Friday, September 30, 2022

Dropshipping: how it works and where to start?

One of the main advantages of dropshipping is not having to invest in the stock, but it is necessary to have a good marketing strategy to sell more.

Many entrepreneurs who want to enter the eCommerce market have doubts about how to start. They want to know, among other things, which are the best business models to follow. An option to sell without having a stock of its own has proved to be one of the preferred options for these new ventures.

It is dropshipping, a model in which the merchant acts as an intermediary between the supplier and the customer. In this way, he is exempt from some obligations that generate expenses and demand resources. This entrepreneurship model offers advantages that make it extremely attractive for those who want to start their own online business. 

Therefore, for those who are planning to have a venture without the need for inventory logistics or physical space, dropshipping is the ideal alternative.

In this article, we will explain what dropshipping is, how it works, and also present the main advantages and tips for those who want to start and understand how to sell online. 

Be sure to check it out!

What is dropshipping

Dropshipping is a business model in which the merchant does not need physical space or inventory to sell the products. The shopkeeper, in fact, acts as an intermediary between the manufacturer and the final consumer. In other words, the store owner is only responsible for Marketing and Sales issues.

In this modality, the necessary processes that involve production, packaging, shipping, and stock are the responsibility of the supplier or manufacturer of a particular product. The shopkeeper is responsible for carrying out the promotions, dissemination, and sale of the products, acting as an outsourced online shop window.

Therefore, it is a retail model with a fully digital format, in which the owner sells online, without the need for his own stock.

How dropshipping works

Dropshipping has proved to be extremely attractive due to the ease of setting up a virtual store without the need for large investments. The entrepreneur uses his own sales channel, such as a website, to display the products in an online shop window. These products are manufactured by other companies, which may be national or international.

The role of the entrepreneur who works with this model is to intermediate transactions between the supplier of the product and the final customer. However, this intermediation process is a little more complex than it seems. 

After all, it is the responsibility of those who work with dropshipping to attract consumers, provide the information that arouses the interest of this customer, and finally, have a good channel for orders to be made and can be passed on to suppliers.

See below how the dropshipping process works and who the participants are.

Sellers

Sellers or retailers have a list of products that is sent by partner suppliers. It contains products available in stock, and must be constantly updated so that there is no possibility of selling something that is already out of stock. 

With this list in hand, the entrepreneur exposes the products in their virtual store, e-commerce, or marketplace, so that potential customers can find these products.

When someone finds what they are looking for, they request the product and pay the full amount, which is stipulated by the seller. The entire payment process is carried out in the online store, and the merchant is the one who sends the orders placed to the supplier of the products. 

Whenever there is a need for an exchange or return, the order will be placed on the platform where the purchase was made via dropshipping.

Providers

The supplier, as the name implies, is responsible for providing the products that are marketed in the dropshipping model. This supplier may or may not be the manufacturer of the products. 

It is up to suppliers, then, to receive orders from retailers and ensure that they are available in stock.

When requested, the products are purchased by entrepreneurs for a previously established amount, which can be charged at retail or another agreed upon in the contract. The responsibility for sending the product to the final consumer, with the stages of storage, packaging, and shipping, is also the responsibility of this supplier.

Customers

The customer finds, in the digital channels provided by the entrepreneur, the products he is looking for. When you find what you are looking for, the customer puts it in the shopping cart and finalizes the order by making the payment. So, just wait for the order to be processed for the shipment to start being carried out.

It is essential to understand that, even though the retailer is only responsible for intermediating the relationship between supplier and customer, the entire process is seen as the retailer’s responsibility. That is, the customer is not necessarily aware that they are in a dropshipping process.

Therefore, it is necessary to rely on quality suppliers with credibility in the market. Don’t just wait for customers to show up. The online store owner must invest in prospecting new customers and retaining existing ones.

Benefits of working with dropshipping

As you can see, this is an easy-to-implement business model. For this reason, it continues to grow and consolidate. Check out some of the main benefits of starting in this sales intermediation model below.

Outsourced inventory and logistics

A major concern that exists in virtual stores and ecommerces is the ability to maintain an updated inventory and to deliver orders in a timely manner. After all, these are factors that jeopardize the operations and credibility of the enterprise.

Therefore, there are two factors that demand efforts and financial resources on the part of shopkeepers. With dropshipping, these activities are not the entrepreneur’s responsibility, which makes the process much simpler.

Geographic independence

The dropshipping model is all based on digitized channels, using online tools. Therefore, it does not require physical spaces for the company’s operations to take place. 

With this, costs are reduced, since there is no need to buy or rent physical space, maintain employees, and much more. Another great advantage is that the entrepreneur can carry out his activities anywhere that offers an internet connection.

Low initial investment

As it does not require a physical structure or the purchase of products to be stocked, the initial investment is much more economical compared to other business models. For this to happen, the entrepreneur can start using a computer at home. 

Efforts will be focused on product promotion and on relationships with potential suppliers.

Scalability made easy

Like any company, the entrepreneur of this business model aims to increase operations and, consequently, increase the revenues obtained.

However, in the dropshipping model, scalability is much more accessible. This is because if operations increase, there will be no need to expand physical spaces or buy new products for stock. 

The investment will be gradual, in tools that increase consumption potential.

Possibility of product mix

As each entrepreneur can count on more than one supplier, the product mix is ​​guaranteed in an optimized way. Without the need for manufacturing and its expenses, the shopkeeper can invest efforts to sell more than one product.

In this way, it is easier to reach new niches and win customers interested in a diversity of offers.

Dropshipping risks

The advantages of starting operations with the dropshipping business model are numerous. The benefits of this type of entrepreneurship are already quite visible. However, as with all areas of business, there are some risks faced by those who choose this category of business. See some below.

Profit margin

As the costs to start the business are from third parties, the suppliers are the ones who determine the initial price of each product. It is up to the dropshipping entrepreneur to add value to the product to obtain a satisfactory profit margin. In this business model, earnings are stipulated as a commission per sale of each product.

As competition in the digital world tends to be great and many entrepreneurs start in the dropshipping model looking for small profit margins, initial gains tend to be reduced until the merchant is established in the market.

Inventory control

Especially for those who are starting and cannot afford specific software for inventory management between manufacturer and seller, efficiently controlling inventory can be complicated. After all, the entire storage part, as well as packaging and shipping, is the responsibility of third parties. 

If suppliers are not professionally responsible, there is a risk that products will be sold but not available in stock.

Brand recognition

As the role of the dropshipping model is the resale of products, there are different channels and entrepreneurs marketing the same solutions. 

Therefore, building a brand identity that is attractive and arouses consumers’ desire not only for the product becomes almost impossible. Thus, many retailers start to compete only on price, making the competition for sales extremely fierce.

How to get started with dropshipping

Even with some disadvantages, this is a company model with good potential for profits. Therefore, for those who want to start retail operations with dropshipping, we have prepared some indispensable tips. That’s what we’ll talk about in the next few lines. Check out!

Define a niche market

A potential mistake for those starting out is not focusing on a niche market. After all, the entrepreneur cannot count on the attractiveness of an exclusive product, and the store must focus its efforts on attracting an audience that seeks the same segment. 

The products that a retailer will sell are already being sold by other stores. Therefore, focus on the same niche and seek to offer a differential for those who buy with your business.

Choose good suppliers

Choosing dropshipping suppliers is one of the most important steps in building a successful business. After all, they will be responsible for ensuring deliveries and product quality.

It takes time and attention to find fair, quality suppliers with a good reputation in the market. To this end, seek evaluations from potential partners in discussion forums, online platforms, and social networks.

Search the competitors

Before registering on platforms or starting operations, do some benchmarking work. In other words, research your competitors in depth

After stipulating the niche of activity, look for dropshippers that are in the same segment and understand what products they are selling, the payment terms, and the main information available.

Register a domain and find a provider

For any type of online business, you need to have your own domain. In addition to having a professional name, the integrity of the company’s trade name is guaranteed. 

With your own domain, it’s time to look for hosting for your online store. It is interesting to give preference to options that can guarantee web security, such as SSL certificate and automated backup.

Stipulate advertising and sales strategies

For the sales area, having a good payment partner is a decisive factor to guarantee good conditions and the maximum number of alternatives available. 

One advantage of dropshipping for suppliers is cutting down on advertising and sales costs. Therefore, it will be up to the entrepreneur to carry out good campaigns to attract, convert and retain customers. Optimized websites, updated blogs, Google Ads, and social media are excellent dropshipping marketing allies.

Dropshipping at a glance

As we have seen in this post, understanding what dropshipping is an indispensable factor for anyone who wants to start an online venture.

After all, it requires a low initial investment, does not require physical spaces, allows the sale of various products, and scalability is optimized.

However, in addition to understanding what dropshipping is, it is essential to follow some tips so that the start of operations happens in the most efficient way possible. We show the importance of finding a niche, evaluating competitors and suppliers, registering a domain, and establishing Marketing and Sales strategies.

Priyanka Sharma
Priyanka Sharma
Myself Priyanka, I Love Writing, SEO, and Graphic Design. I'm regularly contributing my knowledge/news on the leading websites.

Latest Articles