Chances are, if you have ever bought any products online, at least some of those items would have been drop-shipped to you. It’s very common for stores and promotional offers you see on social media to be dropshipped, not that you would know about it unless you looked more closely at the supply chain.
Many drop shipping businesses employ quality branding and professional marketing tactics which makes it even more difficult to find out if an item is dropshipped or not, and as long as the product is of good quality and fits their needs, it really doesn’t matter to the end customer where their item was delivered from.
This is essentially why dropshipping works – as long as you supply a product that meets the customers’ needs and expectations, they don’t really care which fulfillment center in which part of the world it came from.
What the term “dropshipping” or “drop ship” means
Dropshipping (interchangeably called drop-shipping or drop shipping) means to sell a product – or in some cases a service – that you do not hold inventory for.
Typically the actual stock is located in a distant warehouse and fulfillment center not connected to your business in any way. You simply receive the order and instruct the warehouse or supply chain to dispatch that item to your customer’s address, often with your own branding on that product.
The consumer will most likely not even be aware that he has received an item that did not arrive directly from you (unless you are drop shipping from Amazon.com and your customer will receive their item in Amazon’s proprietary packaging).
When dropshipping started
Drop shipping in business is as old as commerce itself, and far predates the internet era. Many mail order advertisements you used to see in magazines and newspapers would have been dropshipped products, as well as from mail order catalogues where the in-house inventory range is often hugely expanded with the use of dropshipping suppliers.
The internet era has created a boom in dropshipping, and dropshipping in some form has been around almost since the beginning of ecommerce on the web.
Due to the digital interface between customer and store the internet provides, it’s extremely easy to present yourself as a large retail operation and yet in reality to be a single entrepreneur working away at a laptop.
Another key factor has helped influence the rise in dropshipping over the past few years and that has been the ease with which you can now start and run a fully featured ecommerce store thanks to hosted ecommerce platforms such as Shopify.
Shopify makes creating and managing a complex yet reliable online store trivial, which has opened up the world of ecommerce to just about everyone with an internet connection. With Shopify, you do not require technical coding skills to create and manage your store, unlike older ecommerce platforms such as OpenCart or WooCommerce.
For just a small fee each month, Shopify allows literally anyone – with or without capital or technical coding skills – to set up and run a fully featured ecommerce business.
Shopify has enabled almost anyone with a business idea or product to sell to get trading with their online venture in a matter of days. There is no web hosting required or code to upload and configure, unlike self hosted platforms.
Shopify and dropshipping are a perfect match for each other, allowing quick set up and testing of new product lines in short time. The wealth of apps, theme and plugins readily available for Shopify allow the implementation of proven and effective ecommerce marketing tactics such as cross selling, up-selling and email marketing.
Why is dropshipping popular?
The advantages of dropshipping are many, especially for the entrepreneur or micro business. For one thing you don’t have the major overheads and maintenance of keeping stock in some secure facility, with all the insurances and hassles that creates. And you don’t have the complexity and hard work of fulfillment, or sending out and managing multiple packages a day to impatient customers.
The low barrier to entry and relatively low cost means anyone – even in the developing world in countries such as India – can start selling online and make money using dropshipping.
The ability to automate large parts of a dropshipping business and hire out time-consuming and tedious work to VAs (Virtual Assistants) working remotely in countries such as the Philippines, enables some huge volumes of sales processing and profit while using relatively few resources.
What are dropshipping stores?
Dropshipping stores are branded or unbranded online retailers who sell products that they do not directly hold inventory of themselves. Even large business often dropship at least part of their inventory, although smaller dropshipping stores usually hold no inventory, instead dropshipping from either local manufacturers or warehouse locally, or more likely from Chinese warehouses.
The Clevhouse is a popular Shopify based dropshipping store
Most dropshipping stores use Shopify as their ecommerce platform, although some run on WooCommerce, Magneto or other software.
How dropshipping makes money
Dropshipping is essentially a retail business model and you will not be manufacturing, or even stocking the inventory yourself; your job is to market the product to the customer online and order the item from the supplier at a lower cost than the retail price.
Typically the COGS – Cost Of Goods Sold – is around one third the retail cost, so if the customer pays $30 for a product in your store, $10 will cover the COGS, $10 will cover the advertising cost of that sale and the remainder will be profit.
A lot of money can also be made on the ‘back-end’, which means via up-sells, cross-selling, subscription services and email marketing to name but a few. Many dropshipping stores forego making profit on the front-end – that is the initial sale – to make the profit further down the line.
Increasing AOV – Average Order Value, and LCV – Lifetime Customer Value, are the keys to maintaining profitability in your dropshipping venture.
Why start a dropshipping business
Dropshipping can be one of the easiest routes into ecommerce and the making money online space in general. The low barrier to entry, simplicity of operation, relatively low capital start up costs (much of which is due to the Facebook ads investment typically used in dropshipping promotion), and easy accessibility to stock from sites like aliexpress.com make dropshipping an attractive business proposition for almost anyone who can use a computer.
If you want to learn how to set up your own dropshipping business step-by-step, read our 12 part, in-depth Shopify Dropshipping tutorial here.
Can dropshipping be successful?
Dropshipping sites can be extremely lucrative at first sight, with many stores turning over 6, 7 or even 8 figures a year. Profit margins for dropshipping are relatively low however, with the bulk of dropshipping stores barely managing to exceed 20% net profit.
Take into account the cost of sourcing the product, staff overheads, payment provider fees, store fees, returns and other expenses, and this profit drops still further until the returns on investment are so low that the store barely seems worth the effort.
This is where high AOV, LCV, branded stores, sales funnels and email marketing can make a huge difference to the profitability of a dropshipping venture.
Can I start dropshipping with no money?
Starting dropshipping without money is not easy, in fact due to the nature of utilizing paid advertising as is typical with dropshipping stores, you may it find it impossible to gather enough traffic and data on your Facebook pixel to drive down the cost of advertising your product to the point where it becomes profitable.
Using paid traffic is not the only option to drive sales with a dropshipping store however – organic traffic via SEO and other traffic building methods to your store can yield great results, depending on your niche. For example, if you sell dog products, a dog blog or viral Facebook page is a great place to promote your drop shipping products.
How much can dropshipping make
Dropshipping can you make good money – make no mistake, many entrepreneurs and even more large companies make a lot of profit with dropshipping.
Can dropshipping make you rich, or even a millionaire? Of course – although you would have to turnover tens of millions of dollars of revenue a year before you made enough profit to become a millionaire, the reason being because as you scale your store and sales the profit margins tend to shrink quite dramatically.
Can dropshipping be automated?
Thanks to the software and technology available online it’s possible to almost fully automate an established dropshipping store, and thus give you the time and freedom that online businesses can offer.
Time consuming customer service tasks can easily be outsourced to overseas VAs who are skilled in customer relations and who can deal with almost all of your store correspondence in a professional and timely manner.
Can a dropshipping store be classed as a passive income site? I would say no, there is usually an seemingly endless of task to attend to with a dropshipping business, even if that is just managing your team of VAs or making sure your Facebook ads are running correctly.
Where to find dropshipping products
Before online shopping came to prominence, dropshippers would speak directly to manufacturers of products to arrange favorable dropshipping deals, which you can still do today.
If you find a great product that you believe you can make a good job of marketing online to thirsty customers, there is no reason not to reach out to the supplier or manufacturer and negotiate a wholesale rate and fulfillment contract to start selling their product yourself. You might even want to brand the product as your own, with a custom logo, packaging and printables.
By far the easiest way to find dropshipping products is via large online suppliers, such as Aliexpress, Ebay or Amazon. Aliexpress.com has been the go to supplier over the past decade to source inexpensive yet quality products directly from manufacturers and warehouses predominantly in the far east.
Most of the products you will find on Aliexpress are of similar quality as found in top High Street store, however they could be unbranded, or with non-English instructions.
Aliexpress is one of the best places to source quality dropshipping products
By far most new, general dropshipping stores supply unbranded products found on and fulfilled by Aliexpress.com via apps such as Oberlo. You can use images and video provided by the suppliers on Aliexpress and create your own product pages based on these to market with.
Be careful however – some of these product images and videos might have been copied from elsewhere and be subject to copyright law.
Amazon.com and Ebay.com are also great sites to find potential drop shipping products, however the potential for profit margin is much lower due to the very low prices on Aliexpress.com.
You might need to employ some ‘profit multipliers’ – up-sells, cross sells and email marketing tactics to make money on higher priced products such as those from Amazon.
Should I start a niche or general dropshipping store?
Many people wonder if they should start a niche or general dropshipping store, one which sells anything and everything all on one site. If you are starting out, it is always a good idea to start a general dropshipping store, both to learn the processes of ecommerce and the dropshipping model, and to discover what niche of products your customers want to buy.
You might also find yourself drawn to a particular niche of products based on your own life experiences and interests – cycling or fishing products for instance.
If you have a good knowledge of road cycling or lure fishing for example, you are much better placed than a competitor to best serve your customer base and add value to your product range in the form or branding, information, guides and customer support experience.
If you do decide to go down the route of a niche store before gaining experience with a general store, be prepared to abandon that niche should you discover that there is no appetite in the market for your products, or you might discover that you are simply not interested enough in the niche to pursue it with any enthusiasm.
That said, niche stores are generally more profitable than general stores due to the more targeted and passionate customer base, and the more likely uptake of cross sell and up-sell products.
Dropshipping and dealing with returns
Having to deal with customer returns is an everyday occurrence when retailing, and this includes running an online store. Depending on consumer laws of your country, you will likely be required to offer a 30 days return guarantee to customers.
This can be problematic when dropshipping your products from far flung countries such as China and Vietnam with long shipping times from 7 to 28 days or sometimes more.
If you are running your dropshipping store from your home you might not want returned products being sent to your own property, and you might also not wish for your customer to know their product was drop shipped from the far east, not to mention providing a return label with the supplier address in a foreign country might annoy your customer greatly.
In many cases – if you are not willing to receive returns to your home address or your supplier, and your customers are generally happy (which they should be if you have sourced good quality products that suit their needs) and returns are few and far between, the best course of action is to simply refund your customers the full or a partial amount of the retail price and allow them to keep the defective product.
Great customer service is essential to modern dropshipping as it puts your head and shoulders above lesser stores and pleases ad networks such as Facebook, who actively ask your customer how their shopping experience was with your store.
There are a range of Shopify apps which can help when dealing with returns. These apps can help streamline the process of dealing with returns, and allow the customer to initiate the return via a store interface.
Returns can also be used to advantage and avoid excess profit loss, by employing tactics such as marketing further offers to your returns customers, offering partial refunds instead of full refunds, or offering an exchange instead of a refund.
Writing a returns policy appropriate for your store, product range and country of business can be complex, with no one-size-fits-all solution. Here is an in-depth guide from Shopify on how to write an effective returns policy for your store.
Why it’s important to only source quality products
Your profits might take a hit if you have to deal with too many returns, and much of your time will be tied up dealing with irate customers day after day, which is why it is important to always source high quality products that are fit for purpose.
If your dropshipping products are likely to cause injury, or are not fit for purpose you may find yourself in legal hot water, so it’s always best to order the product yourself from another local supplier such as Amazon or Ebay and test it thoroughly yourself.
This way you can also take your own photos and videos of the product (which is always better for marketing purposes) and means you won’t be unwittingly using copyrighted images from your supplier’s page, which can get you permanently banned from Facebook or YouTube.
Why so many drop shipping businesses fail
It’s a fact of life that most dropshipping stores fail within the first year or two. Due to the thousands of gurus on YouTube and “make money online” blogs telling you dropshipping is easy and you will make your fortune in a few short weeks or months, without making you aware to the reality that dropshipping is a real business with often long working hours, tight profit margins, tough times and always high competition.
Learning to create effective ads for your products and running profitable paid advertising campaigns is a steep learning curve, and can take years to master. It’s no wonder so many dropshippers become disillusioned so quickly and quit after only a few months.
The low barrier to entry is both a blessing and a curse – with stores so quick and easy to set up, and winning products easy to find with the multiple spy tools available, there will always be fierce competition for you to deal with.
If competitiveness is not in your nature, you might find the drop shipping model a tough one to sustain for any amount of time.
When to quit dropshipping
Drop shipping is not for everyone, it can get extremely stressful at times, and some people do lose a lot of money.
Dealing with suppliers in far away countries where there is a language barrier, along with product quality and safety concerns, and dealing with impatient and irate customers day after day, not to mention payment issues which are very common with Paypal and Stripe, means dropshipping is not something to stumble into blindly.
Please be aware of the multiple risks associated with any online business start up and don’t bet the farm on your dropshipping store being successful straight out of the gate or even after years of hard work.
