Dropshipping is an online business model. With dropshipping, you don't store product inventory, you purchase products from third-party suppliers as your customers place orders on your online store. Then the supplier ships your products directly to your customer.
Like every business model dropshipping has its own benefits and disadvantages: it's easy to start and doesn't require a large initial budget, but lacks control over products and orders.
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What is dropshipping
Dropshipping is an online business model that lets you purchase products from suppliers only when you receive an order from a customer in your online store. You don't have to store inventory at your location or ship products by yourself. Suppliers ship your products to your customers on your behalf. This means that you don’t have to worry about product shipping, storing, or packaging.
This is how the dropshipping business model works:
Your customer purchases the product for $200 USD from your online store.
You purchase the product from the supplier for $150 USD and make a $50 USD profit.
The supplier ships the product directly to your customer.
Benefits of dropshipping
Dropshipping is considered a beginner-friendly business model as it's easy to start, has low start-up costs, and you don't need to store and ship products by yourself.
Easy to start
Dropshipping is easy to start and set up. You need to choose products, configure your online store, and find where to market your products. After you make a sale, your supplier fulfills and ships your products to your customer.
Low start-up costs and no product inventory on hand
The starting costs of a dropshipping business are usually low. You don’t need to make any high-level investments such as warehousing or retail space. Your suppliers store and package your products. This lets you to focus on marketing and creating a good buying experience for your customers.
Wide selection of products
You can choose from thousands of products on AliExpress and add them to your store. When you have access to a wide selection of products, it's easy to change the type of products you sell. This lets you react to market trends and customer feedback quickly.
No need to ship products yourself
You save lots of time as you don't ship products by yourself. You don't need to invest resources in partnerships with delivery companies. This lets you run an entire business right from your laptop
Disadvantages of dropshipping
Dropshipping has many benefits, but knowing the potential drawbacks can help you make the right business decisions.
Lots of competition
Dropshipping is easy to start and has low-start up costs, therefore, there is lots of interest and competition. More competition usually leads to lower profit margins because businesses often compete to have the lowest price. When you have more competition, you receive fewer orders and often need to lower your prices to remain competitive.
Lack of control of product quality and branding
You have no control over the quality of your products, the branding of the packaging, or the speed of order processing.
Lack of control of orders and shipping
Your orders and shipping completely depend on your supplier. You have to rely on your suppliers to do everything right and work seamlessly. If something goes wrong, it can be tricky to manage.
Difficult to choose products or a niche
As there are so many products to choose from it can be difficult to decide what you want to sell in your online store.
Tips on starting a dropshipping business
Here are some tips to help you start your dropshipping business:
Have a growth mindset
Dropshipping is like every other business - you have to put a lot of effort and time to make it work. No one gets rich overnight, however, the more you try and learn, the more you will achieve.
Use a computer with an internet connection
You need to have a laptop or a desktop, and an internet connection to be able to run a dropshipping business with Oberlo. Oberlo does not work on tablets or mobile devices.
Understand your responsibilities as a business owner
When you start a dropshipping business, it’s important to understand the responsibilities you are taking upon yourself as a business owner: taking ownership of the products you are selling, handling customer support, managing returns and refunds, and others.
Sell a minimal amount of products
It’s best to add just a few products (5-10) to your online store. In dropshipping, products are usually promoted and tested to a possible audience one after another to save time and money. You should put most of your effort into a few main products. Other products in your store can work as a background.
Define your goals
You can get your first sale on the first day, after a week, or even after a month. Everything depends on your marketing activities and the amount of work you put into your store. It’s better to spend less time on the store setup but to put more effort into product research and marketing. Even without sales, every business you start teaches you a lot about marketing strategies, product markets, and how to manage your time and budget effectively.
Focus only on the essentials
There are many useful and advanced features both in Oberlo and Shopify, however, you don’t have to set up everything at the beginning. It’s best to focus only on the essential settings and launch your store as soon as possible. To start building your dropshipping store, check out the essential dropshipping store setup checklist.
Understand the order fulfillment process
Once you are done building your store, it’s useful to make a test order and order something for yourself to better understand the whole ordering process. Once you are familiar with the process, then you will feel more confident to place your first order.
Register a business entity
Once you start making sales on your store, then you might have to register a business entity. However, this requirement varies from country to country, therefore, it’s best to check with your local legal advisor.
Learn more about preparing for a dropshipping business.