However, dropshipping results in cost reduction which increases your profits.
Convenience
Dropshipping is convenient because you don’t need to spend a lot of money on keeping and managing product stocks. Also, you don’t have to worry about stock maintenance, buying new items, determining quantities, and exhausting stocks. You can also run your business from anywhere as you are not bound to a physical location.
Low Financial Risk
In dropshipping, the financial risk associated with the model has low financial risks as you are not spending a lot of money on buying, shipping, and maintaining stocks. Furthermore, you don’t have to worry about selling your products quickly due to product shelf life or making space for new products in inventory.
Scalability
Dropshipping business model is highly scalable. In business, scalability means a business’s ability to grow to cater to increasing product demand. Dropshipping suppliers are not location and space-dependent so based on the customer’s demand they can offer product variety as well as quantity.
Location Independence
Dropshipping suppliers can run their business from anywhere irrespective of the physical location. All you need is a system and an internet connection to stay connected with the suppliers and customers. You can even practice dropshipping even when you are not located in the region and can earn money by connecting suppliers with customers.
Cons
Low-Profit Margin
With all the benefits of dropshipping, one of the drawbacks is that dropshipping has a low-profit margin. The benefit of lower per-head costs is compensated by a low-profit margin. The involvement of third parties reduces your profit margin.
Market Competition
Due to all the perks associated with dropshipping, many people find it an easy option to begin. This increases the competition in the market and a lot of people are selling the same product with no unique idea of their own. So, it makes it difficult for dropshipping suppliers to stand out in the market.
Limited Competition
You are not preparing or getting a product manufactured on your own so there is limited opportunity to customize and advertise the product. Manufacturers make the products as per their demands and you can’t cater to the specific customer needs.
Choosing Right Supplier
The success of the dropshipping model depends upon the choice of the right supplier. Imagine your supplier is sending a low-quality product to your customers and ultimately you are the one who has to be responsible for the loss.
Also, low-quality packaging, delayed delivery, and sub-standard products are other common issues that can affect your reputation in front of your customers.
How to Start Dropshipping Business in 2024?
If you are convinced that dropshipping can be your best bet and looking to start your business now, here is the step-by-step procedure you need to follow:
Select Niche
Niche selection is one of the first steps in starting your dropshipping business. Decide on a group of products you want to deal in. Your interest and prior experience play a key role in niche selection. Based on these factors you can select a broad or a narrow niche and then proceed.
Conduct Market Research
After niche selection, the next step is to conduct market research. Evaluate the market potential, size, and industry value. Find existing key players in the market and focus on what practices they are following to stay in the competition. This will also help you to find your target audience which will determine your profit margin.
Find a Supplier
Now the next step is to find a supplier for the product you are planning to sell. Supplier selection is a crucial part as a supplier can directly affect your reputation as well as your profit margins.
When you are looking for a supplier for your dropshipping business consider the elements below:
- Supplier reputation in the market
- Product quality
- Pricing
- Product packaging
- Shipping policy
- Minimum order quantity
- Business License
Go Online
Now the next thing you need to do is to create your online store to ensure your online presence. You can create a business website or select any online business platform to create your online store and display your products effectively.
SeeBiz is one such platform that offers many benefits for new businesses and provides the best services. Choose the relevant product categories, display the products, and add your contact information to hear from buyers.
Choose a Business Structure and Create an Account
Once you are online, now it’s time to decide on a business structure. Decide if you want to keep it as a sole proprietorship, form an LLC, or become a C corporation. Also, work on refund, exchange, and privacy policies and define your terms and conditions. Don’t forget to publish these details. After choosing a business structure, now it’s time to create a business account for the transactions.
Market your Business
Now it’s time to promote your business and start selling the products. You can go for product advertisements on social media and work on email marketing. Writing valuable content and optimizing it against the relevant keywords also helps you to attract potential customers.
Track Performance
Once your store is live, now track the key performance indicators to know about your store’s performance. Figure out what is working well, social media channels that are deriving traffic and what are the online behavior of people visiting your store.
Conclusion
Dropshipping is a business model in which a dropshipping supplier obtains the product from manufacturers and then resells it to the retailers without being involved in stock keeping, inventory management, etc. Furthermore, dropshipping is a suitable business option for those who are looking to start a business with little or no investment.
