What is Dropshipping Business?

Dropshipping

Dropshipping has been a growing market in e-commerce due to the flexibility and low-risk scenarios it offers to sellers; however, setting up an excellent dropshipping business is not as easy as people might say. You would need to be well equipped with relevant information and resources to establish a successful endeavor.

This piece would provide all you need to know about dropshipping and how to run an excellent dropshipping business with Virto commerce, together with related terms in this article.

What is Dropshipping? A Short Definition

Dropshipping is simply an online selling method where you don't need to have an inventory or stock of certain items before you can accept orders or transactions concerning those items.

In other terms, it is a process where an online store or retail outlet sells a product they don't have. Instead, they pass the request for the product to a manufacturer or retailer (3rd party) that completes the transaction by delivering the goods to the final consumer; you, as the seller, never get to handle the product directly.

A Dropshipper is a seller responsible for taking orders from consumers and contacting a third party who finally delivers the goods. He doesn't need to have a large warehouse or inventory of goods. If you decide to be a Dropshipper, the important thing is to get customers to visit your online outlet and have 3rd parties ready to deliver the goods.

The 3rd party involved in the dropshipping supply chain takes orders on behalf of a retail agent/seller (Dropshipper) and transports goods to the customer. The 3rd party is usually a manufacturer, wholesaler, or supplier who usually has a large inventory of goods in the warehouse available for shipping; even though he delivers directly to the customer, the 3rd party gets his pay from the Dropshipper, and the Dropshipper gets his pay from the customer.

A Dropship or a drop shipped product is a product that is directly delivered from a manufacturer/wholesaler to a customer.

Most Dropships or Drop shipped goods are usually products that require high maintenance because the idea is that it is a great way to manage risk as to the goods you are selling are not in your care where they can be vulnerable or damaged; instead, they are at the accomplished warehouse of the manufacturer or wholesaler where damages are unlikely to occur, and the quality can be guaranteed to some extent by the seller. Overall the sellers have more peace of mind with the goods stored at a high-end warehouse. Drop ships are mostly Heavy, Fragile, and luxury goods, and it is arguably more profitable to drop certain ship goods rather than have them in stock even though you might have an inventory.

How Does Dropshipping Work?

As previously stated before, Dropshipping is a selling/ supply chain model in an online business. In a typical Drop Shipping supply chain, there are usually three parties involved:

Manufacturer (3rd party)

These are parties or organizations that produce the customer's desired product. The wholesaler buys from the manufacturer and then later sells to the retailer in a typical supply chain. However, in dropshipping, it is commonplace for the manufacturer to deliver directly with the customer without selling to the wholesaler or retailer.

Wholesaler (3rd party)

These are usually private individuals with large warehouses and numerous inventories of a single or numerous products. They buy directly from the manufacturer and sell to the retailer. In Dropshipping, they can also deliver directly to the final customer.

Retailer (Drop shipper)

They are usually small-scale entities that buy goods from the wholesaler in not-so-large amounts and sell in bits to customers. However, when a retailer decides to do Dropshipping, he doesn't need to buy goods or stock. He can advertise them on his online platform and pass the order to a manufacturer, wholesaler, or any other party involved; the manufacturer charges you, the retailer (Drop shipper) for the service, and you charge the customer a slightly higher price.

Generally, in Dropshipping, the smaller your supply chain, the higher your profit. This is because fewer parties are taking a cut. A very short supply chain is when you contact the manufacturer directly for an order. A very long one can involve manufacturers, wholesalers, and even other intermediaries!

Although Dropshipping might look like a relatively easy, low risk and stress-free way to make money online and have a growing business, it is not exactly a bed of roses.

The dropshipping business works on low-profit margins meaning there is a slight difference (Profit) between what you pay the 3rd party who delivers the goods and what you get from the customer, which shows getting high gains might not be easy or as fast as you thought.

Also, most experts say that it is more suitable if you already have a stable business and use Drop Shipping as a compliment to boost your online platform or if you have a source of high online traffic.

All in all, while the process of Dropshipping might look to be simple, you advertise and sell manufacturers' goods and take a percentage for yourself. There are a lot of factors involved, and it is how you as a Dropshipper manage these factors that would decide whether or not you can have a successful Dropshipping model; all you might need to build a good business would be provided in the article later on.

But before you decide to dive in entirely, it is always good to know the pros and cons that Dropshipping offers.

Dropshipping consists of 3 parties: manufacturer, wholesaler, retailer

Benefits of Dropshipping

Dropshipping has been hailed to be one of the suitable online business models someone can lay his hands on, and the reasons for this includes:

Simple to develop

Dropshipping is straightforward to set up as the case may be. All one needs is an excellent electronic gadget (Preferably a lovely laptop or computer) and a steady internet connection, and you are good to go! The moment you find a niche or products you feel would be worthwhile to market and sell online, you could launch your online store in a span of a few hours! No jokes, various platforms have made it very easy to create a Dropshipping store using helpful apps, and with constant improvement and investments, you have a pretty high chance of making a nice profit.

Low start-up money is needed

One of the significant uniqueness of Dropshipping is that there is no need to have an inventory or stock of goods, which translate that you don't need a very high investment or have to go looking for loans to start it up, you could advertise thousands of products and not have or have to handle a single one. In Dropshipping, the only time you have to purchase goods is when a customer places an order and pays you, which means the money needed is already available to purchase from the manufacturer.

No location barrier

As with most other online businesses, you can operate Dropshipping from anywhere in the world. You can be at your home and manage and initiate orders all around the globe. As long as there is excellent and steady interaction between you, your customers, and the manufacturers/wholesalers, you don't have to move around or spend time traveling to initiate a deal or having to go and pick up the products to be delivered to the customer you could do all the work at the comfort of your desk.

Wide range of products to sell and market

Since you don't need to purchase goods before you can display or sell them, the choices of goods you can advertise on your platform is virtually limitless, all that is needed is a stable agreement with the manufacturer of the product, and you can start marketing various products on your online store, which increases the chances of your targeted market to see what they like/need and to purchase from you while you make again. Let's say you decide to sell electronic gadgets, and you can contact various manufacturers or wholesalers of different brands of electronic gadgets and have a large number of devices you could put up for sale in your Dropshipping store, Apple, Samsung e.t.c

No need to manage inventory

When you own a drop shipping outlet online, there is no need to have a warehouse or go through the hassle of managing a large inventory of goods, which effectively reduces costs involved and risks and accidents of warehouses is avoided. All the necessary work concerning the inventory is conveniently passed to the manufacturer or wholesaler, all of your efforts can be directed to improving your online store and marketing strategies.

It supports the testing of new products

Dropshipping is a great and effective way to "test" products and monitor how the customers would receive them. The chances of running at a loss when trying to expand your market are reduced to possibly zero since you wouldn't have to purchase the new products. Instead of spending extra money on an item that might not later sell, you could test it with Dropshipping. Not only would you know whether or not it would sell, but you would also have an idea of how well customers receive it, and you would be able to decide whether or not it is worth investing full time on.

Less minor risks

Overall, the risks of Dropshipping are relatively small compared to the standard retail model because you don't have an inventory or warehouse to manage; this is a desirable factor for small-time investors online marketing. There is little risk involved when trying to sell new goods, no risks of accidents happening at the warehouse, amongst others.

No extra work concerning shipping

As a drop shipper, you don't usually have to concern yourself with the work of shipping that comes at a cost. Your 3rd party supplier does everything; you might need to clarify the quality of the goods you are planning to sell at the manufacturer before taking orders. Other than that, you might not even have to handle the product, ship it or even initiate returns at any time, a great way to reduce your workload.

Easier to manage your business

When you sell more as a Dropshipper, it doesn't mean you would have to do extra work as it is with average retail; the scaling doesn't change since you are not responsible for handling and shipping the products, and sometimes even customer support, when you decide to expand your online platform into selling more brands, you don't worry about having to do more work, your workload hardly changes.

Advantages of dropshipping

Disadvantages of Dropshipping

So far, many perks have been listed and explained about drop shipping; however, it might not look as soft and profitable as it seems. Most marketing experts insist that Dropshipping is NOT a get rich quick scheme. It has quite a several drawbacks, and you might end up wasting time and resources.

High competition

Just the same, you can easily open a Dropshipping store, as can several millions of other internet users. It is a highly competitive space, and there isn't a very high number of prospective buyers to go around. Some dropshippers would no doubt have the edge over others.

If you are new to the online business sector, you would most certainly not compete effectively with other Dropshippers who have many years of experience. Many Dropshippers even adopt a "low price" scheme to tempt customers by selling at a slightly lower price than most of their competitors.

Low-Profit margins

One of the most significant drawbacks of Dropshipping is the low-Profit margin. Your third-party supplier takes the bulk of the money while you take only a tiny cut. Dropshipping is easy and convenient but, on a grand scale, not that lucrative for an average Dropshipper.

And even after you make a decent gain, you would also have to cut some prices to stay afloat in the competitive market, and some of the time, you might have to pay extra to the 3rd party supplier to ship goods to your customer. The margin keeps getting lower. Most of the time, it is the amount you invest that would decide the range of your profits you have to score in a large number of orders to be stable.

Quality of goods can not be inspected

Dropshippers hardly get to handle the products they sell to their customers, which means they don't see and inspect them before it is transported to the customer; in a typical retail setting, a complaint regarding a product can be easily be looked into since you already have an inventory. It is a different case entirely. If Dropshipping is involved, you would have to address an issue regarding a product that you don't even have or have seen!

Your only choice would be to contact your supplier on the issue and report back to your customer, a back and forth scenario that doesn't look pretty, as customers can be easily angered.

Limited control

Although you don't get to ship products if there is a defect, you and your store would be the ones to take the blame. Most Dropshippers lack the right amount of control over the fate of a product to deal with issues regarding it effectively. It is even more damaging if your supplier is not cooperative and doesn't take adequate measures in shipping, and you don't have control to check it before it is being sent to the customer.

Shipping Problems

Odd as it sounds, although the 3rd party supplier deals with the shipping to the customer, it is you, the Dropshipper, that pays for it; not only can this lead to complications such as failed shipping or wrong shipping , it adds to cost. Even more so, if you have many suppliers, it is not easy to keep track and monitor every order optimally.

Legal cases

Getting blamed for a problem you didn't cause is commonplace in Dropshipping. If things get terrible, you might even have a lawsuit in your hands! As there are many deceptive and illegal online suppliers. This is why you take great caution in choosing suppliers, and you should have an excellent Drop Shipping agreement contract.

It is challenging to develop a brand

As a drop shipper, you are synonymous with an unsung hero since what your customers are seeing is the brand of the manufacturer of a product you are selling, you hardly have a presence overall, take, for instance, you sell car parts what your customers buy is from a particular manufacturer this means that even they are satisfied with what you are selling they can quickly get it elsewhere. It isn't easy to build a brand as a Dropshipper, as most people would preferably check their favorite online store before checking other online stores. Customer loyalty can be challenging to gain.

Customer support is difficult to handle

One significant factor of E-commerce is customer support. However, customer support in a Dropshipping market is not easy as you have little control over factors; your customer service might not be top-notch, leading to negative reviews from angry customers, which could ruin your outlet.

Frequent Returns

Returns has been a big problem in the e commerce sector, as a Dropshipper returns can be more damaging to you than other retailers who have inventories since you have might not always get back the shipping fee you have previously paid the 3rd party supplier, and you have returned the total fee to the customer which means you have gotten a loss, even if you have an option to send another product to the customer you would pay another shipping fee.

Disadvantages of dockshipping

Now that we have debunked the pros and cons of Dropshipping, It’s important to discuss a vital factor in the Dropshipping market, that is the Dropshipping suppliers. To have a relatively easy time as a drop shipper, your suppliers have to be top-notch or at least reliable; while finding them might not be easy at first when you lookout for ways to find them, you should be able to have a steady group of suppliers at your call. It is also advisable to go yourself and inspect the condition of the goods your supplier provides so that you can know if it is worth marketing.

How to Choose the Best Dropshipping Suppliers?

It is most suitable to establish a direct connection to the manufacturer of a product as we have stated earlier that the fewer the parties in your supply chain, the bigger your profits. However, there are still important questions to be asked, such as:

How are their prices?

It is essential to know how much the suppliers charge per product to compare prices and find your best choice. You could also ask if there are discounts for bulk others.

Is there a special handling fee to be paid when an order comes in?

You should find out if there is a handling fee, that is extra money paid to package the product and ensure quality properly. If there is, find out whether or not it is worth the pay.

How are returns or defective goods managed?

If a product is returned, how is it taken care of? Would there be a full refund or not? What are their return and warranty policies? These are essential facts you would need to know before trying a supplier.

What is the time range before an order is shipped and delivered?

How fast do your prospective supplier's process and ship orders? You have to keep the knowledge in mind when accepting transactions from your customers.

Test Orders

A test order is also a crucial process you have to take inorder to set up your dropshipping store properly. You need to place an order on your online store to ensure your order process is set up correctly. This includes the checkout process and settings for inventory, shipping, order processing, taxes, and email notifications.

This requires very little to no cost as you’re just making sure your order process is functioning correctly.

Is the customer service reliable?

Customer support is everything in a business; if your supplier has a lousy customer service system, it's you that would be implicated in the long run. You can try to know how effective and efficient their customer service system is and whether you can trust it when a problem arises.

Do they have insurance?

If a mishap or accident happens during a product shipping, who takes up the cost? Does your supplier have adequate insurance to protect against losses and ensure that goods damaged are replaced almost immediately?

Is there extra protection against fraud?

In case of fraud or fake orders, does your supplier offer compensation? It is also essential to know this.

How to choose best dropshipping supplier?

How Much Do I Need to Invest to Start Dropshipping?

To start an online Drop Shipping brand, you would be looking at an investment of as low as $150 to as high as $1300. There are some areas you might choose to decide to invest in or not, such as Penetrative advertising, web maintenance, test orders e.t.c depending on your choice and money at hand.

Online Store

This is the first and most important step in beginning your dropshipping career. You need an online store or basically an e-commerce platform to build your brand. There are numerous e-commerce platforms that can be used to do this and one of such is VirtoCommerce. You can sign-up and create your account for as low as $30. Also, there is a 14 days free trial as you sign-up on the site. This is the first and most important step in beginning your dropshipping career. You need an online store or basically an e-commerce platform to build your brand. There are numerous e-commerce platforms that can be used to do this and one of such is VirtoCommerce. You can sign-up and create your account for as low as $30. Also, there is a 14 days free trial as you sign-up on the site.

Domain Name

The next step after getting your online store is getting your domain name. A domain name is needed for you to have a standard and professional store. This doesn’t cost more than $10 to $15.

You can easily do this on VirtoCommerce or opt to get your domain from popular domain name hosting companies such as Namecheap, GoDaddy, e.t.c.

Online Advertising

The final and longest process. Online advertising is the life blood of any ecommerce business. You have to create Ads so people can see your online store and check it out. To do this, you have to create conversion Ads to reach more people and get them engaged.

There’s actually no estimate for marketing. You have to spend enough to achieve the goal of getting traffic to your store. You have to spend up to $500 to properly market your store.

How much do i need to invest to start dropshipping?

How to Make Dropshipping Work for You?

Seeing how complicated and tedious Dropshipping can prove to be, here are some simple measures you can adopt that are sure to give you an edge over other drop shippers.

Plan your research and try to understand the online market

While drop shipping makes it easy for you to dive into anything, you should spend time following the "flow" of the market. Which products are becoming increasingly popular? Which clothes are popular this season? Which goods are cheaper this time of the year? Asking these relevant questions and knowing the answer can be very useful in your dropshipping and ensure you don't waste time on fruitful endeavors.

Have a broad scope

Try not to be limited to only one kind of product even if it works for you, be adventurous, look at possibilities, study other products, and test if they can bring a profit. Dropshipping supports this kind of behavior and makes full use of it.

Ensure quality

Although it might be difficult, you can still try to ensure your goods are top-notch and a level above the rest; you can plan weekly trips to the supplier and see the state of their warehouse. You could also pay extra for delicate handling if customers see that the products you sell are always in good shape. They are most likely to come back since finding another reliable store can be a hassle.

Focus on drop shipped items

Some items are much more profitable to be drop-shipped than others due to their nature, spend more time marketing these kinds of items as it saves cost when your 3rd party supplier is the one handling them. They are usually high maintenance, heavy, luxury fragile, and expensive good.

Have a backup plan

Although drop shipping might be great and all, and it might not be wise to put all your eggs in one basket. You could still have a small inventory of goods and can be handling the shipping to places by yourself. These places don't have to be too far away, as internationally but locally across some states. While you leave other orders that require large distances or international ones to dropshipping, it is all about finding a balance.

How to make dropshipping work for you?

Conclusion

So far, we have looked at all the sides there is to Dropshipping. While the market is quite large, it is still profitable, and the drop shipping industry is projected to be worth 163 billion dollars by the end of 2021 and can reach close to 600+ billion dollars by 2027.

Hence, there is no doubt the market holds a lot of promise, and it's how well you utilize your options that tells whether you would benefit from it. A great way to start Dropshipping would be by visiting virto commerce as they offer excellent and effective services.

FAQ

Is Dropshipping approved legally?

Yes, dropshipping is legal across the world, and no one can accuse you of running an illegal store, though you can still can in trouble due to shipping problems

How much does an investment in dropshipping cost initially?

About 50 to 1300$ dollars depending on the area you might want to invest in

Ways to find and market profitable products on Dropshipping?

Doing adequate market research, having a niche, testing new products, predicting customer reference.

How to cope with long shipping times that might satisfy the consumer?

Having regular communication with your supplier, knowing the shipping time before accepting a transaction in your online store, and keeping the customer informed on new developments.

How long before profits come in?

There is no specific time to be given as there are a lot of factors that contribute to your success which include your initial capital, your niche,  traffic, number of orders, costs of shipping and maintenance, and losses. It can be as short as two weeks before you see decent gains or as long as four months.

Does Dropshipping require registration?

Yes, it does. This is to give your customers peace of mind that you are a legit online store and have the adequate capacity to fulfill their needs. It is also helpful in case of legal issues.

Does Amazon support Dropshipping?

Yes, Amazon allows drop shipping though they also take a cut of your investment, and there are a few rules you have to stick to,  such as clearly stating your 3rd party supplier and others.

Does eBay allow Dropshipping?

Yes, eBay allows drop shipping and has been one of the earliest utilizers of this online transaction method. Unlike Amazon, eBay does compel you to mention your supplier and even supports your customization, which can be helpful to your brand as a store.

Request a quick demo

Mary Gabrielyan
Digital Marketing Manager