Do you know that you can start an e-commerce business without purchasing a single unit of inventory? Yes, this is true. With a dropshipping business, you can do exactly that.
Dropshipping is an e-commerce business model in which you, as a store owner, don’t hold any inventory. Rather, you just list the products on your site, and the third party delivers the products to the customer when he places the order.
Before we dig into the nitty-gritty of how you can start this low-cost business and the tips to be successful, let’s have a look at some of its advantages and how big the industry is.
Statistics about the dropshipping industry
We all are aware of the e-commerce boom that took place in 2020 due to the pandemic. So much that research says that the COVID-19 shifted the e-commerce industry by 5 years.
With the e-commerce boom, the dropshipping business also witnessed an increased interest. This is because it is easier, and requires less capital, to start dropshipping than to launch your own e-commerce store. This is because of the multiple benefits of dropshipping.
You can check them out in the next section but for now, let’s look at some of the statistics which prove that this boom is not just a fad but is here to stay.
According to a study by Research and Markets, “The Dropshipping market was valued at US$ 162.44 billion in 2019 and is projected to reach US$ 591.77 billion by 2027; it is expected to grow at a CAGR of 18.3% from 2020 to 2027.”
Even though the pandemic led to more people moving towards dropshipping, the business was growing even before that. If you look at the Google Trend for dropshipping worldwide (see picture below), you can see it is rising for the past 5 years. Yes, there have been a few dips, but these are quite normal. You will never see an exact linear growth for any business in the world.
Benefits of Having A Dropshipping Business
We mentioned above that dropshipping business is a much better business to get into compared to having your own e-commerce store. Here are some of the reasons why.
1. Low budget to start
As we mentioned at the start, dropshipping business doesn’t require you to have an upfront inventory. That saves huge costs because in any online business, a major investment goes for buying and managing an inventory.
The other costs involved in setting up an e-store are minimum. You can set up your store on Shopify starting from as little as $29/month. The store is user-friendly with built-in themes.
That means you can easily add products yourself and won’t have to invest thousands of dollars in hiring a developer.
2. Hardly any risk involved
As you are not purchasing upfront inventory, there are hardly any risks involved in a dropshipping business.
If you intend to sell perishable goods online (like food items), you won’t have to fear the inventory getting rotten due to low sales. You only purchase the product once the customer places the order.
Even if you are selling non-perishable goods, which won’t get spoiled even after a year, you are still paying the rent of the warehouse. In case of low or no sales, that cost will add to your expenses.
In a drop shipping business, you get rid of all those worries.
Remember, we mentioned “Hardly any risk” which means the business is not 100% risk free. In fact, no business in the world can claim to be so.
You still have to keep a check and balance on the suppliers, shipping, the customer getting the product on time or not, resolving customer queries and other things. However, these risks are a fraction of what you have in a normal e-commerce store. So it is not wrong to say that there are hardly any risks involved in a dropshipping business.
3. You can sell a variety of products
One of the biggest advantages of the dropshipping business is you can sell many categories of products and are not restricted to any one type, or in other words, stock keeping unit (SKU). This is because you are not investing in an upfront inventory.
If you plan to sell multiple products, one possible challenge is to think of what to sell? Obviously, you can’t just randomly pick a product and list it on your Shopify store. So what should be the strategy?
Luckily, you have Oberlo, to help you deal with all the hassle.
Oberlo is an application developed by Shopify. This app can help you find thousands of products via AliExpress and import it directly to your Shopify store. Now you won’t have to check with dozens of suppliers to find an ideal product. You all have it in the Oberlo dashboard.
All this not only increases your chances of sale but also allows you to do trial and error with multiple SKUs and see which one has more demand before restricting yourself to that particular category.
4. Easier to scale
In an e-commerce business, when your business expands, the responsibilities double. For example, you have to deal with more suppliers, spend more time processing the orders and, most importantly, hire additional resources to perform all the increased tasks.
In a drop shipping business, the orders are processed by the suppliers, so you get rid of all the hassle. Yes, you still might need to hire a few more resources or spend extra time when the dropshipping business expands, but the efforts would be much less intense.
4 Essential Dropshipping Business Tips for Beginners
We hope that after reading all of the above benefits, you have made your mind to plunge into the exciting drop shipping business.
But how to successfully run the business?Below are a few important tips and tricks to keep in mind. This will ensure that you don’t fall off track.
1. Manage your inventory in the best manner
Whether you are running a dropshipping business or any e-commerce store, inventory management is the backbone of the business.
No matter how good the Shopify dropshipping store looks or how much competitive pricing you are offering, if the product is out of stock, all your other efforts will go in vain.
Since you are not holding any inventory yourself, there is a need to work closely with the supplier(s). There are many Shopify apps that can help you maintain the inventory, Duoplane is one of them.
Apart from using applications, another trick is to work with multiple suppliers who offer the same product. This has dual benefits.
First and foremost, it will ensure that your business continues even if one of the suppliers doesn’t have the product in stock.
Secondly, if due to some disagreement, the supplier decides not to continue working, you won’t freak out.
Whatever strategy you opt for, make sure you are in constant touch with the supplier and he keeps you informed about the inventory levels.
2. Fulfill the orders efficiently
If you follow the above-mentioned advice and decide to work with multiple suppliers, you have to decide which one to choose for fulfilling the orders. Both have the same product with the same pricing. So what to do?
Here are few tips that can be helpful in making a decision
The first thing you can do is to route the order to the supplier which is closest to the customer. This will ensure that the customer gets his product in the least possible time.
After all, a wide base of loyal customers is what you all should be aiming for your Shopify dropshipping business.
The second option is to check which supplier has the least price. Even if the price difference is $1, the savings will add up to a huge number at the end of the month.
3. Establish a clear return policy
Building trust with your customers is one of the foremost things a business should strive for. Establishing a clear return policy goes a long way to develop that trust.
It gives confidence to the customer to buy the product without any worries and develops a strong base of loyal customers.
A research conducted by UPS found that 68% of customers check the return policy of an e-commerce store before buying something from it.
Another survey by Rebound found that 68% of 18-25 years old shoppers said that they have difficulty in returning goods kept them away from shopping again from that particular store.
Therefore, establishing a clear return policy is not an option, but a compulsion for the success of your Shopify store.
However, since you are not holding the inventory yourself in the dropshipping business, you need to be extra careful while establishing a return policy.
Here are a few things to keep in mind:
- Check if the supplier offers the option of returning the products. If you are working with multiple suppliers, you need to check with all of them.
- Some suppliers may charge a restocking fee, I.e., a fee for returning the products. There are two ways to deal with this problem. First, you can avoid working with such suppliers. Secondly, you can pay the restocking fees yourself instead of passing them to the customer. This will eat into your profit but you can recover the fee in the form of a loyal customer who shops again and again from your store.
4. Implement a clear shipping policy
Just like establishing a return policy, a clear shipping policy is inevitable for the success of your Shopify store.
According to UPS Pulse of the Online Shopper Report, “45% of shoppers abandoned a cart when the order value didn’t qualify for free shipping”
However, in a dropshipping business, calculating the shipping rate can be a big headache if you are dealing with multiple suppliers.
Should the shipping fees be included in the price of the product or charged separately? How to deal with different shipping charges from multiple suppliers?
It is important to get answers to these and other similar questions before you start your Shopify dropshipping business.
First of all, let’s try to understand the different types of shipping fees that you can charge. There are many more types, but The below two are the most common ones that you need to know.
1. Flat Rate Shipping
In this type, you charge a fixed shipping rate for all types of products and shipments. The rate will not vary according to the type of product or from which supplier the product is being shipped.
In some cases, you may incur more than what you have charged from the customer, but it’s perfectly fine if this happens occasionally. The main aim of your Shopify dropshipping business should be to win the trust of the customer instead of charging him every small amount.
2. Real Time Rate:
This is the opposite of the previous type of shipping rate we discussed. As the name implies, a real time shipping rate varies according to the weight and shipping destination of the product.
Your Shopify store should display the real time shipping rate once the customer has added the product to the cart and entered the address.
One challenge that needs to be addressed in a real time shipping rate is to think of what to charge for the same products originating from multiple warehouses/suppliers. You will need to think of a strategy to make your way across this problem.
Now it’s up to you to decide which of the above two shipping fees should be charged. You may experiment with both of them before finalizing anyone.
Start a dropshipping business with a bang
With the rise of e-commerce, the dropshipping business is here to stay. It will grow with time as the lockdown made people realize that shopping online is a very convenient thing to do.
Therefore, the earlier you get into the business, the better it will be. You don’t have to buy inventory, deal with processing the orders or handle returns. Therefore, dropshipping is a hassle-free business.
We have seen an increase in the number of people opting for a Shopify dropshipping business. This is because of the ease of setting it up along with its proven profitability.
So what is stopping you from getting into this exciting business? Need a hand with setting up an online store? Contact HappyPonits, we will handle your store setup while you can focus on your core business’s activities.