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What is Drop Shipping Business?
Drop shipping is not a new term. Many people use it over a few years, but there are a few misconceptions. Especially, beginners don’t try to understand the drop shipping in details.
It may eventually lead to failure, and so many startups drop the idea of drop shipping businesses from their mind.
So it’s important to know what is drop shipping, how does it work and how to run a successful drop shipping business. It also includes knowing how to drive more traffic & sales, finding the legitimate wholesaler and so many things like SEO, marketing your products, etc. to become a drop shipping tycoon.
I have shared this whole article for you to understand what drop shipping is. It will help you to get basics of the drop shipping business, and you can start your drop shipping business within no time.
Definition of Drop Shipping
Drop shipping is a service where wholesalers (some, not all of them) or small-scale manufacturers offer a chance to the retailers/resellers to promote and sell their products without involving the upfront cost in the stocking of products/inventory.
Here, reseller does not have to keep inventory in stock or care for packing & shipping of products. Drop shipper or wholesaler does that all on reseller’s behalf.
In simple, drop shipping is a retail fulfillment service where you (retailer/reseller) take orders from customers and pass these orders to your drop shippers.
They pack and ship the ordered products to the customer and send notifications, generally the tracking number or required documentation to you. And, the cycle gets completed.
In drop shipping business, you have to select the right products from real and legit wholesalers, and sell them on any of the leading e-commerce marketplaces like eBay, Amazon, etc. or your online store.
When the order gets fulfilled, you can keep the profit for each sale that you have calculated previously and made on your orders, i.e., money left out in your account after selling the product.
Generally, profit is the difference between the retail price for which you have sold the products and the expenditure on wholesale price & total overheads on shipping, packing, documentation, and e-commerce marketplace fees or your store hosting, etc. This profit may rise more than 6 figures if you are dedicated and consistent at your work.
How Does Drop Shipping Work?
1. Initial Requirements
As you have known about what is drop shipping, in this entire article, you will know how to run a successful drop shipping business. Before that, you should fulfill the following requirements needed to run a drop shipping business without any hassle.
It includes basic requirements like the computer, fast internet, business registration & tax certificates, etc. You can refer to the article on how to start an online store in India for more details.
2. Product Sourcing
1. Finding a Profitable Niche
It does not matter, what you are selling but it’s essential to add value to your business. According to me, a niche-based drop shipping business will help you to grow quickly and give more control. You can select the variety of products for your niche chosen and sell on the e-commerce platform you have chosen. So finding a niche for your drop shipping business plays a significant role in your success.
You can select the variety of products for your selected niche and sell either on the e-commerce marketplaces or your online store. But finding a niche for your drop shipping business plays a major role in your success.
2. Finding Legitimate Drop Shipping Wholesalers
It’s again a tough job. As you know that the drop shipping is very easy to start up, most of the people try their luck in this business. It is a well-known fact that fraudsters know very well and they create a fake drop shipper profile to make money through the newbies in the drop shipping business. So finding a legit drop shipper is quite tricky. But don’t worry, I’m always here to help you.
To determine whether the drop shipper is real or not, you can take the help of following key points. These key points are exclusively available for the readers of websitetipstricks.com only.
1) Real and legit wholesalers/suppliers are poor in marketing and focus more on their routine work.
2) Ask for documents like business registration proof, tax certificates, etc.
3) They do not sell products to the public.
4) Speak to the real person on call. The best way is to visit the facility and check the quality of products before starting to work with them. If you are satisfied then only can carry on.
5) Real & legitimate supplier take the order through emails, SMS as well as the phone. You can cancel your order in the same way. If these options are not available, do not sign up for the reseller/retailer account.
3. Financial Calculations
You can calculate all fees e-commerce marketplace’s product listing fees, packing or shipping charges & transaction fees(if any), documentation fees, taxes and your overheads for each sale to add to the wholesaler’s price.
Don’t forget to add the reasonable profit value to the total calculated price and the net total will be your final retail price for the product you want to sell.
4. Finding an E-commerce Platform
Once you selected the products and decided the right or competitive retail prices for them the next step is of listing these products. You can register on the following platforms and sell your products.
1) E-commerce marketplaces like eBay, Amazon, Flipkart or Snapdeal, etc.
Here is a complete guide about How to Start an Online Store in India.
5. Marketing Your Business
When you are done with the above steps like product sourcing, creating an e-commerce store and listing products, the next thing is to promote your store and the products.
If you are selling the products on e-commerce marketplace like Amazon, eBay, Flipkart or Snapdeal etc. you have not thought so much about the marketing.
They take care of all of the marketing tasks. Being a reputed website with millions of visitors per day, you will get a lot of traffic to your product in the e-commerce marketplace.
But to increase your sales in the competitive market, you can use some advanced marketing tactics to attract more customers to your products. You can use marketing tools like Google AdWords, PPC advertisements, Social Media advertisements, SMS marketing, and email marketing to grab more customers and retargeting them.
6. Fulfillment of Orders
It is the step where the actual movement of inventory/products takes place. In any of the case i.e., e-commerce marketplace or your own online store, you list and promote your products through different marketing networks.
The people surf and look into your products if they like the products. And, buy the products, they want to buy.
Here, placement of CTA (Call-To-Action button) product price, product description, reviews, discounts & deals plays the major role to take action by customers.
Once, the customer places an order for the product you have listed, you will get notification email or SMS for the placed order.
You can contact your drop shipper by email, SMS or phone to place your order to get fulfilled with all required product details and customer address (the most important).
Dropshipper gets your order at his end with the details provided by you. He packs and ships the products with the courier service as you have selected or mentioned to the customer’s address, you have provided on your behalf.
Courier service delivers the order to the doorstep of customer and provides you the delivery status as ‘OK/Delivered’ with the signature of the customer and tracking number. In some cases, it is forwarded by the drop shipper too.
This is the whole system of drop shipping. Here, you have to pay the wholesaler’s price and courier charges and other expenses from the money that you have received from your customers. If you have grown big, then you can tie up with monthly payments for wholesalers as well as the courier services, if they are ready.
7. Dealing with Operational and After-sales Activities
The drop shipping business is not as easy as you had thought. Here I am going to make you aware of potential issues that will kill your business to the zero. These problems are a little bit complex and as listed below.
1) Negative feedback from customers for out of stock products & defective/damaged products.
2) Security & privacy issues like hacking & stealing credit card data or email by hackers.
3) Frauds at customer end are causing a heavy loss.
Pros and Cons of the Drop Shipping
I have discussed the basics of the drop shipping business with pros and cons. So studying the advantages and disadvantages will help you carry out the right decision for you.
Drop shipping is an easy platform to earn money online, so the people get attracted to it. Later on, they leave this business and claim that the drop shipping is not good or there no scope to earn money. That’s not true.
It’s a business and if you are not following the business etiquettes then the most probably you are going to fail. So you have to consider the pros and cons of drop shipping business before continuing.
Pros of Drop Shipping Business
1. It’s easy to start your drop shipping business and you can do it with very less hassle or even when you are not a tech geek.
2. Low upfront cost. You don’t have to pay for stocking inventory, insurance, the salary of employees recruited at wholesaler end.
Even you don’t need your own warehouse to store inventory.
3. Drop shipping offers greater flexibility. You can work from home also and earn like an established business. There is no need for specific geographic location, time span and you can decide & work as per your own schedule.
4. In the products, you have a wider selection choice for your niche. You can offer larger and heavy items like furniture, automotive parts without any hassle.
5. You don’t have to work with packing and shipping. That all that is taken by wholesaler end itself. And, the time saved for these operations can be used for promotion or add value to your business. So drop shipping becomes highly scalable if managed perfectly.
Cons of Drop Shipping Business
1. No control over your orders. You can only predict the quality of products that wholesalers have shipped on your behalf but can’t verify it. Another thing is that you don’t have full control over the product packing & shipping.
2. You have to take responsibility for the problems raised if any like technical or security issue, fraud or customer end delivery issues including the delivery of the defective/damaged item, the product is not delivered, and out of specs products. It lowers the reputation of your brand and customers also, creates a negative impact on your business growth.
3. Being easy to start up with little capital investment and doesn’t need the inventory or warehouse, you will face a lot of competition.
In trending niche or best selling products, it will lead a razor-thin profit margin. The absence of entry barriers like minimum order requirement, upfront fees is the major cause of this issue.
4. It’s difficult to find real and legit drop shippers with the lowest values, no minimum order quantity or pre-order costs.
Drop shipping is a business and you go for it if you are really serious about it. You have to follow business etiquettes and be consistent as well as dedicated. It will not give you instant access to the huge income but you can start earning money more day by day.
One thing to remember, the online world is full of spammers, fraudsters, and hackers. So be always aware of that and keep yourself protected by taking every decision very carefully.
As someone has mentioned that “There is not the best day than today and not the best time than now.”
Take your decision as early as possible.
You can get access here to my favorite book Dropshipping: Complete Guide to Start Your Six-Figure Dropshipping Business.
For step-by-step video courses, you can find the links below to the top Udemy courses.
In case, you have any queries or feedback, feel free to connect with me via the comment box or contact us.