What’s in this guide?

The word “dropshipping” evokes a wide array of responses. Some believe it’s a great way to get started with ecommerce. Others immediately discount it, having heard about too many dropshipping related scams and promise-the-moon information products. With so many rumors and so much misinformation floating around, it’s hard to know what to believe — which is why we wrote this guide. This is the most detailed and thorough guide to dropshipping you’ll find anywhere. No scams or sales pitches here — just the honest truth, written by folks who have used dropshipping to create large, successful ecommerce businesses. 

We won’t be telling you what we think might work, we’ll tell you what we know will work based on real-world experience. This guide will teach you everything you need to know to get your own dropshipping business off the ground while avoiding the costly mistakes that can kill new dropshipping ventures. We’ll discuss everything from dropshipping basics to operating a dropshipping business and dealing with some of the problems that arise.

What is dropshipping and how does it work?

To begin with, it would be wise to clarify a few misconceptions regarding the term “dropshipping”. There are many entrepreneurs who make the statement that they want to start a dropship business, when in fact, what they mean is they want to become a retailer who uses the best priced dropshipping products and beat competitors. 

With dropshipping, you save on setting-up and other built-in costs because you do not have concerns and responsibility about the shipping or stocking of products. The process is simplified: when you receive a customer‟s order, you contact the wholesaler, and they arrange the delivery on your behalf.

Therefore, as a retailer, you are able to sell a wide variety of products without carrying any stock whatsoever. Dropshipping offers a potential that makes it an extremely attractive financial proposition for new, home-based online businesses with limited funds available.

So dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.

The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn't stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.

Drop shipping works like this:

1. Your customer places an order on your online store.
2. You send the order to your supplier.
3. The supplier ships your order directly to your customer in your name.
Here’s a visual representation to help you understand:



The Difference Between a Manufacturer, Dropship Wholesaler & Retailer

With all the different terms thrown around in the world of online selling, it can be confusing what means what. Often the terms are used interchangeably, but they don’t mean the same thing.

A manufacturer is the actual creator of the product. Sometimes they have a drop shipping program, which is ideal for you as the buyer. Because there is no middle man, they can give you the best prices on the products so you can make the most money.

A drop ship wholesaler is a third party dealer who buys items at the lowest prices from the manufacturers, then drop ships them for a buyer like you. There is also  a drop ship aggregator. A drop ship aggregator is a wholesaler who buys from tons of different manufacturers to offer you the widest possible range of products from one place. This cuts out your risk of shipping complications I mentioned above, but it also lowers your potential profits as they typically take a higher cut.

A retailer is anyone who sells products directly to the public at a markup. If you run a business that fulfills your orders via dropshipping suppliers, you're a retailer.

Dropshipping is a Service, Not a Role

You'll notice that “dropshipper” isn't one of the players listed in the supply chain. Why? Because any of the three – manufacturer, wholesaler or retailer – can act as a drop shipper! If a manufacturer is willing to ship its products directly to your customer, it is “dropshipping” on your behalf. Similarly, a retail merchant can offer to dropship, although its pricing won't be as competitive as a wholesaler's because it isn't buying directly from the manufacturer.

Just because someone claims to be a “dropshipper” does not mean you're getting wholesale pricing. It simply means the company will ship products on your behalf. To get the best pricing, you want to make sure you're working directly with a legitimate wholesaler or manufacturer.


This unique model has a number of benefits & drawbacks or Pros & Cons.



Benefits

LESS CAPITAL IS REQUIRED – Probably the biggest advantage to dropshipping is that it's possible to launch an ecommerce store without having to invest thousands of dollars in inventory up front. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.

With the dropshipping model, you don't have to purchase a product unless you already made the sale and have been paid by the customer. Without major upfront inventory investments, it's possible to start a successful dropshipping business with very little money.

EASY TO GET STARTED – Running an ecommerce business is much easier when you don't have to deal with physical products. With dropshipping, you don't have to worry about:
• Managing or paying for a warehouse
• Packing and shipping your orders
• Tracking inventory for accounting reasons
• Handling returns and inbound shipments
• Continually ordering products and managing stock level

LOW OVERHEAD – Because you don't have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop for less than $100 per month. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.

FLEXIBLE LOCATION – A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.

WIDE SELECTION OF PRODUCTS – Because you don't have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list if for sale on your website at no additional cost.

EASY TO SCALE – With a traditional business, if you receive three times as much business you'll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work. Sales growth will always bring additional work – especially related to customer service – but business that utilize dropshipping scale particularly well relative to traditional ecommerce businesses.

All these benefits make dropshipping a very attractive model to both beginning and established merchants. Unfortunately, dropshipping isn't all roses and rainbows. All this convenience and flexibility comes at a price.

Disadvantages

LOW MARGINS – Low margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Because it's so easy to get started – and the overhead costs are so minimal – many merchants will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. They've invested so little in getting the business started so they can afford to operate on minuscule margins.

True, these merchants often have low-quality websites and poor (if any) customer service. But that won't stop customers from comparing their prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that's well suited for dropshipping. We'll discuss this more in another article.

INVENTORY ISSUES – If you stock all your own items, it's relatively simple to keep track of which items are in and out of stock. But when you're sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store's inventory with your suppliers', these solutions don't always work seamlessly, and suppliers don't always support the technology required. 

SHIPPING COMPLEXITIES – If you work with multiple suppliers – as most drop shippers do – the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs. Let's say a customer places an order for three items, all of which are available only from separate suppliers. You'll incur three separate shipping charges for sending each item to the customer, but it's probably not wise to pass this charge along to the customer, as they'll think you're grossly overcharging for shipping. And even if you did want to pass these charges along, automating these calculations can be difficult.

SUPPLIER ERRORS – Have you ever been blamed for something that wasn't your fault, but you had to accept responsibility for the mistake anyway? Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre and lowquality suppliers will cause endless frustration with missing items, botched shipments and low-quality packing, which can damage your business's reputation.

More Pros and Cons

Competition, in the high pressured business world of today is a significant factor and it possible that there will be other retailers selling the same products as you. The main factor of dropshipping is to be prepared and ensure that the wholesaler(s) you deal with are established and reliable. Determine your profit margins, as they can vary with the total amount of the orders you submit.

The Internet is an amazing and potentially lucrative business medium, but your website must be designed to both attract an audience and hold their attention. Therefore, when selecting your products, check and research their features and benefits before targeting your market.
 

Is Dropshipping a Dead Business Model?

Is it worth it?

You may have heard that drop shipping is a dead business model. I’m here to tell you that’s absolutely not the case. You can still create a very healthy drop shipping business.

That said, the market has become very saturated and it’s more necessary now than even to find a great niche to compete in to avoid competition. In addition to being highly focused in your product offerings, you should also try to work directly with manufacturers whenever possible, as opposed to working with drop ship aggregators.

Also, customers are now demanding a greater brand experience, which can be difficult to provide. If your supplier isn’t willing to go the extra mile for you by using your custom packaging or adding your freebies to your packages, you may have a harder time competing.

As we initially warned, dropshipping isn't a perfect, stress-free way to build a successful business. The model has some definite advantages but comes with a number of built-in complexities and problems you'll need to be able to address.

We'll be examining these problems – and how to best address them – in future articles. The good news is that with some careful planning and consideration, most of these problems can be resolved and need not prevent you from building a thriving, profitable dropshipping business.

How can I be successful dropshipping?

Dropshipping is an exciting business model, something that entrepreneurs have dreamed about for years. But do you know the fundamentals behind dropshipping? If not, you're in the right place to find out!

Make sure to complete every section to get the most detailed and thorough guide :


- How & Where to find a product?

- How to build a profitable online store?

- How to market my online store?

- Improve and Automate your Business!