What To Look For When DropShipping - Forbes
Founder and CEO of Avasam, changing the face of DropShipping, one automated step at a time.
Dropshipping is far from a new invention, but the essence remains the same. Many have made their fortunes from it, while others have lost their livelihoods. However, it’s a great tool if used well and if you understand your market. As someone who works with channel integration and automation for dropshipping, I have seen firsthand the pros and cons of the business.
Reasons to utilize dropshipping include optimizing the use of limited funds and allowing for a wider range of goods. This allows for more flexibility as you’re not committing to overheads such as the storage costs of a warehouse, utility bills, racking fees, staff expenses, etc. You’re only shipping the stock you pay for, and the supplier assumes responsibility for purchase planning and dealing with dead stock.
So why doesn’t everyone dropship?
A common reason for not dropshipping is that you lose some control over the servicing of your customers. In some regards, you are handing control of your company and reputation to someone else. Because the stock is never truly in your hands (and may be shared with competitors), there is always a risk that someone might beat you at your own game by playing their margins differently. This is not a problem if a niche product is not central to your business, but the more you need to control and guarantee availability, the less suitable dropshipping is for you on that product or range. Lack of control is not a problem if you’re confident that your supplier can and will deliver.
Some large companies have used their marketplace as a means for businesses to pseudo-dropship. They invite other, smaller companies to list products they themselves don’t stock and then fulfill the orders for a commission. The seller gains sales while the company attracts more customers and gets a slice of the sale. This can be a great way to improve your presence in new markets by having specialists subcontract for you.
While you don’t need a warehouse with dropshipping, you still need to list products, advertise, run social media and handle customer support. This can be yourself or someone you are employing. Not everyone is suited to work and manage remotely. Your business will benefit from finding the right people and making the right arrangements.
What’s the secret to successful dropshipping?
There isn’t a simple answer. While the foundation of a good business is making sure you know your niche or market before you enter it (as well as having a reliable network or partner to build a sustainable business with), there are other aspects to take note of when considering or starting out in dropshipping:
• Is dropshipping suitable for the niche or market you’re going to be servicing? When your products require customization, selling branded and luxury items this way may result in customers questioning the authenticity of the products. Products with high volume, low margins may not be worth the time to sell at all. I believe the key is to identify a mix of products with high demand, low margins, and those with lower demand and higher margins.
• What are your competition and your target users doing? Find them on social media, make test purchases (simply placing an order to see what their service is like) and study their pricing — this will help you to determine what margins are possible for your own business, especially if your competition is already the preferred seller of certain items.
• How do the test purchased items compare with the samples from your suppliers? Samples may be prioritized by the supplier to encourage you to work with them, but making test purchases through your system will allow you to understand the quality of products and the standard of service that your supplier will deliver for your customers.
• Should you be looking at selling on your own website or a preferred marketplace for your niche? I recommend using a mix of sales channels, guided by where target customers are likely to shop for the product. This also helps to spread risk in case one of your sales channels is compromised by an accidental or mistaken violation of marketplace rules, for example.
• Can you identify one or more suppliers with the products you want to sell — preferably with products in the same country in order to reduce paperwork and delivery times? Finding suppliers in your country that work with a dropshipping model is much easier than ever before. You should find a company that works with verified suppliers and offers its inventory to sellers. I also recommend looking into a company that provides automation to make managing dropshipping much easier and less prone to error. It’s also worth having more than one supplier just in case one lets you down and for you to bargain for better prices. Multiple suppliers may have several common items, but they will overall further diversify your product range and allow opportunities for larger basket sizes.
• Can you ensure that you can make a profit from selling the item(s) you seek to sell? Careful research and planning ahead should ensure your profits. Be sure to take costs such as marketplace commission, your website costs, your credit card and marketing costs into account since they add up quickly. Do your calculations carefully to ensure you can cover your costs with your sales.
• Do you have influencers or reviewers to send samples to for when you launch? Finding influencers that align with you best is relatively simple, and using influencer marketplaces is an easy way to find them. You can also search hashtags to find the influencers that produce the sort of content you want to see.
Dropshipping isn’t the right move for every online retail business but can be an incredible opportunity for some businesses ready to scale up.