“Dropshipping” is a term which may be unfamiliar to anyone from outside of the word of e-commerce and digital business, but is a practice which is central to the business model of thousands of successful companies in the modern world. In this blog, we’ll explain what dropshipping is, looking at some advantages and disadvantages before finally looking at how to start dropshipping for your business.
What Is Dropshipping
Drop-ship (vb): to ship goods from a manufacturer or wholesaler directly to a customer instead of to the retailer who took the order
If you’re wondering how to start dropshipping, though, you might need a more workable idea of the term. Put more simply, a business which runs a dropshipping website doesn’t hold any stock – instead, they send customer’s orders directly to their suppliers, who fulfil the orders and ship them directly to the customer, without their business ever receiving the products.
Advantages of Dropshipping
Most of the advantages of dropshipping relate to the fact that it’s possible to start up your business without having to generate a huge amount of capital beforehand. When you think about how to start dropshipping, you don’t need to invest in:
- Thousands of £s of stock
- A warehouse or storage facility
- Staff and systems responsible for tracking stock and packing & shipping deliveries
- Dealing with inbound deliveries and returns
Additionally, because you aren’t selling-on stock that you have purchased upfront, you are at far less risk as a start-up, without the overheads that a physical location or even traditional ecommerce setup comes with. Moreover, without any fixed locations that you need to be responsible for, you can run your business from anywhere where you set up a reliable connection to your suppliers and your website.
Not only is your location flexible, but so are your product offerings. Since you aren’t purchasing stock upfront, you are able to operate in a hyper-agile fashion, and respond to your customers’ needs with a range of trending products. Your offerings rely on the stock of your suppliers, so anything they offer, you can also offer.
In the long-term, dropshipping is super-scalable. In a traditional business, exponential growth might pose a lot of problems and challenges. With a dropshipping model, most of these challenges are faced by suppliers and distributors who already have the systems in place to deal with much larger order quantities, allowing you to expand with fewer growing pains
Disadvantages of Dropshipping
All of these benefits might make you wonder why every business isn’t a dropshipping business – but, as we’re sure you’re aware, dropshipping has its downsides, and low risk rarely comes with the highest of rewards.
The first, and major disadvantage of dropshipping are low and decreasing margins. With starting a dropshipping business being so simple, and overhead costs so low, you usually find a hypercompetitive marketplace and a real race to the bottom in terms of pricing. With suppliers often under no requirement to sign exclusive contracts with dropshippers, you can’t rely on your product being superior to others on the market, as you may find the same product being sold in multiple places at varying price points.
If the competition is operating at miniscule margins, then you can use a high-quality website and top customer service to differentiate and add value to your brand, but that won’t stop some customers looking at the bottom line.
You may occasionally run into inventory issues, where your suppliers are temporarily out of stock. Where you save time and money in not maintaining your own stock levels, you are required to keep in constant contact with your supplier(s), who are probably also dealing with other stockists. It’s also possible that there are faults with products which, as you haven’t physically handled the products, might only be brought to your attention by angry customers. In fact, any errors made by your supplier and you will have to take the blame – customers will only expect to interact with you & ideally, would not even know that a third-party warehouse shipped their product.
How To Start Dropshipping
Whilst there is far less to set up with a dropshipping store than other business models, there are some things to consider when you are wondering how to start dropshipping.
Online Store – £95/month
Obviously, you need to build an online ecommerce store to sell products on. With AsOne, we can build and host your ecommerce dropshipping site on WooCommerce for just £95/month. With WooCommerce, you can avoid the transaction fees of Shopify eating into your already small margins, and without a warehouse or shipping to manage you really have no need for Magento.
Domain Name – Estimated cost £5-20/year
Domain names are really important for establishing trust amongst customers, and we wouldn’t want to rely on finding a free one – and the odds of finding a free one which also inspires trust are even slimmer.
Test Orders – Cost dependant on your product
Given that you won’t see your products between supplier and customer, it’s a good idea to order some of your products to come to you, so you can check for yourself their quality and durability. If you list a faulty or poor-quality product on your site, then you can expect lots of returns and these might be difficult to co-ordinate.
Digital Marketing – Scalable, and we recommend at least £500/month to start
Digital marketing is absolutely vital for a successful start to dropshipping, as all of your competition is online and competing in the same space as you. Without digital marketing, you will not be able to acquire customers, therefore you won’t turn over any revenue. For startup dropshipping sites, search engine marketing (SEM) and social media marketing are often the most effective routes to market. AsOne’s expertise extends to digital marketing and by having just one agency for both your website maintenance and your marketing, you can minimise the administrative tasks for your new business.
How to start dropshipping is in some ways a simple process, but it requires technical expertise in the setup to ensure that the business won’t run into problems. AsOne have 20 years of experience and expertise in working alongside startup projects, and working to fixed management fees mean that you won’t pay extra for your success. Contact us today to speak to an expert about your new dropshipping site.