WHAT IS THE GOOD AND BAD DROP-SHIPPING

 

Dropshipping is an order fulfillment method that does not require a business to keep products in stock. Instead, the store sells the product and passes on the sales order to a third-party supplier, who then ships the order to the customer.

However, contrary to popular belief, dropshipping is not a get-rich-quick scheme.

Sure, it seems like easy money you sell other people’s goods and take a cut for yourself but when you factor in all the drawbacks, obstacles, and day-to-day management, it’s far from easy.

However, if you approach it the right way, and use the proven strategies below, dropshipping can still help you build a successful business…just not as quickly as you’d hoped.

if you want to succeed in dropshipping follow some steps

Select a niche.

The niche you select needs to be laser-focused and something you are genuinely interested in. A product range that isn’t focused will be difficult to market. If you aren’t passionate about the niche you select, you will be more apt to becoming discouraged, because it takes a lot of work to successfully scale a dropshipping business. Here are some points to consider when selecting your niche:

• Seek attractive profits. When you are running a drop shipping business model, your focus is on marketing and customer acquisition, so the amount of work required to sell a $20 item is essentially the same as it would be to sell a $1,500 item. Select a niche with higher-priced products.
• Low shipping costs are very important. Even though your supplier or manufacturer will handle the shipping, if the cost is too high, it will act as a customer repellant. Find something that is inexpensive to ship, as this also gives you the option of offering free shipping to your customers and absorbing that cost as a business expense in order to attract more sales.
• Make sure your product appeals to impulse buyers with disposable income. When you are focused on driving traffic to your website, you want to experience the highest conversion rate possible because most visitors will never return. The products you are selling should trigger impulse buys and appeal to those with the financial ability to make a purchase on the spot.
• Make sure people are actively searching for your product. Use Google’s Keyword Planner and Trends to check some common search terms related to your potential niche. If nobody is searching for what you are planning on selling, you are dead in the water before you even begin.
• Create your own brand. Your drop shipping business will have more value if you can rebrand whatever it is you are selling and pass it off as your own. Look for a product or line you can white label and sell as your own brand with custom packaging and branding.
• Sell something that isn’t readily available locally. Pick something your customer can’t find down the street. That way, you become more attractive to a potential customer.

 Perform competition research.

• Remember, you will be competing with other drop shipping operations as well as retail giants such as Walmart and Amazon. This is where a lot of potential drop shippers go wrong because they look for a product that has little to no competition. That’s a sign there isn’t demand that particular product.

  There are many reasons why a product might not have a lot of competition, including high shipping costs, supplier and manufacturing issues, or poor profit margins. Look for products that have competition, as it’s a sign that there is a high demand and the business model is sustainable.

Secure a supplier.

• Partnering with the wrong supplier can ruin your business, so it’s important that you don’t rush this step. Conduct proper due diligence. Most dropshipping suppliers are located overseas, making communication extremely important, both in terms of response speed and the ability to understand each other. If you are not 100 percent confident in the communication abilities of a potential supplier, move on and continue your search.

  Alibaba has become one of the largest online resources to identify and communicate with potential manufacturers and suppliers. Make sure to ask a lot of questions and learn what their production capabilities are in the event that your business grows exponentially. You want to be certain they have the ability to scale with you.

  Try to learn from other entrepreneurs who have walked this path in the past. There are plenty of information sources available, from business and tech blogs to this subreddit about dropshipping. It’s a popular topic that can help you avoid costly supplier mistakes.

Build your eCommerce website.

The fastest way to launch a website that supports a drop shipping business model is to use a simple eCommerce platform such as Shopify. You don’t need a tech background to get up and running, and it has plenty of apps to help increase sales.

Even if you have a sizable budget that would allow you to hire a web design and development company to create a custom solution, it’s a much wiser move to use one of the plug-and-play options, especially in the beginning. Once you are established and the revenue is coming in, then you can explore additional website customization.

Create a customer acquisition plan.

Having a great product and a website is great, but without customers looking to buy, you don’t have a business. There are several ways to attract potential customers, but the most effective option is to start a Facebook ad campaign.

This allows you to generate sales and revenue right from the start, which can contribute to quick scaling. Facebook allows you to place your offer directly in front of a highly targeted audience. This gives you the ability to compete with the largest brands and retailers immediately.

You also have to think long term, so search engine optimization and email marketing should also be a focus. Collect emails from the start and set up automated email sequences that offer discounts and special offers. It’s an easy way to leverage your existing customer base and generate revenue without additional advertising and marketing spend.

Analyze and optimize.

You need to track all of the data and metrics available to grow your business. This includes Google Analytics traffic and Facebook conversion pixel data if that is your main customer acquisition channel. When you are able to track every single conversion -- to know where the customer originated from and what path they took on your website that eventually led to a sale -- it enables you to scale what works and eliminate what doesn’t.

You will never have a set-and-forget advertising or marketing solution. You need to constantly test new opportunities and fine-tune current campaigns, which allows you to know when to optimize or shift campaign spend.

Some bad about dropshipping

Low-profit margins.

Sure, since you don’t have to manage or store your own inventory, the overhead is low but so are the returns.

You put less money in, but you get less money out. That means you have to do a lot of business just to stay afloat, let alone turn a profit.

That’s hardly enough to cover your expenses for marketing/advertising, maintaining your site, managing sales orders, and covering your office hours.

According to Fit Small Business, you can predict your income using these variables (they’re averages, so they’ll change depending on your industry and situation):

• 20% margin.
• 2% conversion rate.

You can then calculate a working estimate using this equation:

(Traffic x 0.02) x (Avg order value x 0.2) = Profit

While this is fine for a quick starting estimate, there are a few problems you also have to consider:

• Chances are, your discount on buying from manufacturers and wholesalers will be less than 20%.
• This doesn’t account for any of the additional expenses mentioned above that you have to pay from your end. It’s not the final profit.
• For most products, you’ll have to cut into your profits to keep your sales prices competitive. If you stubbornly hold on to your 20% margin, other companies will easily undercut you.

On top of that, you’ll notice that your profit is also largely determined by your traffic, so if you’re building an eCommerce brand from scratch, you’ll be struggling for a long time as you build a client base.

Plus, according to Adam Enfroy from BigCommerce, dropshipping is a lot of work no matter how you dice it. Although it seems hands-off, drop shippers always have to deal with their wholesale suppliers, order processing, returns, and customer service. 

It’s much more reasonable to approach dropshipping when you already have a regular source of traffic.

Highly competitive.

There will always be overly optimistic entrepreneurs who focus solely on the “low overhead” part, ignoring the clear evidence above.

Because very little capital is required to start a dropshipping business, that low barrier to entry means a lot of competition, with the most popular markets suffering more than others.

Basically, the bigger a company is, the more they can reduce their markups to offer the lowest prices.

Legal liability issues.

Although this isn’t a common problem for dropshippers, it’s worth mentioning. Some suppliers aren’t as legitimate as they claim, and you don’t always know where the merchandise comes from.
Even more deceptive is when suppliers illegally use a trademarked logo or another company’s intellectual property, which happens more than average.

Difficult to build a brand.

Like ghostwriters or behind-the-scenes songwriters, dropshippers must understand that the credit for their work goes to someone else.

If whatever product you’re selling is so amazing, your customers are going to focus mostly on the product’s brand and forget about the shopping experience entirely.

After all, it’s not your logo on the box.