What is dropshipping
Dropshipping is a business model in which the seller acts as an intermediary who brings together the supplier and the buyer.
The standard scheme assumes that a businessman purchases the necessary goods, stores them somewhere and at the same time looks for buyers. Once they are found, he packs and ships the order and receives the money.
In dropshipping, everything happens differently. There are several participants in the scheme.
- Provider. This could be the manufacturer directly or a company that also resells, such as an importer or someone who buys goods from local production in bulk. He is responsible for storing, packaging and shipping the goods to the buyer.
- Dropshipper. He is engaged in promoting the product and finding clients. More often, orders are accepted online through online stores, but no one forbids doing this offline. The latter may make sense when it comes to things that are in little demand. For example, an offline gardening store may stock hoses and shovels. And accept orders for some complex drip irrigation systems. At the same time, the dropshipper does not store or process anything. He places an order, takes money from the buyer and sends it minus a commission to the supplier. It is also possible that the payment goes directly to the supplier, who returns the commission to the dropshipper.
- Buyer. Ideally, he does not see the difference whether he buys goods according to the standard scheme or through dropshipping. He may encounter problems if the supplier and intermediary have not established a system of interaction. For example, we did not agree on how the system for returning goods and money works, and so on.
What are the pros and cons of dropshipping for a dropshipper?
Among the advantages the following can be noted.
- Cheaper to start. There is no need to spend money on purchasing goods, looking for a warehouse and thinking through logistics. This does not mean that you won’t have to invest at all. Making and maintaining a website, organizing promotion on different platforms – all this requires both effort and money. But this will have to be done in any case. So, compared to the standard business scheme, it will be cheaper to start.
- You can try to sell different things. When you first need to buy a product, you have to think three times before adding something new or non-standard to the assortment. Because there is a chance that it will gather dust in the warehouse. With dropshipping, testing new product groups is easier and cheaper.
- It’s easier to follow trends. Let’s remember the beginning of the pandemic. The business that turned its attention to masks was the king. But to start selling them, some work needed to be done. Find a supplier, negotiate with him, deliver boxes of masks to your warehouse, accept, place, bring new goods to the sites. Dropshippers can cross a few items off this list and move faster.
But there are also disadvantages.
- Inability to control processes. The supplier may delay the shipment of goods, give away a defective product, fail to take care of packaging, and so on. Of course, responsibility for such things can and should be specified in the contract. But this does not change the fact that a lot happens outside the dropshipper’s coverage area.
- Reputational risks. This point logically continues the previous one. The buyer does not care who is to blame for the problems. He communicates with the dropshipper and will be blamed for everything. And also leave angry messages, write negative reviews, and so on.
- High competition. If there are no agreements on exclusive terms, then one supplier may have many dropshippers. And therefore, they will have to compete for sales and commissions.
What are the pros and cons of dropshipping for a supplier?
Dropshipping allows you to delegate promotion and advertising to third-party companies. And if there are several dropshippers, this is a chance to present your product to a wider range of consumers.
It’s more difficult with cons, because they can be specific. Let’s say an importer sells goods through a dropshipper. Deals are going well, buyers are happy. And then the person begins to sell counterfeits of this brand through his store and make a profit. The company is risking its reputation here.
How to become a dropshipper
Many of these points should be performed not sequentially, but in parallel, as they determine your concept of action as a whole.
Select product
The approach may be different, but the sales strategies will also vary.
So, you can work with everyday goods – washing powder or pasta. These are constantly running out, and they are being bought all the time. But there will be high competition in this niche: you are up against a kiosk on the corner, large retail chains, and many online stores. This means you will have to pay a lot of attention to the reasons why buyers should choose you.
You can find a little-occupied niche and try to act in it. But it is worth remembering that low competition is often where demand is not very high.
In general, you need to properly study the market, research the audience in order to understand well what people take, why and how to motivate them to take the product from you.
Ideally, the product should have the following characteristics:
- To be in demand all year round, so as not to depend on seasonal demand.
- Be suitable for transportation – durable so that it reaches the buyer intact, and of reasonable dimensions so that delivery is inexpensive.
- Do not require fitting to reduce the risk of returns.
But this does not mean that nothing else can be sold. Maybe you will be able to masterfully switch from Christmas trees to goods with hearts, and then to sets for March 8th and live happily ever after all year.
Decide on a site
A dropshipper can work on several sites at once or focus on one. This could be your own website, marketplace, social network – anything. But it’s important to study the options well and make a precise decision.
The fact is that different products are sold differently depending on the platform. For example, social networks are more often suitable for clothing, jewelry, and so on. But selling bags of cement, for example, will be more difficult. The marketplace is also not the most obvious place to sell concrete rings. Everything goes through their own websites.
Find a supplier
There are resources that collect suppliers for dropshippers. For example:
- “Optoleader” — various goods from China.
- Markethot — household goods, cosmetics, gadgets and more.
- AlterModa – women’s clothing.
But it is worth considering that easy solutions may not be the most suitable. Because the easier it is to conclude an agreement with a supplier, the more competitors you will have, attracted by the same advantage.
Another point: the shorter the chain from the manufacturer to you, the easier it will be to make money on the product, since each intermediary will increase the price by its commission.
Register your business
Self-employed people cannot resell goods. Therefore, you will need to obtain individual entrepreneur status or register an LLC. We have already written how to do this: for individual entrepreneurs, for LLCs.
Sign an agreement
At this stage, it is better not to save money and use the services of a lawyer. Otherwise, you may not take into account some little thing and, for example, get a fine.
Companies that work with dropshippers often offer their own version of the document. But it would also be a good idea to read it with a specialist so that he can clarify the controversial areas.
Think over a product promotion strategy
This is work that you will have to do constantly: testing hypotheses, looking for new channels for disseminating information, and so on. But it’s good to start thinking about what you’re going to market with early.
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