Want to start selling online but don't really have the capital? Or maybe you're not sure whether it's for you and you want to test the water first? If you answered yes to either of these, then dropshipping might be the answer - it's an excellent gateway to online retail that requires less financial input than a regular online store, plus you don't need a warehouse to get started.
But how exactly does dropshipping work, what are the advantages and disadvantages of using this eCommerce fulfilment method, where can you find a dropshipping supplier and more importantly, how can you profit from it?
Throughout this article we will answer all of these questions, as well as some considerations to take into account when dropshipping on Amazon, eBay and other online marketplaces.
Short on time?
Let's start with what dropshipping actually is.
Dropshipping is a method of retail where the store never physically holds the products it sells. Instead, when the retailer sells one of the products it stocks on its website, they buy the item from a third-party supplier who then ships the item directly to the end customer.
So, the online seller never actually sees, holds or ships the item, they are effectively advertising it for the supplier and marketing up the price of the product so they can make a profit.
To break it down, here's how the process flows:
1. The retailer "stocks" products on their website or marketplace
2. The retailer doesn't actually hold these products, they are held by the supplier or wholesaler (who could be anywhere in the world). These products may cost £1 per unit from the supplier, while the dropshipper lists them at £3 each (making a profit of £2 from the sale).
3. When a customer orders a product from the dropshipper's website, the merchant receives a notification. The merchant then forwards that order to the supplier, either manually or automatically.
4. The supplier fulfils the order and ships it directly to the customer under the dropshipper's name.
Like any other business model, dropshipping has its pros and cons, it's just a case of weighing them up and deciding whether they have the right balance for your circumstances and needs.
- Easy to get started
It's relatively easy to get started with a dropshipping business. While starting an eCommerce business is never easy per se - think of all the research, planning, budgeting, website building and multitude or other activities you need to do before you even begin selling - if you want to take the fast-track to becoming an online retailer then drop shipping could be the way to go.
This is mostly because dropshipping lacks the resources needed to start a conventional online store - capital, space, commitment etc.
As we mentioned before, starting a dropshipping business is as simple as finding a supplier and choosing a marketplace (or building a website, which is easier than ever with the amount of site-in-a-box services available today). You don't need to pay for a warehouse, pick and pack shipments, or manage stock levels.
- Little to no investment
Perhaps the best thing about the dropshipping business model is that you don't have to purchase and hold the stock you sell - you only buy the stock once you've made a sale and the customer has paid you.
This is great because it means that:
1. You don't need capital to buy stock in the first place
2. You don't need to physically hold stock and pay for it to be housed
3. If the goods aren't selling, you aren't out of pocket because you haven't invested in 500 units that are then left gathering dust if there are no sales.
These factors make it possible to start a successful dropshipping venture without having to invest thousands in stock upfront. And that leads us onto our next point...
- Dropshipping is flexible
Flexibility is key to a lot of modern retailers who start their businesses as an experiment alongside their existing jobs. You could run a dropshipping business from just about anywhere with an internet connection, making it a an excellent option for those seeking flexibility from their eCommerce venture.
As long as you can easily communicate with suppliers and customers, you can run and manage your business.
In fact, many successful drop shipping businesses are run from home and you may not even need to quit your job to start you own store - you can often balance it around your current commitments.
- More choice of products
Because you don't need to stock up on or store the products you sell, there's a lot more choice of items you can offer.
There's also no need to concern yourself with the upfront cost of the products or the cost and space required to house those products, meaning you can choose to sell anything from hair products to speedboats.
The reality is, it's far easier to grow a dropshipping business than a traditional online store.
As your order numbers increase, the work falls to the supplier rather than you, allowing you to grow the business without the costs of hiring extra staff to help with the work incurred by the extra sales. This lets you scale easier and quicker than traditional eCommerce stores.
Now, it wouldn't be fair to only list the advantages of dropshipping, so let's look at the downsides too:
- Less competitive pricing
The key to a successful drop shipping business is making a profit on the difference between the price of your products and what your dropshipping partners charge you.
While dropshipping is great because it means you don’t have to bulk-buy products, this also affects your pricing - that is, no more bulk pricing. You’ll probably end up paying more for each individual item, meaning your prices won’t be as competitive.
- Stock reliance
You’ll quickly learn that dropshipping is a bit of a double-edged sword.
While the model allows you to react and adapt to consumer trends, it also means you’re susceptible to sudden stock shortages.
Think about it - an overnight surge in popularity of a product could be a blessing for a traditional retailer who has stocked up on that product and a curse for a drop shipper who has suddenly found their supplier is out of stock of a product they normally sell.
- Highly competitive
Dropshipping is a viable business model for many because of its low barriers to entry, however this means a lot of people are doing it.
Competition is stiff and it’s harder to make a name for yourself.
- Low margins
This is perhaps the biggest disadvantage of dropshipping. It’s very difficult to compete for paid advertising space, meaning you’ll have to make a lot of effort building SEO content, delivering excellent service - anything to set yourself apart and sell more to make a decent profit.
Picking the right products to sell is only half the battle. After all, if you choose a poor product, you won’t get many sales and your dropshipping venture is unlikely to succeed.
Thankfully, there are millions of options to choose from when it comes to picking a product to sell - it’s just a case of figuring out the best option for you. Once you’ve chosen a profitable product to dropship, you’ll be ready to start selling, but how do you go about finding these profitable and high demand products in the first place?
Find out what's trending
Selling products that are currently popular is one option. In fact, you don't need to know a huge amount about the product or your audience, just the the product is hot right now.
It's also pretty easy to identify which products are trending and because of their popularity, marketing costs should be low.
Amazon and eBay both have a lot of product data available, you just need to effectively mine it to identify which products are in demand. The best place to start is with the search bar, as this will suggest items that are currently getting lots of searches.
For example, as you type a word into the eBay search bar, you will be presented with a list of related keywords based on search frequency. Google Trends, Kickstarter.com and Wish.com are also fantastic resources for identifying current trends.
Identify gaps in the market
After conducting some research on trends, you should have a good understanding of which products are in high demand. You can now start to look deeper into where the real money-making opportunities lie.
One of the most effective methods of generating these insights is by reviewing sold items through eBay’s advanced search feature.
From here, you can compare these results with products that are being searched for to identify gaps in the market. This will help you assess whether there are products that have high search volumes but aren’t being catered for by any other merchant on the marketplace, or perhaps aren’t being sold at the right price.
Catering to a specific product niche can be a great way to help your dropshipping store grow and generate revenue. Instead of a scattergun approach of simply selling whatever is currently popular, you’re looking at a much more targeted strategy, scoping out products with a smaller, more loyal, and potentially much more profitable audience.
You can use Google Trends to research niches with high potential - these could be good options for dropshipping products. This approach will be less competitive as you will be targeting a smaller audience, making your marketing efforts much cheaper.
This method is also great because it doesn’t limit you.
Targeting a niche doesn’t mean that you can’t expand into different areas later on. When you’ve established your store as a leader in that niche you can add related products which you current customers may take interest in, helping you branch out and gain new customers.
Perhaps our best advice when it comes to finding products to dropship is to try and look for items you can sell for at least £10 more than the price you’re sourcing them for.
For example, if you’re sourcing a handbag for £15, then try to sell it in your store for £25. This ensures your sale will cover the price it cost you to source the product and the cost of your marketing efforts, leaving you with a decent profit margin for each sale.
Your suppliers are at the core of your dropshipping strategy, therefore it's important to find a reliable seller with great prices, who you can ultimately trust to stock your items and post them on time.
But how do you go about finding a decent supplier in the first place?
Okay, this might sound super obvious, but that's because it is.
While it sounds simple, the reality is that Googling wholesalers and suppliers is anything but. Wholesalers are notoriously terrible at marketing, so, unfortunately they're not going to be the top search result for "wholesale suppliers for X". You'll most likely have to trawl through a lot of search results pages to find the right wholesaler for your product.
It's also worth keeping in mind that wholesalers don't always tend to be clued up on SEO, so you might need to try various search queries to find their websites. You'll need to go beyond "[product name] + whoelsaler" - try using a variety of terms including "bulk", "supplier", "distributor" and so on.
As well as being notorious for their lack of marketing skills, wholesalers are also typically known for their somewhat dated websites. Don't be put off if a supplier's site look straight out of the 90's - it's probably legitimate.
Contact the manufacturer
This is perhaps the best way of finding legitimate wholesale suppliers.
If you know what product you want to sell, find the contact details for the manufacturer, contact them and ask for a list of its wholesale distributors. You can then get in touch with the wholesalers to see if they dropship.
Most wholesalers carry products from a variety of manufacturers, making this strategy great for quickly sourcing a selection of products within a niche. After reaching out to the leading manufacturers in that niche, you'll be able to quickly identify the key wholesalers in that market.
Supplier directories are databases of suppliers organised by product or niche. Using these is a great way of finding legitimate wholesalers as many directories will have a screening process in place to ensure the suppliers are genuine. Keep in mind that there is usually a fee for access to their directory.
While these directories are a handy, convenient way of searching for wholesalers, they’re not essential. If you already know what product you want to sell, you should be able to find the major suppliers in your market.
AliExpress is a vast marketplace with a large selection of products you can buy in bulk.
The majority of sellers on AliExpress are overseas manufacturers, meaning their prices are very competitive. While the site positions itself as an online retailer, most AliExpress merchants know that a large number of their customers are resellers and are therefore interested in dropshipping.
There’s no upfront fee to use AliExpress, so you can trial products without any financial commitment. Another plus is that AliExpress sellers often have high quality product photos for use on your website.
Dropshipping using AliExpress is very simple: all you need to do is order the product on AliExpress after making a sale on your website, then input your customer’s address.
eBay is one of the go-to platforms for dropshipping. It's easy to use and already has a huge audience for you to tap into.
When it comes to dropshipping on eBay, the process is actually relatively straightforward:
1. If you don't already have one, set up an eBay seller account.
2. Decide what you are going to sell and then establish an account as a retailer with the supplier of your chosen product. Simply contact them and ask if they will drop ship to your customers. You should, however, ensure that the supplier is willing to attach a custom return label (with your store name and address) on the shipments, so that the customers know you sent it.
3. List your items on eBay. Create a detailed and optimised listing, using professional images and accurate product descriptions. For more information on how to improve your listings for maximum search visibility, have a read of this.
Do also keep in mind that you may get better results by providing your own descriptions and pictures of the products you're selling (if you have samples), to distinguish yourself from other sellers using the same supplier. (Note: as we mentioned earlier, your price point should be low enough to compete against other similar items, but high enough to give yourself a good profit).
4. Contact your supplier when you make a sale. Give them the customer's shipping details and the supplier will send the product directly to your customer. It's always worth following up to make sure the shipment arrived on time, and as described, so you can decide whether the supplier is reliable to stick with.
If you're considering dropshipping on Amazon, you should be aware of their policies around using this method of fulfilment on their marketplace.
Amazon specifically states:
"Drop shipping, or allowing third parties to fulfil orders to customers on your behalf, is generally acceptable. If you intend to fulfil orders using a drop shipper, you must always:
- Be the seller of record for your products;
- Identify yourself as the seller of your products on all packing slips and other information included or provided in connection with them;
- Be responsible for accepting and processing customer returns of your products and;
- Comply with all other terms of your seller agreement and applicable Amazon policies.
Examples of drop shipping that is not permitted:
- Purchasing products from another online retailer and having that retailer ship directly to customers or;
- Shipping orders with packing slips, invoices, or other information indicating a seller name or contact information other than your own.
Failure to comply with these requirements may result in the suspension or removal of your selling privileges".
This means that dropshipping in the traditional sense - that is, "purchasing products from another online retailer and having that retailer ship directly to customers" - is not allowed on Amazon. That said, you can do the same thing with Amazon's FBA programme.
All in all, dropshipping can be a fantastic way to get started in online retail, a side project for those in full time work, and even a profitable standalone venture. It’s easy and inexpensive to get started, so we hope this guide has helped you suss out whether or not dropshipping is a viable business option for you.
Do you have any experiences with dropshipping? We'd love to hear them - simply leave us a comment below.