Online Dropshipping Business – How It Works.

There are many types of online businesses you can create. One of the most popular is an online dropshipping business. In this post we will be covering;

  • What is dropshipping?
  • How does an online dropshipping business work?
  • The advantages and disadvantages of drophipping.
  • How to start your own online dropshipping business.
  • Best dropshipping suppliers
  • Dropshipping beginner mistakes to avoid

More essential reading; 10 Dropshipping Beginner Mistakes To Avoid.

What Is Dropshipping?

Dropshipping is a form of eCommerce where the seller doesn’t handle, store or ship the products to customers. Product shipping is handled by a third party supplier.

Put simply, a customer purchases a product from your online store. You then purchase this product at a cheaper price from a wholesale dropship supplier. The supplier then ships the product directly to your customer. Your profit is the difference in price between what the product cost you and what you charged the customer.

This can save time and money as you do not have to order products upfront, only when the customer pays. Your main focus will be on branding, marketing and customer service.

Check out our index of marketing terms here; A-Z Marketing Terminology You Need To Know.

How Does An Online Dropshipping Business Work?

How does dropshipping work?

Online Dropshipping Business Advantages And Disadvantages

There are several advantages that an online dropshipping business offers when compared to more traditional retail and eCommerce businesses. However there are also a few disadvantages to be mindful of.

Advantages Of An Online Dropshipping Business

Better Cashflows

Dropshipping allows better free cash-flows compared to other retail businesses. Traditional retailers will usually order stock and then have to pay to store it until it has been sold. With dropshipping, products are only ordered from suppliers after the customer pays you.

No Need For Storage Space

As products are shipped directly to the customer from the supplier you are never handling them. This means there are no costs to you for warehousing or physical storage space to store inventory.

Flexibility To Work From Anywhere

As there is no handling or storage of products then no physical premises are required to run a dropshipping business. This allows the flexibility and freedom to work from anywhere – so long as you have a computer and internet access.

Easily Test New Product Lines

New products can be sourced and added to your store at any time. If sales are low then they can be replaced with something else with no cost to you as you don’t purchase products upfront.

Low Barriers To Entry

More traditional retail and eCommerce stores require a lot of upfront financial investment. This is to source and stock products along with any marketing and staffing costs.

Whilst there are also costs involved with dropshipping such as on marketing, there is no requirement to purchase or store stock. This creates a lower barrier to entry as it requires little initial investment to set up a dropshipping store, making them a good eCommerce option for a beginner.

Create An Online Dropshipping Business
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Disadvantages Of An Online Dropshipping Business

Can Be Very Hands On/Time Consuming

Whilst dropshipping is often touted as a source of passive income, that’s not strictly true, especially in the beginning. It is likely you will have little start up capital and be doing everything on your own. From stocking your store to ordering products and responding to customer queries. This can be quite a manual and time consuming process to begin with.

However over time as your business grows you can automate many aspects of running your store. SaleHoo and InventorySource offer some of the best dropship automation tools.

You may also find it beneficial to automate your customer service through the use of chatbots. Alternatively you can hire a human operator to assist you with any aspect of your business by hiring a virtual assistant. See this post for more information; Hire A Virtual Assistant To Grow Your Business.

Can Be Highly Competitive

This can depend on what niche you operate your business in. As dropshipping is very accessible, a lot of people end up selling the same type of product, creating a lot of competition. This usually results in competitive pricing being used which can quickly erode profit margins. To be successful you need to make your offering unique and stand out from the rest.

Read more on the different types of pricing models and strategies for your business here; Pricing Models And Strategies.

Lack Of Control

As you are reliant on third party suppliers to manufacture and ship products it means you have less control over product quality. Many dropshippers search suppliers to find the cheapest price for a product in order to create larger profit margins without giving a thought as to product quality.

Everybody wants large profit margins. But simply selecting products just because they are cheap can have consequences if they are poor quality. Low quality products can lead to issues with customers – complaints, returns, refunds, negative reviews and loss of future sales etc.

In addition to product quality, you are also reliant on the supplier to ship the items to your customers. There could be issues with shipping times or incorrect items being sent which you won’t have much control over.

This is why it is important to conduct research across different suppliers. Check their feedback – how many products have they sold? How do others rate the quality? What are their shipping times like?

With the sheer amount of suppliers out there it can feel a little overwhelming trying to vet each supplier to assess their trustworthiness. That’s why we recommend using a service like SaleHoo Directory. Their eCommerce experts verify each of the thousands of top quality suppliers so you can be sure to trust them. Other good alternative suppliers such as Spocket and more can be found here; Top Wholesale Suppliers For Your Business.

Less Leverage With Suppliers

Larger retailers can afford to sell products at low prices as they can purchase products in huge bulk to gain large discounts.

For an early stage dropshipping store you will be placing smaller and one-off orders with suppliers and so won’t be receiving discounts.

As you scale up and grow your business you may be able to negotiate bulk discounts with suppliers once you are able to generate sufficient orders.

Online Dropshipping Business - How It Works.
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Starting An Online Dropshipping Business

As discussed above one of the best things about dropshipping is that there are low barriers to entry due to little initial financial investment required.

Before starting your business ensure you read this post; 10 Dropshipping Beginner Mistakes To Avoid.

Conduct Research And Select A Niche

The first thing to do is conduct research and select a niche. Find something that does not have too much competition, can sell well and has the potential for high profit margins.

Your niche is important – it is the type of category that your product will sit in. Too narrow a niche and you leave little room to manoeuvre in future. If the product doesn’t sell well you need to be able to replace it easily or expand with additional products.

A niche that is too broad and contains too many products can be just as bad – don’t aim to be a general retailer. After all you are never going to be able to compete with the likes of Amazon.

Create A Unique Brand And Marketing Plan

You need to focus on creating a unique brand. Have a selling point that makes you different and stand out from the competition. Things to consider and communicate to your customers;

  • What will you do differently to others?
  • What is the story behind your brand?
  • Why should a customer choose you over the competition?

It is also important to create a marketing plan and budget. One of your main jobs is going to be effectively marketing your site to potential customers. This is a common pitfall for a lot of beginners who create a website with no plan in place to create brand awareness and drive traffic to the site. Without traffic you aren’t going to generate any sales.

There are lots of ways of marketing your business including by paid advertising, social media and email marketing.

Have a good SEO strategy in place with your pages optimized with keywords, images and high quality content. This will help you rank higher in search engines which in turn will lead to higher traffic and more sales.

Create A Quality Website

Your website should be visually appealing, easy to navigate, load quickly, is optimized for mobile devices and works seamlessly. Anything that causes too much friction for the visitor will lead to a higher bounce rate and lost sales.

An essential thing to have in place on your website and displayed clearly are your legal and privacy policies. Learn more about how to create them here; Legal Policies For Your Website.

There are lots of options to choose from when creating an eCommerce site. One of the most popular options people use is the Shopify eCommerce platform.

Another good alternative is to create your own eCommerce store with WordPress using plugins such as WooCommerce. Click here to get $25 off your first purchase on WordPress.

If you feel it is too difficult to set up a dropship store on your own then you could hire a professional on Fiverr.

You also don’t have to just sell products directly from your website. There are many different platforms you can integrate with. These include social media such as Facebook and Instagram, Ebay, Amazon, Etsy and many other online selling platforms.

Source And Import Products To Your Online Dropshipping Store

When sourcing products for your dropshipping store AliExpress tends to be among the most commonly used. They offer access to thousands of low-cost suppliers, mostly shipping products directly from China. There can be many suppliers offering the exact same product but their quality can vary widely so ensure you do thorough research. There are many good alternatives to AliExpress such as SaleHoo and Spocket. Find more top wholesale and dropship suppliers.

Adding products to your store can be very time consuming especially if you are offering a wide range. There’s lots to update including item descriptions, specifications, images and pricing.

Fortunately there are lots of automation tools available that can ease this process and free up your time for other things. SaleHoo Dropship for instance can sync trending products from trusted suppliers directly into your Shopify store. You can even fully automate the entire inventory management, ordering and fulfilment process with tools like InventorySource.

By automating inventory sourcing and fulfilment you will have more time to dedicate to other parts of the business like marketing.

Online Dropshipping Business - How It Works.

Dropshipping Beginner Mistakes To Avoid

There are several mistakes that beginners can often make when starting up a dropshipping store. These can include;

  • Not creating a marketing plan.
  • Trying to compete on pricing.
  • Not paying attention to product quality.
  • Neglecting customer service.
  • Having unrealistic expectations.

It’s usually having unrealistic expectations that is the biggest barrier to success as it leads to people quitting too early. A lot of this is down to those ‘experts’ publishing YouTube videos making it appear you will get rich overnight. A lot of these are just trying to sell pointless training courses rather than actually help their subscribers.

There is no doubt that dropshipping has been proven to be a highly profitable and successful business for many people. Giving them great earnings and the freedom, flexibility and self-sufficiency that we all crave. However to achieve this you must be prepared to work hard.

Dedicate time to building and marketing your brand and don’t expect to become successful overnight. Going into it with the right mindset, working hard and continuously learning will ensure your success over time.

We have compiled a list of some of the top dropshipping mistakes to avoid which you can read here; 10 Dropshipping Beginner Mistakes To Avoid.

People who fail in business are often lacking the drive, dedication and persistence required to become successful. Learn how to start succeeding with this post; 13 Steps To Riches And 30 Causes Of Failure To Avoid.

Online Dropshiping Business Conclusion

To recap, dropshipping is a simple eCommerce business model that doesn’t involve the seller handling or shipping products.

This has some advantages and disadvantages for sellers. The main advantages being; better cashflows, no storage space required, flexibility, the ability to test out new products easily and low barriers to entry.

The main disadvantages to dropshipping are; time consuming, highly competitive, lack of control over products and less leverage with suppliers.

Low barriers of entry mean it is quite easy for almost anybody to attempt to create an online dropshipping business. To create a successful business you should focus on building a unique brand offering something different to the competition.

Source good quality, high margin products from reputable suppliers and market them effectively. Create a high quality website to sell your products that is responsive, visually appealing and optimized for mobile devices.

If done correctly, dropshipping can offer a good source of income and freedom to work anywhere. In order to be successful it is important to dedicate time and put in a lot of effort to build your brand and deal with all the day to day running of your business.

If you are considering starting an eCommerce business then we’d recommend starting a dropshipping store. Compared to other types of business it is lower risk for a beginner due to little financial investment being required to start.

Ready to start? Learn how to create a successful Shopify dropshipping store from scratch with expert training from SaleHoo. Find out more at SaleHoo Educate.

An alternative form of eCommerce business is a print on demand store. Read our article explaining how to profit from a free print on demand store.

Please join our newsletter to receive all our latest content and view our blog for more. Interested in starting a different kind of online business? Check these out; 10 Online Business Ideas You Can Start.

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