Features of dropshipping
Dropshipping is sometimes seen as a beginner's way into business because it can be easy to set up and doesn’t cost much to get started. However, dropshipping is a common method of sourcing products for many large and successful businesses.
Dropshipping has many benefits, but knowing the potential drawbacks and how to avoid them can help your business succeed. Make sure you know the features of dropshipping so that you can make the right business decisions.
Features of dropshipping
|Easy to start
Less time spent on getting started
Many resources to guide you
|Low start-up costs
No warehouse, inventory, or research costs
More funds available to market and promote your business
|Wide selection of products
Easy to find what you want to sell
Easy to change the products that you offer
Can be difficult to choose a focus for your business
|No inventory on hand
No storage or warehouse costs
Less quality control
Less control over branding
|No need to ship products yourself
No time spent packaging or printing labels
Orders that contain products from multiple suppliers arrive at different times
Easy to start
One reason why dropshipping is appealing is that it can be easy to set up. In the beginning, you only need to choose products, find where to sell and market them, and then get a customer to place an order. After you make a sale, your supplier does the rest.
Because it's easy to begin a dropshipping business, it's easy for competition to appear. More competition usually leads to lower profit margins because businesses often compete to have the lowest price.
For more information, see Fund your advantage.
Low start-up costs
The starting costs of a dropshipping business are usually low. There are no costs associated with inventory, warehousing, research and development, or a retail space. This lets you focus your efforts on marketing and creating a good buying experience for your customers.
The low start-up costs also lead to more competition. When you have more competition, you receive fewer orders and often need to lower your prices to remain competitive.
For more information, see Fund your advantage.
Wide selection of products
With dropshipping services, you have access to thousands of products to add to your store. The products that you choose to sell is called your product line. When you have access to a wide selection of products, it's easy to change your product line at any time, which lets you react to market trends and customer feedback quickly.
However, adding lots of different products to your product line can have a negative effect on your business. In most cases, it's better to have a focus, or a niche, for the types of products you choose to sell.
For more information, see Choose products wisely.
No inventory on hand
When you don’t need to order and stock inventory yourself, you save on warehousing costs and can begin selling right away. You don't need to set up accounts with warehouses or decide how to package your products. The suppliers do all the storing and packaging for you.
The drawback is that you have no control over the quality of your products, the branding of the packaging, or the speed of order processing. These help get positive reviews and repeat customers, which are important for your business.
For more information, see Choose suppliers wisely.
No need to ship products yourself
Shipping can be a complicated part of running a business. By using a supplier instead of shipping products yourself, you can save a lot of time. You can also benefit from shipping discounts that your suppliers have negotiated with shipping carriers.
The time and money you save, however, can be lost trying to handle larger orders. For example, if you get an order that contains products from different suppliers, then you need to pay each supplier the shipping cost for each product. However, if you have the products on hand yourself, then you can package them all into one box and pay only one shipping cost.
For more information, see Order products to your own location.
Make good use of the benefits
Anyone who begins a dropshipping business gets these benefits, but there are a few ways that you can make sure you're making the most out of them.
Launch your business early
It's normal to want to wait until your business is perfect before showing it to customers. However, a major benefit of dropshipping is how quickly you can set up a business.
The sooner you let customers see your business, the sooner you get feedback, learn from your mistakes, and can make your business better. For example, you can spend a long time setting up product collections and your main menu only to discover your customers browse your products in a completely different way and must redo everything.
It is difficult to know what's best for your business without feedback from your customers. If you launch your business early, then you're able to grow your business with your customer's feedback and lessons you've learned in mind.
Fund your advantage
Having a low cost to start your business means that you can put some of the funds you saved towards building a better business than your competition. A good question to ask yourself is "What makes me different from my competitors?" It can be difficult to answer if you haven't thought about it before, but there are many ways that you can gain an advantage over your competitors:
Extra content - You can create or pay a content creator to write blog posts about your products, which provides extra value to your customers. These can be tips for how to use your products, reviews of your products, or even general information about the niche your products are in.
For example, if you were selling coffee machines, then a good blog series could be reviews of each of the coffee machines and which type of person each machine would be a good match for. Creating your own criteria such as reliability, value, size, and the number of cups of coffee it can make in an hour, can help your customers feel more confident in buying from your business. A university student might want a cheap machine that can make a lot of coffee quickly, but a university professor might want a single cup of great coffee to start their day at work in their small office.
Exclusive access to suppliers - A way to lower the amount of competition is to gain access to suppliers that few businesses can purchase from, or trademarked products that only a few businesses can sell. This helps you get returning customers because you are one of the only places that they can purchase the products from.
For example, if you want to sell products that contain content from a tv show that has a small but loyal following, then you could get a license from the TV show to sell products with their characters on it. Getting this license could be difficult, but it means that you don't have many competitors and have more control over the market.
Great buying experience - A good way to set yourself apart from your competition is simply providing the best experience for your customers. If a customer can find what they want from your store, and enjoy the experience of buying from you, then they are likely to purchase from you again and share their experience with others.
Some good questions to ask yourself are:
- Is it easy for customers to find the products that they are looking for?
- Is it easy to contact the business?
- Are product details, product reviews, delivery times, shipping costs, and store policies easy to find?
- Are a variety of payment options available?
- Is a tracking number provided?
- Does the product arrive within the delivery time provided?
- Is there a customer loyalty program?
Focus on marketing
Two businesses can sell the exact same products, but the one that markets their products is more likely to be succeed. After you build your business's online presence, a dropshipping business lets you focus on marketing.
It can be hard to find your customers, which is why it's important to try as many different types of marketing as possible. Shopify provides many resources to help you, and many apps in the Shopify app store are built to help you find your customers:
- 50 Ways to Make Your First Sale
- How Can I Find Customers in a Competitive Market?
- Top email marketing solutions in the Shopify App Store
- All marketing apps
Avoid the drawbacks
While there are some drawbacks to dropshipping, they can mostly be avoided. Review the following strategies to help avoid these drawbacks.
Choose products wisely
Choosing the products for your product line can be difficult, which leads some businesses to sell as many different products as they can. This strategy can work, but in most cases it hurts a business more than it helps.
It's hard to build a business brand around selling every possible product. Because there are already established marketplaces on the internet where you can find a huge variety of products, it's unlikely that you're able to meet every customer's expectations.
Further, it's difficult for internet search engines to know when to show your business to their users. If you have 100 different products with no theme or keyword that connects them, then the search engine doesn't know when to show your business to customers.
Even though you might have one or two products that match the search, another business is likely to have their entire business focused on those keywords and their business gets shown before yours. If you have only three or four keywords you focus on, then the search engines know exactly what your store sells and are more likely to show your business when someone searches those keywords.
For example, you could have a wide range of products for students who need to furnish a dorm room. They need kitchen utensils, simple furniture, wall decorations, and school supplies as well. You can then use a popular keyword tool such as Google Trends to see what keywords are most searched for when looking for these types of products.
Choose suppliers wisely
Suppliers handle a large part of your business. This means that the quality of the supplier affects the quality of your own business. A customer is unlikely to order from your business again if they have a poor experience, even if the reason for the poor experience comes from your supplier and not you.
You should read the reviews of potential suppliers, read their policies, and talk to them to assess their quality. Working with reputable suppliers ensures you provide good quality products, there's no extra branding added to your orders, and your orders are processed quickly.
Order products to your own location
While a benefit of dropshipping is that your supplier manages the inventory, there are a few reasons why you should consider ordering a few products to your own location:
Judge the quality of the products for yourself: Product reviews give you a good indicator of the quality of a product, but you can't be sure until you see it for yourself. Also, you can see the packaging of the product and if the supplier adds their own promotional material.
Shipping large orders yourself: In cases where a customer orders products from multiple different suppliers, you must pay each supplier a shipping fee. If you already have those products yourself, then you can put them in one box and pay only one shipping cost to get the products to your customer. Contacting your supplier to see if they can offer you free shipping when ordering products to yourself is a good strategy if you plan to use this method.
Experience your customer's order process: You should see what your customers go through when they order from your store. Understanding how quickly your suppliers process orders can help you set the correct expectations in your order notification emails to customers.
For example, if you see it takes 4-6 days for your supplier to process the order, then you can let customers know to expect a shipping confirmation email in 4-6 days in your order confirmation emails. You should always provide your customers with lots of information about their order so they can feel confident ordering from your business.