What Is Dropshipping?

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Lorcan

Mar 29th, 2021

Dropshipping. It’s a term that is growing in popularity, a term that seems to encompass both fully-fledged businesses and convenient side hustles. While dropshipping offers many unique opportunities and advantages, it is not without its risks, drawbacks, and potential pitfalls. Whether you want to launch a multi-vendor marketplace, dropship from larger wholesales, or build an additional revenue stream in your business, here are a few things to consider.

So, What Exactly Is Dropshipping?

Dropshipping is a type of fulfillment model whereby a seller lists a wide range of items for sale in their online store, without having a huge warehouse full of stock waiting to be sold. When a customer purchases from a dropshipping store, their order is forwarded to the supplier, who ships the item straight to the customer. So, as the owner of the dropshipping store, you’re charged only for the item which has been shipped. You don’t have to worry about the cost of unsold inventory sitting in your warehouse.

Where Can I Find Dropshipping Vendors?

A successful dropshipping store is reliant on strong partnerships with its vendors. There is a huge range of vendors who already dropship; you could partner with big wholesalers (but be aware, you may have to play by their rules) or you could approach smaller, lesser-known independent dropshipping vendors.

Working with smaller vendors brings several great advantages. Firstly, your products are likely to be more unusual or have some unique selling points such as being hand-crafted, low carbon, etc which may help you to attract new customers. Secondly, working with smaller vendors puts you in a stronger position, meaning you’ll be able to negotiate more favorable commission deals and enhance your margins. Take a look at our tips for onboarding smaller vendors.

The Benefits of Dropshipping

Investment and Risk

With an ecommerce dropshipping store, you won’t need to invest money purchasing a massive product inventory before you can launch. In fact, you don’t need to hold a single item of your inventory yourself, so you’re far less open to risk than a traditional store would be. If your products don’t sell, it’s not a problem. You’ll never find yourself having to offload stock at a loss or face paying expensive storage bills. So, it’s far quicker and easier to set up a dropshipping business than a traditional online store. Since you won’t require much start-up capital, you can divert more resources, like time and money into your operations straight away.

Work Remotely

Dropshipping businesses can be run using nothing but a laptop. With no stock to worry about, you’re free to work from anywhere you, please. If you want to travel the world and grow a dropshipping business while you do it - you can. This flexibility makes dropshipping a great option for those looking to fit a business around other commitments like family or another role/business. As your business grows, you can even hire a whole team who all work remotely. This saves you money in terms of renting premises, for both your office and your warehouse.

Huge Opportunities for Growth

Dropshipping is immensely scalable. As the popularity of your site increases you’ll build stronger partnerships with a wider range of suppliers, meaning you can list more and more products to fit your customer niche. There’s absolutely no risk involved, and with no physical stock to worry about, your dropshipping business is easy to grow.

If you take advantage of automation software like Jetti, your drop shipping business can even grow while you sleep. Check out our blog on how automation can help you maximise the potential of your multi-vendor marketplace to learn more.

The Disadvantages of Dropshipping

Below you will find several reasons which may discourage you from deciding to get involved in the industry. As with everything in life, nothing is perfect and these points should be carefully considered before getting involved in ecommerce dropshipping.

Competition Is Fierce

As we mentioned earlier, setting up a dropshipping business is easy. So, naturally, there are a lot of people doing it! Inevitably this means that competition in the marketplace is fierce. You need to do a lot to stand out. If you’re serious about setting your dropshipping store apart from the crowd, we strongly recommend focussing on quality rather than quantity.

The best dropshipping stores are those that target a particular market and offer products only for that market. The more unusual or unique your products, the better. Approaching smaller dropshipping vendors and spending time thinking about the best products for your target audience will help you succeed in creating a unique store with a loyal fanbase. While this can be great to help differentiate your marketplace, it can come with its own problems, which leads us to disadvantage #2.

Lower Margins

It goes without saying that in a marketplace with as much competition as dropshipping, margins are low. It doesn’t require much capital investment to set up a dropshipping business, so many merchants are prepared to operate stores running on eye-watering low margins. When deciding which products to list in your store it’s worth researching the profit margins on different types of stock. Some goods, such as accessories, offer greater opportunities for profit than others, like electronics.

If you’re operating a multi-vendor marketplace, we typically see commission rates between 10% and 30%. So for every $100 of items you sell, the vendor keeps $70, whilst you net $30 of profit. Under a model such as this, you are unlikely to retire on a yacht any time soon. Under such a model, you may be required to invest far more time than you had initially anticipated, to make the business viable which may negate your intentions of a “side-hustle” entirely.

Managing Your Inventory

When you’re not physically managing a warehouse full of stock yourself, it’s easy to see how you might lose control of your inventory. Managing your inventory can be one of the biggest pain points in running a dropshipping business. It’s hugely important to make sure you always know which of your vendors’ products are in stock, you don’t want to risk having customers place orders that you’re unable to fulfill. Having to inform a customer that you have had to cancel their order due to inventory sync problems will undoubtedly lead to them never considering your store again.

Many dropshipping stores begin by managing inventories manually, but that can prove a huge headache, especially as your business grows. With Jetti, you can link your store’s inventory directly to those of your vendors, so you’ll always know what’s in stock and what isn’t. Your product listings will update automatically, and you won’t need to worry about a thing. Get in touch to find out more about setting up automated inventory listings with Jetti.

Shipping Complexities

One of the greatest benefits of a dropshipping store is that it enables a customer to purchase products from a selection of different dropshipping vendors, in a single order. But what does that mean for shipping costs? There are two options here, either you charge your customer a single shipping rate and swallow the loss yourself, or you charge shipping costs per item and risk cart abandonment.

These two options can make or break your marketplace. It’s potentially the choice between making a loss on shipping and reducing or even wiping out your margin or risk having customers gasp in disbelief when they see the shipping costs of their order factored into the end total. Quite the minefield to navigate so what should you do?

We recommend a single shipping rate, but it’s imperative that you monitor your profit margins on such orders and ensure you’re not making a loss on orders comprising items from a wide range of vendors.

We recommend a single shipping rate, but it’s imperative that you monitor your profit margins on such orders and ensure you’re not making a loss on orders comprising items from a wide range of vendors. To do this, you need to understand how Jetti can help you with blended shipping rates.

Recommendations

Work On Your Business Plan

As with any new business, planning is key. You’ll need a clear, concise business plan, and a marketing plan that sets out your goals and objectives for growth. You need to know what you plan to achieve and when, these goals will help you understand whether your venture is working or perhaps it needs a rethink or a change in direction.

Focus On Automation

It can be tempting for those new to dropshipping to try to manage everything manually, but as the store grows this becomes more and more difficult. If you focus on automation from the start, you’ll never have to worry about shipping rates, inventory problems, or accounting. So, you’ll have plenty more time to focus on your store itself, ensuring your images, product descriptions and website are at the top of their game. And if everything is automated from the start, scaling your business will be simple. Speak to our team about Jetti’s dropshipping software to get started.

Customer Service

The customer is always right. That’s not quite always the case but never the less, it is an important adage to keep in mind. Your dropship marketplace should be very UX-focused, intuitive to navigate, and easy for customers to purchase from. Post-purchase, you should focus on dealing with any issues such as returns or complaints from your customers. This can be tricky to do if you have very limited resources so you may have to choose how much time you will devote to customer service but do keep it in mind.

Quality Is King

When setting up a new dropshipping store, it can be tempting to list vast selections of different products and ‘cover all bases. But do this and you’re guaranteed to alienate any customers who do come across your store. Consumers don’t have the time or the inclination to browse massive product inventories. When faced with too many products to choose from, they’ll most likely forget all about your store and move on to the next one! If your products are carefully curated, and all focus on one particular target market who’ll love all of them, your customers will have a far better experience. Focus on high-quality, hand-picked products, chosen with your customers in mind. Build a store they’ll come back to time and time again.

Blend dropshipping with in-house fulfillment. Many of the most successful dropshipping businesses offer both dropshipped products and products which are fulfilled in-house. Do this and you’ll have the edge over the competition. With Jetti, you find dropshipping software that will allow you to maximize your product offering and streamline your entire marketplace operations.

How Can I Get Started?

Is it time to get started on your drop shipping business? Our talented team is here to help you make a success of your store. Check out our packages and get in touch today to learn more about how Jetti’s dropshipping software could help you.