Many people today dream of starting a business on the Internet, but often stop because of the fear of large investments and uncertainty in choosing a niche. To compete, you need to buy a batch of goods at wholesale prices, rent a warehouse, invest in advertising. What if the business fails? The risks are indeed great.
But there is a business model that is ideal for testing a niche and hitting your sales stride – dropshipping. It is not as ideal as it is often presented, but it definitely has its advantages. The word dropshipping itself comes from the English language and literally means “direct delivery”.
What is dropshipping in simple words?
Dropshipping in simple words is when you sell products without having them in stock. It may sound strange, but that’s the point! Imagine you have just opened an online store. As a rule, at this stage you need to purchase goods, rent a warehouse, deal with packaging and shipping orders to customers. With dropshipping, things are different.
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When a customer places an order, you simply pass the order information to your supplier. In this case, you can cooperate with a manufacturer or wholesaler. And the supplier sends the goods directly to the client on your behalf. Pretty cool, right?
Your earnings are the difference between the retail price at which you sold the product to the customer and the supplier’s wholesale price. Or even a fixed percentage of sales, which the supplier himself deducts from each order.
What is the principle of dropshipping?
The principle of dropshipping is quite simple. There are three parties involved in the overall scheme:
Dropshipper (aka seller). This is an intermediary between a supplier and a buyer. Seeks customers, takes orders, but he does not physically have the goods.
Supplier. This is a direct manufacturer or wholesaler who has purchased goods into the warehouse. Ships them directly to customers on orders from the dropshipper. Usually has no contact with customers.
Customer. A person who orders a product from a dropshipper’s online store.
So how do you start dropshipping? The first thing you need to do is to find suitable suppliers and agree on cooperation. Then add goods from the supplier’s price list to the marketplace or create your own online store.
The first option is easier, but you need to ensure that delivery is carried out without delay, and that the supplier’s products are of high quality, so as not to get negative feedback on the site. With an online store it is more complicated – you have to invest in the creation of a site, develop a design, buy basic plug-ins, and set up payment.
However, the main task of the seller, regardless of the chosen site, is to set up an effective advertising campaign and regularly receive requests. When a client places an order, you will pass it on to the supplier, and he will send the goods directly to the buyer.
Main advantages of dropshipping
Minimal investment. You do not need to invest your money in goods and rent a warehouse. You only need to invest in creating a website and negotiating with suppliers. Of course, you will need to allocate a budget for promotion and advertising, but this cannot be compared with the cost of buying goods and renting a warehouse. Thanks to this approach, dropshipping can be practiced even by a novice entrepreneur.
Easy start. You don’t need to dive into the nuances of warehouse accounting, packaging, working with delivery services and returns. This is handled by the supplier. You are solely responsible for processing new orders and passing them on to your partner. You will agree that this is much easier than ensuring the operation of a full-fledged online store from A to Z.
Lower risks. According to statistics, most startups close down in the first year after opening. And it is often not because of mistakes made by the entrepreneur – sometimes the cause is external circumstances. As a result, the warehouse will remain dusty mountains of unnecessary goods purchased on credit. When working on dropshipping to be in such a situation is practically impossible. You simply stop taking orders, and that’s it.
You can test the demand for goods. You can add new items to your assortment, simply by agreeing with a supplier, or you can test unfamiliar niches. If the goods went well – develop the direction, make a separate website or buy products for the warehouse. If it didn’t work – just remove it from the catalog.
It is possible to offer a large assortment. Imagine how much money it would take to buy a hundred different products for a regular online store. And here you don’t have to invest a penny, you can add a thousand items at once, as long as you have suppliers.
Easy scalability. When sales grow in a classic online store, you need to buy more, hire employees to process and dispatch orders, and expand your warehouse. With dropshipping, most of these tasks are carried out by the supplier. All you have to do is build up traffic and process requests.
Working with multiple suppliers. One supplier can’t cope or the assortment is limited? Connect another one. The catalog with products can be added literally in a couple of clicks.
All you need to work is a computer and the internet. There is no need to physically interact with the product, you can take orders remotely. Want to see new countries? No problem, run your business from the beach in Bali! Just don’t forget to bring your laptop with you.
What are the disadvantages of working on dropshipping?
Low margins. Dropshipping attracts many entrepreneurs due to its low entry threshold, so competition is high. This means that the markup on goods in most niches leaves much to be desired. To attract customers, you will have to keep your prices at or below the level of your competitors. That’s why you shouldn’t expect huge profits at the start of such a business, but they can grow as turnover increases.
It is difficult to control the availability of goods. If you do not keep products in stock, you cannot check at any time what is available. It turns out that the client may pay for the goods and then find out that the supplier has run out of them. This is an unpleasant situation that can damage your reputation.
Supplier’s mistake is your responsibility. The buyer expects delivery in one day, as in the description on the website, but in fact the supplier may delay shipment or send the item in torn packaging. And the customer will bring his claims to you, although you cannot directly influence these processes. The only way to solve the problem is to test several suppliers in business and choose the most reliable one.
There is no way to personalize an order for a specific request. For example, a customer may ask to add gift wrapping or a card – you are unlikely to be able to do this. For many customers, this is fundamentally important.
Difficulties with delivery and returns. If the supplier’s warehouse is located in a remote region, there may be delays in delivery and other problems. And if the client wants to return the goods, the process can take a long time. It is better to think in advance about how to accept returns, who will pay for shipping, and so on.
Dropshipping will not help to quickly promote a brand. Yes, customers will make purchases, but they will remember the name of the product itself rather than your store. After all, the manufacturer’s logo will remain on the box.
It is impossible to control the quality of the goods. You can, of course, make a trial order and check a couple of models, but it is not always rational to do this with every product and supplier. This means there is a risk that the client will receive something different from what he expected.
How to get started with a dropshipping scheme?
So, you have decided to start a dropshipping business. Where do you start? How to find a supplier and choose the right product. Let’s go through it one by one.
Decide on a niche
The further profitability of the project depends on the niche you choose. Don’t be lazy to conduct a thorough market analysis: study demand, competitors, target audience. Your task is to find products that will sell well and have sufficient margin.
When analyzing your competitors, try to understand what they do well and where their weaknesses are. Don’t be afraid of high competition – if you can offer a wider range of products and a good price, customers may choose you.
Keep the following points in mind:
It is better to sell something you are well versed in. This will make it easier to advise clients and quickly train employees to work with the product. But be prepared for the fact that demand in your chosen niche may not be high.
Be guided by current trends. You can track them in Google Trends and its analogs. As long as the trend is at its peak, you can make good money. But it is worth bearing in mind that trends change quickly – you will have to monitor the trend and quickly switch to other niches.
Look at the suppliers’ terms and conditions. Which goods have the most favorable prices? In this way, you can get a good margin. It is important that competitors do not dump in the future, dropping the market.
Find suppliers
If you have decided on your niche, it’s time to look for reliable suppliers! Ideally, it is better to find 2-3 companies with suitable terms and conditions. This way, you will have a safety net in case of force majeure and will be able to offer your customers a wider range of products.
Where to look for partners? The easiest way is specialized directories for dropshippers. In them you can find contacts of suppliers, information about promotions and special offers. In Ukraine, wholesalers’ bases can be searched for on the sites BigOpt, AGER, OPT Click, Web Sklad.
But contacts alone are not enough. Be sure to study the terms of co-operation with each potential partner. They may all have their own nuances regarding delivery, returns, exchange of defective goods. Clarify all these points in advance.
Also don’t forget to check the reputation of the supplier. Look for reviews about him on forums and social networks. Find out how punctual he is on deadlines, if he often lets dropshippers down, how he solves problems. Ideally, your supplier should:
Offer quality goods with a minimum of defects.
Strictly adhere to delivery deadlines.
Take full responsibility for processing the order after delivery.
Be loyal to returns and exchanges.
Update stock balances in a timely manner.
In general, look for partners you can rely on. After all, your reputation in the eyes of your customers directly depends on their work. Do not hesitate to ask your suppliers a lot of questions and personally talk to them before starting work. This will help avoid many problems in the future.
Register an FLP
If you plan to seriously engage in dropshipping and earn money from it, do not forget about the legal side of the issue. In Ukraine, such activity is considered entrepreneurial, which means that you need to register an FLP.
Previously, you had to go to the tax office and the CPAU to do this, but now the process has become much simpler. It is possible to register an FLP entirely online via the Diya application. The whole process will take no more than 10-15 minutes.
When registering, it is important to choose the correct single tax group (for dropshipping, the 3rd will do) and specify the activity codes (KVED) 46.19 and 47.91. They are just right for online trading.
You will also need a separate current account for entrepreneurial activities. This too can be opened online at the bank of your choice. Study the terms and conditions of several banks and choose the most favorable for you.
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But registering an FLP is not everything. Do not forget to conclude a contract with the supplier, where all the terms of your cooperation will be spelled out. It will help to avoid many problems and misunderstandings in the future.
Yes, paperwork is not the most pleasant part of business. But it’s better to spend time now than to have legal problems and fines later. So formalize everything properly and start selling with a clear conscience.
Create and launch an online store
When all the formalities are settled, you can proceed to the selection of a trading platform. A separate site or a page on a marketplace will do. If you decide to start your own online store, you can do without the help of programmers or designers. Now there are many website builders, with the help of which you can create a full-fledged store in a matter of hours, even without skills in development.
In such services, the whole process is based on ready-made blocks and modules that can be easily customized for your tasks. One of the most popular and convenient constructors is Wix. It offers a lot of ready-made templates for online stores, as well as all the necessary tools for working with products, orders and customers.
But even if you have your own website, you should not ignore social networks. Facebook and Instagram are especially effective for business today. Here you can find your target audience in thematic groups and communities, run targeted advertising and publish content that will attract potential customers.
Set up advertising and get your first traffic
You can use various marketing channels to promote your business. The cost of traffic is different everywhere, but each of them can work well in this or that niche. Therefore, you should not ignore any of the tools, everything should be tested.
SEO-promotion
The goal of any online store owner is to have his site displayed on the first positions in the search engine for relevant queries. This can be achieved with the help of SEO – search engine optimization. To do this, it is necessary:
Select keywords and phrases that reflect the essence of the offer. These are the ones that the target audience uses in their search queries.
Conduct internal optimization of the site – improve navigation, speed up page loading, fill with useful content, optimize meta tags, create a site map.
Build up the link mass – get links to your site from other authoritative resources, increasing the trust of search engines.
It is important to realize that SEO does not give the result immediately, usually the first positions in the output is possible to take at least a few months. But in the long term it will provide stable organic traffic.
Contextual advertising
Allows you to display ads to users in search results and on Google partner sites. The audience can be segmented by the desired criteria – gender, age, interests, etc.
Contextual advertising starts working almost immediately after launch, which allows you to provide an instant influx of visitors. But as soon as you run out of budget or stop the campaign, the flow of traffic to the site will stop.
SMM (social media promotion)
Today, an account in Instagram, Facebook or another popular social network can become a full-fledged trading platform.
To do this, you need to:
Post high-quality photos and descriptions of the goods;
Specify actual prices;
Detail payment and delivery terms;
Promptly respond to questions and comments in private messages.
Some social networks allow you to create a kind of online store on their basis, for example, Instagram Shopping and Facebook Shop. With their help, it is possible to mark products on photos, add descriptions and prices, and users can make purchases directly in the application. However, in a number of countries, including Ukraine, these functions work with limitations.
In addition to directly stimulating sales, SMM allows you to increase brand awareness and audience trust by publishing useful content. Use social media to build long-term relationships with potential customers.
Popular marketplaces
Rozetka or Prom.ua is a great starting point for beginner dropshippers. It is quite easy to create a store on these platforms – you do not need to have special technical knowledge or pay for website development.
Buyers on marketplaces feel more confident, as they know that the site checks the sellers’ documents. In addition, there is a rating system based on reviews, which additionally increases trust.
Of the foreign marketplaces, you should pay attention to Amazon and eBay. However, in order to trade there successfully, you need a good knowledge of English. You also need to understand the process of withdrawal of funds – it can cause certain difficulties for sellers from Ukraine.
Message boards
Despite the growing popularity of marketplaces and social networks, message boards like OLX are still in demand. Many dropshippers, especially at the start, actively use this channel.
Sales through message boards do not require the creation of a full-fledged store – it is enough to publish a few ads with a photo of the goods, description and contacts. All that remains is to promptly process requests from potential buyers.
Depending on the specifics of your business, other sites may also be effective – industry directories, affiliate programs, banner networks. The main thing is to study your target audience well and choose the channels that will allow you to cover it to the maximum.
