Dropping Down the Dropshipping Rabbit Hole (Safely)

If you dabbled in the world of e-commerce you must have come across Dropshipping. If you are not acquainted with it, here is a brief introduction to dropshipping and its pitfalls, why it is so popular, and how to go about it if you are planning on starting it.

What is Dropshipping?

Dropshipping is a convenient approach to selling a product where you neither own the inventory nor handle logistics. You act as an intermediary- showcasing the product on your online platform, and when a customer makes a purchase, you forward the details to the supplier, who fulfills the remainder of the logistics. By doing this you make a cut out of the sales you do for the supplier, this is your revenue source.

Seems all simple and straightforward, doesn’t it? Well… there’s more to it than that.

Challenges of Dropshipping

Control

The first and foremost challenge of dropshipping is your level of control over inventory and logistics. Since it is shipped by a third party, you won’t have control over the quality, and neither can you do much to tackle shipping issues like delays and damages. This will make it hard to maintain proper customer relationships.

Profit

Dropshipping needs very minimal investment because a third party does most of the work for you. That is the biggest reason behind the profit margin being low. So to make decent money you will have to make a lot of sales, remember, you need some money to keep your business up and running.

Competition

With the entry barrier being low, a lot of entrepreneurs set out to try their hand at dropshipping. Literally, anybody with some time and money in their hands can enter the market, and potentially disrupt it. Anyone with the slightest edge can capture most of the market. The higher the competition, the lower the profit because the price is the single most important factor that drop shippers compete with.

Brand Building

It will be very hard to build a brand by dropshipping unless you operate very efficiently and on a large scale. To establish your business’ identity you must either provide a service or sell a product of your own, but with dropshipping you are selling products that aren’t yours. And lastly, every other challenge mentioned above contributes negatively to brand building.

Even with all of these challenges, dropshipping is popular among new and old players alike.

Why is Dropshipping Popular?

Low Cost

As I said earlier, Dropshipping doesn’t need massive capital like you would when setting up a new business, setting the barrier to entry low. This makes it easy for first-time entrepreneurs to explore the business world. It also has a very low overhead because of not having to be involved with inventory and logistics.

Easy to Run

Most dropshipping businesses start as side hustles and are run from home because of the relative ease of running them. Scaling is also easy when planned right because you just need to find capable suppliers.

Flexibility

Dropshipping offers you the flexibility of both location and inventory. You can dropship from anywhere as long as you have an internet connection and a suitable device. Likewise, you can change the products you sell based on their demand, and current trends. This also makes it easier to test new products and their market viability.

How to Start Dropshipping

Interested in running your own Dropshipping business? Here’s how you can get started-

Research

The first step toward any logical solution is research. Research the market thoroughly, the best way to know if your dropshipping idea is going to work is by trying it out. Dropship the products you want to on a trial basis, based on how that plays out you will know for sure if you can continue further. This brings down the uncertainty factor by a huge margin.

Setup Your Digital Storefront

Initially, you can use social media to connect with customers and take orders, but this is only viable if you are just starting out or operating on an extremely small scale. If you are serious about Dropshipping you will need a website or app to attract and manage customers. You can easily set up an online store with the help of sites like Shopify without having to write a single line of code or hire a website designer. If you feel this is beyond you, you can always hire a professional to help you with it.

Find Inventory and Logistics

Once you know what product you want to sell, find a supplier- it could be a wholesaler or the manufacturer themselves. Going for cost-effectiveness is fine, but that should not be the only factor, consider quality and reputation too. Most suppliers will have their own logistics network which they will allow you to use for the right amount. If they don’t, you will have to find a third party to handle it.

Legal Requirements

Before you start your business thoroughly check the necessary legal procedures to be handled like taxes, agreements, business registrations, licenses, and other documentation. Although it might seem like a hassle, it is better to go through with them properly now than to be in soup later.

Marketing

After all the above boxes are ticked, it is time to announce yourself to the world (and your potential customers). Depending on your scale of operation fix a marketing budget and go crazy on social media. Follow proper SEO practices to increase your organic traffic, while spending on Ads when required.

Customer Service

Set a customer service in place to provide information, while also resolving any issues your customers have. Depending on your scale you could integrate a CRM interface into your digital store, or handle customers through direct messages on social media, or by mailing them.

Common Mistakes Dropshippers do

Here are potential mistakes to be wary of while dropshipping.

Picking the Wrong Product

Solely focusing on profitability without considering market viability, quality, and other long-term factors can deal major damage to your enterprise. Passion plays a powerful role too, if you are passionate about the niche you picked you will try to innovate and grow your business in surprising ways.

Having an extensive lineup of products without targeting any particular niche will only serve to confuse your customers and end up complicating things for you. Even if you want to target a large selection of products, it is better to start small and expand strategically based on market demand.

Not Building Customer and Supplier Relationship

Building a strong relationship with your supplier is paramount in the dropshipping world, only then can you get lucrative long-term deals, exclusive contracts, guaranteed stock, and many other simple yet convenient perks.

The other crucial half of your Dropshipping relationship is the Customer relationship. Being transparent with customers goes a long way in establishing the legitimacy of your business while setting realistic expectations. Promptly addressing their issues will surely increase your retention rates and reputation.

Ignoring Numbers and SEO

While starting up it is crucial to optimize your business for SEO and always adhere to it, that is the key to playing a long and successful game. Once you are in the market for a couple of months, you will have access to something very valuable that can take your business to the next level- Data. Tracking and analyzing key metrics can show you your business’ past and help you plan for the future. Not making use of them is akin to driving a car with your eyes closed on a Bengaluru city road.

Underestimating Marketing Costs

Marketing is a deep rabbit hole, so much so that calling it an almost endless pit would not be an exaggeration. Not accounting for customer acquisition costs, and not setting budgets will cause a money sink, that will slowly drain the money out of your business.

So, there’s your guide to dropshipping. These are not the sole factors at play, but they are the major and most common ones. If you want to start dropshipping, you need to keep your eyes open and think on your toes, because the market is volatile, especially the dropshipping market.