For many E-Commerce businesses, dropshipping is an integral part of their company strategy. But what actually is dropshipping? And how can you use it to create your own business in 2021?
For those looking to start a dropshipping store in 2021, there’s good news and bad news…
The bad news is, you’re unlikely to become as rich as Amazon guru, Jeff Bezos. But the good news is that despite the dropshipping market being somewhat saturated, there’s still potential to make a decent income from it.
What actually is dropshipping?
Dropshipping refers to an order fulfillment strategy where you sell products on your site while the stock is held by the supplier elsewhere. The supplier takes care of everything after you’ve received an order; from packing the items to shipping the goods.
Why is dropshipping so popular?
There are so many benefits to having a dropshipping business, rather than buying in stock to sell. Here’s just a few:
There are no risk or start-up fees
The biggest draw to starting a dropshipping store is the limited risk that’s involved in setting up. With dropshipping, you don’t need to invest in stock beforehand, so there’s very little upfront cost. So, you can set up your store, find a dropshipping partner, and get selling. If it doesn’t work out, you don’t have to worry about getting rid of leftover stock or wasting money.
You can work from anywhere
As someone else is handling the logistics of your store, you can set up camp anywhere in the world. Take a trip to Dubai for a few months and work from the beach, or head out for a ski trip in the alps and keep your business ticking over while you’re away. Dropshipping gives people the flexibility to really live the life they want, while still earning money. It’s also a great business model for families or single parents who want to be able to work from home and save money on childcare.
There are endless niches to explore
Whether you start off as a small jewelry company and grow into an all-singing-and-dancing fashion store, or want to focus on tech gadgets, homeware or more, there’s a dropshipping partner for just about anything. It’s best to start off with a niche so that you can work on attracting a certain customer, and then build from there.
Two huge niches to consider if you’re starting your own dropshipping business is health or eco-friendly goods. The environment and sustainability are a huge trend that isn’t going to slow in momentum anytime soon, so this is a great niche to explore in 2021.
Are there any downsides to dropshipping?
Of course, with all good things, there are some downsides – especially after 2020 where many people set up their own businesses as a new source of income in uncertain times. So, what are the downsides to dropshipping?
Not everyone will succeed
In fact, Dropshiplifestyle suggests that almost 90% of new dropshipping businesses fail within the first three months. That’s a pretty scary number, so it might be worth having a backup plan just in case.
The industry is hugely competitive, especially with the likes of Amazon, eBay, and AliExpress only becoming more and more advanced. And the secret to their success? Always having the lowest prices. But when you’re just starting out, you need to build a good sales reputation with partners in order to unlock cheaper prices. So why would a customer buy from your store when Amazon is cheaper? This is why it’s crucial to have a niche and market yourself to your fullest ability.
Profit Margins Are Quite Low
Dropshipping products are typically quite cheap to buy, which means there’s not a lot of profit per product. If you mark up the product too high, you’ll likely deter customers. Too low and you’ll be losing profits. Both you and the manufacturer are looking to make a profit, so finding the right balance for cost efficiency is the key to success.
Take for example and an eco-friendly bamboo toothbrush holder. The manufacturer might make the product for $1.5 and charge you $3. If you want to make a profit, you’ll need to charge $4-6 which could seem pretty expensive considering other stores will offer it for cheaper.
Delivery Times Are Quite Long
While the manufacturer handles the logistics, you’ll of course need to pay for it. Many manufacturers will be based in China, which means you can expect long delivery times and expensive shipping. Often, the average time for delivery is 21 days, which is pretty long when competing with the likes of Amazon. If you want to offer your customers free delivery to compensate for the delay, you’ll also need to add the price of shipping into the product price, which could add a few dollars.
It’s difficult to fix customer complaints
If a customer doesn’t receive the item they’ve ordered, or it arrives broken, they’ll be looking at you for a refund – not the manufacturer. With dropshipping, you have very little control over quality assurance and shipping, so customer complaints can be hard to fix and will often end in a refund.
There are some dropshipping partners that will require you to pay to set up and access their product range. These suppliers tend to be more trustworthy; their products are of higher quality and their shipping is more reliable. If you have a small amount of money to invest in a dropshipping partner when starting up, this is highly recommended.
The key to dropshipping success
The real secret to dropshipping success is your brand image. Marketing and customer service will all tie into creating a great brand reputation that will help you build loyalty within your customer base. By handling complaints professionally and quickly, advertising your best products, and producing beautiful content that really sells your inventory, you’ll be able to build your own brand and grow your business.