2024 Dropshipping: What You Need to Know - Part 1

The virtual world of e-commerce has seen the growth of dropshipping as a business model in the past few years. However, what dropshipping actually is and how it works may also be something you may be wondering about.

What is Dropshipping?

Dropshipping is a retail method of fulfillment, which implies that the store doesn't keep products in stock. Instead of selling their own products, stores buy them from a third party and have them shipped by a third party. This means that dropshippers don't have to physically handle the product. On the contrary, a dropshipper acts as a middleman between the supplier and the customer.

How Does Drop shipping Work?

The dropshipping process is quite simple. At first, you build a store or a website on which you can put the products you want to sell. Following that, when the customer places an order, you forward the order and shipping information to your supplier, who then ships the product directly to the customer on behalf of your store. As a dropshipper, the profit that you get is from the difference in price between what you billed your customer and what your supplier billed you.

The diagram below provides a clear understanding of how dropshipping works.

Pros and Cons of Dropshipping

How to start Dropshipping

Dropshipping is  a new business model that allows online shop owners to open their stores without having to manage inventory or delivery logistics. Here are the steps to start your own dropshipping company, and to build a successful online business.

1. Choose Your Niche

The first step is to choose your niche. A niche product is something that is created for only a specific target group. For example:

Example 1 : You are a cat lover and you want to sell all things for cats, such as cat food, cat accessories, mugs with cat paintings, etc. Your niche is cat products.

Example 2 : Another example of a niche product is plus-sized clothes. Your target market is plus-size women who want a classy look.  

Image credit : trendycurvy.tumblr.com/

2. Research Suppliers

Once you have come up with a niche product, the next step is to find a supplier or suppliers who offer drop shipping services. This is an important part, our online store will rely on their products and services, including fast shipping. These are some things to consider when choosing a supplier:

Criteria 1 : Check product quality : The quality of products offered by a dropshipping supplier is key to the success of your online business. Here are some tips to help you select a good supplier who will offer you good quality products.

• Order Sample: The easiest way to see how good the product quality is to place a sample order to see for yourself. This allows you to assess factors such as the quality of the materials used, the craftsmanship, packaging, and the shipping time.

• Order a competitor's sample: Apart from ordering samples from a supplier, we can also order samples from a competitor. The purpose here is to check whether your competitors are using the same supplier as you or not. Once you have received their product, examine its quality, packaging, labeling, and the service they offer.  If your competitors use other suppliers, you should also evaluate the quality of their products and services to identify what benefits you can apply to yours. On the other hand, if you find negative items, try not to follow them.
  

• Product Specifications: It is a good idea to review product information, such as materials, dimensions, and the manufacturing process. Unambiguous and well-explained specifications usually indicate a reliable supplier.

• Communication with Supplier: Raise questions directly with your supplier to learn more about their products, manufacturing process, and quality control measures. A supplier who is considerate and honest in dealing with the issues you inquire about is more likely to be a good manufacturer of high-quality products.
  

• Check for Certifications: Find out if the manufacturer's products meet the standards and certifications that the industry requires, particularly for products that are regulated, such as those in the electronics or children's toys industry. Certificates such as ISO, CE, or RoHS can be evidence of meeting quality and safety standards.

Criteria 2 Shipping Time : Delivery time is another important criteria for drop shipping businesses as it can determine the level of customer satisfaction, repeat customers, and competitiveness of your business. Online customers want their orders to be delivered as soon as possible and at this point, fast shipping is a very important way to improve customer satisfaction.

Criteria 3 Warehouse location & Inventory Management :  The location of the warehouse for a dropshipping business is a key factor for shipping service, and will help determine both delivery time, and customer satisfaction. The warehouse location, if convenient, may significantly reduce shipping expenses and guarantee timely delivery by being close to targeted market.

In addition, local warehouses facilitate excellent inventory management, thus businesses can supply stock in the fastest possible way to meet customer demands.

Criteria 4 Pricing & Fee :  Reviewing how dropshipping suppliers set the price for their products and the fees they charge will help you have a clearer view of your actual costs and will help you set attractive retail prices. Factors to consider are product costs, shipping prices, handling prices, and any extra fees, such as membership fees or transaction fees. Furthermore, carefully assessing pricing and fees allows businesses to adjust them to market conditions, fluctuations in supplier costs, and uncertain consumer demand, resulting in profitability and sustainable growth.

Criteria 5 Term&Agreement and Return Policy :  To be successful in dropshipping, you have to create your terms and conditions, including your return policy, payment terms, order processing delays and delivery methods and you need to  define them clearly and reasonably. This will help resolve any disputes with customers.

A transparent return policy is important because it describes the rules, including returns, exchanges, and refunds, to build a strong relationship between a customer and a company. A flexible return policy with a customer-friendly approach is another component of the strategy that aims to reinforce customers' trust in the purchase made by them. Moreover, a quick response will also minimize the number of customer arguments and charge backs which could in turn avoid ruining your reputation. These policies need to be revised regularly with the aim of ensuring that they are fair to all parties.

Criteria 6 Reviews and Testimonials of the supplier :  Reading the reviews and testimonials of a supplier can give you insight into their performance, customer service, and overall satisfaction. This will help you make decide whether to be their partner or not. If most of the reviews are positive, at least you can expect the same positive result when you are their partner.

Below are samples of supplier reviews; they show store credibility, shipping speed, total sales in 3 months, and the percentage of positive reviews

Criteria 7 Expert Staff and Customer Service :  The supplier's expert staff and customer service should have knowledge and skills to manage many things, such as inventory management, order processing, and resolving customer inquiries, issues or complaints. This shows that drop shippers will receive full support from their suppliers. Once an order is placed,  a timely response, whenever the customer needs assistance, is critical.

In summary, you will notice that choosing a supplier is the first of many major decisions you have to make in dropshipping, which can lead to success or failure. A good supplier is known for their punctuality, quality, and efficiency. While a bad supplier may ruin your business’s reputation. Seeing that your business’s success is closely tied to the issue of supplier selection, you should spend a lot of time here and choose wisely.

3. Set up your online store.

After choosing a product and supplier, the next step is to set up your online store where you will list and sell your products. Nowadays, there are many eCommerce platforms that you can use to sell drop-shipped products online. Here are some eCommerce platforms for dropshipping:

3.1 Shopify is an all-inclusive e-commerce platform that allows store owners to build, control, and run their online shops. It offers a wide range of tools and services that are supposed to guide the entire e-commerce process from creating an online store to handling inventory, payment processing and analyzing sales data.

*credit : www.yaguara.co

3.2 WooCommerce is a flexible and practical e-commerce solution that connects with WordPress, allowing any business to create and manage online stores of all sizes. The list of features includes product display, store management, safe payment processing, and shipping arrangements.

3.3 BigCommerce is a popular website providing large-scale e-commerce services to businesses that need competent software for deploying and maintaining their online stores and checkouts. BigCommerce stands out due to its complete feature set, which includes customizable storefronts, safe payment processing, inventory management, and marketing tools.

4. Registering your business

Launching a dropshipping business is exciting, but it's essential to set the business up similarly to any other business. This step isn't about just filling in some paperwork-it is about making the business legitimate, following the regulations and preparing your platform for your success. Here are the steps that you should consider when you want to start a dropshipping business.

4.1) Choose Your Business Structure: Decide on the type of your business structure, such as:a sole proprietorship, a partnership, a limited company or a corporation. All structures have their own issues. Consider speaking with a professional accountant to help make the proper decision.

4.2) Business Name Registration: Choose a unique and attractive brand name for your dropshipping company. Ensure that it is not already taken by consulting your local business registry or an online database. Registering your business name may be required by local authorities.

4.3) Register with Government Agencies: Depending on where you are and how your business is organized, you may need to register with more than one government agency. This generally entails getting an Employer Identification Number (EIN) from the IRS if you are in the US. If you are an international operation, learn the unique requirements in your country.

4.4) Obtain Necessary Permits and Licenses: Verify whether you require permits or licenses for you to legally operate your dropshipping business. Requirements are different and specific to your locality depending on what you're selling. This could include, for instance, business licenses, sales tax permits, or certain specialized permits for particular products.

4.5) Register for Taxes: Know the tax requirements of the relevant jurisdictions and register for such taxes at local, state and federal levels. Such taxes may include sales tax, income tax, and any other particular taxes related to your line of business activities.

5. Implement Marketing Strategies

Now is the time to promote your store with product placement and to start welcoming visitors.

Here are some ideas for promoting your store.

• Social media marketing: Take advantage of platforms like Instagram, Facebook, and Pinterest to present your goods and engage your followers.

• Search engine optimization (SEO): Optimize your website and product listings with relevant keywords to increase your visibility in search engine results.

• Content marketing: Establish blog posts, videos or whatever content that could interest and inform your potential customers.
  

6. Provide Excellent Customer Service

Offering good customer support is what makes your clients loyal and trust you. Respond promptly to customer queries/problem and try to resolve them without delay.

In addition, offer incentives like free shipping, easy returns, or loyalty rewards to keep buyers coming back and to encourage customer loyalty.

7. Monitor and improve

Last but not least, keep monitoring your dropshipping store and improve it to boost its efficiency and progress. Here is a the list of questions that entrepreneurs should always ask about their business.

• Profitability: - What is the profit for each products? - How can I raise the selling price or lower the cost without affecting the quality of the product? - Are there ways to reduce the shipping or fulfillment costs?

• Sales Performance: - What are the trends in our sales over time? - What products are generating the most revenue? - Are there any seasonal trends that impact sales?

• Customer Satisfaction: - What does our customer feedback tell us? - Is there a common complaint or issue that needs to be addressed? - What is the satisfaction level of customers with our shipping times and product quality?

• Supplier Relations:

-What is the reliability of our suppliers when it comes to product quality and shipping times?

-Are there any communication issues or delays with suppliers?

-Are there better supplier options available to improve our offerings?

• Inventory Management: -Can we guarantee that we have enough stock to meet demand without overstocking? -Are there slow-moving or obsolete products that need to be addressed?

• Website Performance: -Is our website user-friendly and is it designed for conversions? -Does the site experience any technical problems that affect its load time or message delivery? -How can our product descriptions and images generate sales?

• Competitive Analysis: -What are the differences between our prices offerings, and customer experience compared to our competitors? -What strategies are our competitors using that we could learn from or emulate? -Are there any opportunities for differentiation in the market?

Summary

For young entrepreneurs, beginning their online business with no initial monetary investment, profitability is an important first step. Through strategic selection of products, having a well-designed marketing strategy, and providing outstanding customers service, can help you become a successful dropshipper!