Dropshipping is a form of e-commerce that does not require a warehouse. All e-commerce logistics are managed by suppliers who send the goods directly to the customers. The owner of the digital store is mainly responsible for product marketing and customer service.
Over the years, dropshipping has gained a bad reputation due to poorly managed online shops and gurus with great promises and a course to sell you hidden up their sleeve.
If you’re tired of fumbling for answers, you’ve finally come to the right place!
In this article, you will find a complete analysis of the business model to develop an online shop based on dropshipping.
We will take a look at what it is about, how to begin, all the possible ways it can be developed, and all the alternatives it allows. We will also brush up on marketing through social media, which is the engine for the whole system.
If there is a particular topic that you would like to explore, here is the index of the article, it will instantly take you to the section that interests you.
- Is dropshipping safe?
- How does dropshipping work?
- Advantages and disadvantages of dropshipping
- The dropshipping trends: the hunt for the viral product
- How to create a dropshipping shop?
- Dropshipping alternatives: what are the other options to dropshipping?
- Drop-shipping tool: social media marketing
- Is dropshipping convenient?
- Your shipping partner
If you want to deal with dropshipping, your main concerns will be the marketing of the products you want to sell and managing customer service. When you receive an order, you will send the shipping information to the supplier, and the supplier will send the goods to the customer.
At this point, I imagine you are asking yourself at least one of these questions:
- Is dropshipping a scam?
- Why should customers buy from me and not from the supplier?
The answer to the first question is no, it is not a scam. The whole world of traditional commerce operates on the principle of buying and reselling at a higher price. If you can convince someone to buy a product, it is more than legitimate to resell it.
And this leads us to answer the second question.
Since it’s about buying and selling online, technically, your customers could go directly to your supplier and save money. Especially the case if you just started your online store and are buying from AliExpress. But there are some considerations to make.
First of all, in order to be able to buy the product, you must be aware of its existence. It is no coincidence that the most successful dropshipping products are unique and tend to be unseen. When the average customer sees something new and desirable, he gets caught up in the shopping fever and wants to buy.
After all, the ideal price threshold for a dropshipping item is between $10 and $30 to the public. It’s the kind of purchases you make on impulse without wasting too much time doing research.
Another critical element in the equation is your online store. You always hear about sales funnels and tricks to increase conversions. The most important thing is (and always will be) the shopping experience you can guarantee your customers.
Your online shop should give your customers the impression that they can leave their worries behind for a few moments, and ease them to treat themselves to a well-deserved gift.
Most people are willing to pay a higher price to enjoy that moment. If you have ever bought from AliExpress, you know that they will never be a competitor in that sense.
Losing customers because of the price is a problem that only applies to online shops who believe in bombarding them with pop-ups as soon they land the page.
The advantage of this business model is that it allows you to launch an online store quickly and without any significant expense, even if starting from scratch.
If you already have an online shop up and running, you can test new products without investing in a warehouse that risks being unsold.
The great challenge of dropshipping is long delivery times and customer service management. In this regard, we at Sendcloud provide the tool to manage these critical issues.
To do dropshipping you need a product to sell, and the choice of the product is the heart of the whole operation.
Some products go viral and yield net revenues in the four to five zeros range, and some products will never take off.
How do you distinguish these products?
The answer is literally millions and is very variable, but there are guidelines.
- As mentioned earlier, it must not be a popular/common product. No one will buy something from you that they can buy at the local shop or on Amazon.
- It has to be a useful product. If it solves a problem and improves the lives of those who use it at a reasonable price, it could be a winning product.
- If the product is related to a hobby or passion (such as golf or DIY), you have an additional advantage. People are more willing to spend more to cultivate their interests. This also makes it easier to identify the audience during social media marketing campaigns.
Finding a promising product takes time, and there are countless ways to do it. From paying attention to advertisements on Facebook and Instagram (if someone is spending money to advertise it, it’s selling), to see what the bestsellers are on the big platforms, finding a new solution to a common problem.
When you’ve finally found a promising product, you’ll need to find a supplier.
This is a critical stage because an unreliable supplier can cause enough problems to drag you into failure.
The quickest way to start testing a product without having any contact with the dropshipping world is to switch to AliExpress.
AliExpress is a giant Chinese e-commerce site with thousands of unique sellers and products at meager prices. You can find any type of item for a vast number of categories.
One significant thing to keep in mind is that the product should not be branded. On AliExpress, there are many of them, and they can be sold freely without incurring copyright problems. If you can develop high sales volumes, you can have the product branded with your brand yourself by ordering directly from the manufacturer.
But let’s not get ahead of ourselves, we are still looking for the first supplier.
Shipping from China has the advantage of being very cheap, but it takes a long time to deliver. To contain the problem, you have to do everything in your power to avoid having any kind of issue that will further delay deliveries or make your customers dissatisfied. For example, when the supplier sends the wrong product(s).
Rely only on certified top sellers with at least two years in business. When examining a possible supplier, always check how many orders they have received, how much stock they have in inventory, and above all, read the reviews!
When you have found a seller with all the right papers, you are ready to build your shop. Before we jump into the creation, let’s take a look at what awaits you in the future if things go well.
Finally, keep in mind that AliExpress is just one of the great players you can choose from to start your dropshipping shop. Other solutions are: AliBaba, DealExtreme, BugBuy, PandaHall, DHgate, and NEDIS.
AliExpress is a great startup platform and may be okay to test a product. However, if the product is successful, and sales volumes are continually increasing, you will need to find a sales agent to scale your online store to the next level.
Sales agents are professionals who live in China and act as intermediaries for dropshippers. They work in direct contact with manufacturers and can guarantee lower merchandise prices compared to AliExpress and fewer problems in handling orders. An agent is a direct contact in the field, reduces the time to process shipments, and dramatically improves the management of any issues.
If you are still considering dropshipping and do not have an online store already started, you will need between 30 and 50 orders per day before you can turn to an agent.
How do I find a sales agent when the time comes? The easiest way is to place an ad on Upwork.
Now that we have identified a reliable product and supplier, it is time to build the shop. This puts you in front of another fundamental choice: create a single-product shop or venture out on the path of a multi-product shop.
Below we will see the advantages and disadvantages of each option. However, remember that by structuring your brand in the right way, nothing prevents a single-product store from evolving later.
A single-product store is built around a single object that is presented as the embodiment of the entire brand. It is a choice that seems limiting, but it has significant advantages and is ideal to start with.
The main advantage is the optimization of resources.
A dropshipping shop is basically a showcase to address potential buyers using targeted social media marketing campaigns.
Concentrating all the economic and creative efforts towards a single product allows you to keep marketing costs low to test all campaigns until you get the maximum efficiency. In general, you will have more accurate and better-performing content.
If the product has the potential to go viral, and the marketing is well managed, a single-product store can be scaled to over a million dollars (gross).
Unfortunately, not all products are winning, and some single-product stores are destined to have a very short life span.
The ultimate goal of a single product store is to achieve such sales volumes that allow you to make arrangements directly with the Chinese manufacturer. This grants you the ability to have your units produced with your logo and custom packaging.
Having a product with a legitimate brand exponentially increases the credibility of the store and increases conversions.
If sales continue to grow, the brand associated with the product gains value, and the option to sell it once the parable of growth begins to drop.
Second option: transformation into a brand
Another option is to expand the store with products that follow the brand philosophy and transform what began as a dropshipping store into a legitimate brand.
If the product sells well but never reaches sales volumes so high as to pursue the brand path when it stops being profitable, you can close it and move on to a new product.
A single-product shop has only one major disadvantage: it does not allow any cross-selling.
Have you ever gone to IKEA with the idea of buying two plates and two glasses and coming home with a pot, placemats, chopping board, and fantastic kitchen drawer organizers? Well, that’s the power of cross-selling, and we’ve all been victims of it. Cross-selling allows you to spend money to promote just one product and sell more related products once the customer arrives at your store.
Unfortunately, a single-product store doesn’t allow this practice. Still, the many advantages it offers in return are more than enough to compensate.
If you are starting from scratch, a single-product store is still the best choice.
A multi-product store, very intuitively, has more than one item for sale. At the dawn of dropshipping, this kind of shop was very frequent and hosted all sorts of unrelated products.
Today, opening a generalist store is not a good idea.
Let’s say that the first generation of multi-product shops didn’t particularly care to guarantee refunds, replace damaged goods, or reply to emails. Over time, a legitimate sense of distrust emerged towards this kind of shop. While in this topic, discover the guidelines for comprehensive returns management, cheap shipping, and tracking: in this way, you won’t have unhappy customers.
In 2020, a successful multi-product shop is a shop dedicated to a particular niche. Remember what I said before about hobbies and passions? Dogs, cats, reading, sewing, golf, DIY… no matter what the theme, the important thing is that it’s there.
Creating an ideal ecosystem for a specific group of individuals is a strategy that can be extremely profitable.
Consider this: having more products requires the creation of more marketing material, more complex order management, and higher starting capital.
If these are your first steps in e-commerce, it is not a good idea to launch your ship in this direction.
However, if you have the experience, a business already started, and a team of professionals supporting you, a multi-product store could be the treasure island to sail to.
The critical aspect to consider when choosing the platform is to order automation and logistics automation.
When you receive an order, you have to communicate the buyer’s data to the supplier so that they can ship it.
Drop-shipping is an activity that works on low margins and high volumes. Moreover, dropshipping is a perfect alternative to Amazon FBA for merchants. For things to run smoothly, the goal is to have dozens of orders per day. If you drop-shipped from Aliexpress and the product fits well, it will soon become unthinkable to enter them manually.
Shopify is one of the most used platforms to build dropshipping shops for two main reasons:
- It’s cheap and very easy to get started.
- There are several native applications for order automation on AliExpress.
Oberlo is the most famous, but AliExpress itself has its own free dedicated application that allows you to automatically fill orders.
Once you move from AliExpress to an agent, things change. Many agents operate through simple .CSV files to export and import, others can propose direct integrations between your site and their management system.
The best solution, however, remains – once the online store is created – to rely on Sendcloud to automate the entire logistics process. You can automatically print waybills, perform tracking, manage returns, make international shipments, and have visibility on customs forms, HS codes, and commercial invoices.
Surely now, you’re wondering: what are the alternatives to dropshipping? Let’s take a look…
If the option of a single product or niche shop is not for you, there is no reason to throw in the towel. Keep your gloves on tight and stay in the ring, because there are many other options.
The first alternative is a direct derivative of product resale, but with a twist of creativity. Create a completely new product by grouping together different products.
This works very well in the hobby sector.
For example, instead of creating a do-it-yourself shop, you can design a project and sell it as a complete package with all the materials needed to make it and any specific tools.
It is a strategy that requires creativity and practical knowledge of the sector, but it is a very effective way of creating added value.
A simpler strategy is to create closely related product packages, such as a school kit complete with a backpack, case, diary, pencils, and so on.
This combines the best of both worlds of product resale: focused marketing and cross-selling.
The only problem is that of supplier management. It is advisable to design your own “package” around products sold by the same seller; in this way, all the components will be shipped together and received by the customer at the same time.
In addition to ensuring a better shopping experience for your customers, you will save yourself a mountain of customer service management problems.
Okay, so far I’ve talked about pure speculation, buy cheap and sell for a lot (Wall Street style). But dropshipping also allows you to create value in a more artistic way, for example, with print on demand.
A print on demand shop not only requires marketing skills and the search for reliable suppliers. It also includes the creation of original designs to be printed on t-shirts, sweatshirts, mugs, glasses, posters, and any other “printable” item you want to market.
You can create the designs yourself (if you have the artistic inclination) or pay a freelancer. So far, it’s nothing different than a regular t-shirt shop. The exciting part is that since it’s dropshipping there’s still no need to have a warehouse.
In the case of t-shirts, it’s a massive advantage because it eliminates the problem of stocking unusual sizes.
And that’s where the suppliers come in.
Those involved in print on demand specialize in real-time printing of the required materials and efficiently manage shipments around the world.
The variables to take into account are the quality of the base material (such as the cut and type of fabric of the T-shirts supplied), the quality of the print, and shipment speed.
Since prices are low and delivery times tend to be fast, you should test and find the supplier who can guarantee the best results with the least compromise.
Always remember that the clothing industry is extremely competitive. In addition to offering unique and original designs, quality is a crucial component that cannot be overlooked for any reason.
Let’s assume that managing complicated international communications and trying to solve supply problems is not your ideal dream? Does it mean that you have to give up dropshipping?
An interesting option is to create an online store that is the extension of a local live shop.
Many businesses that could benefit from an online presence do not have one. Maybe it’s for lack of initiative, knowledge, or perhaps for some other goal. Whatever their reasons, it’s an opportunity you can take advantage of.
Finding a partner will be less immediate than going to AliExpress and choosing which product to sell. Still, the benefit is that you will have a partner with whom you can share risks and direct contact for customer support management.
Whatever variant of dropshipping you decide to use, there is always one thing that remains unchanged: the dropshipper is basically a marketer, and the bulk of the job is to sell the product.
This means becoming an expert in social media marketing.
Instagram and Facebook have completely changed the way we do online marketing. Through their platform, you can target the most suitable audience for the type of product you want to sell with extreme precision.
Let’s see how.
Instagram is one of the hottest socials right now. One billion users, 500 million of whom post daily.
Translated in practical terms, it means a lot of potential customers.
With such a large user base, it would seem complicated to find the right buyers. Fortunately, there are thematic pages.
There’s a page for everything on Instagram. The spectrum of interests varies from expectant mothers to the best way to weld titanium.
All you need to do is identify high engagement pages related to the product, create the posts to advertise it, and get in touch with the page manager.
A 24-hour advertising post on a thematic page can cost between $20 and $80 (depending on page traffic and niche saturation). Still, you can total thousands of views and large volumes of traffic in a short time and with little expense.
This will allow you to give a lot of preliminary data to Facebook’s Pixel.
What is Facebook Pixel?
The Facebook Pixel is the magical beating heart of every dropshipping operation and the key resource to scale your business.
Facebook is where things get serious.
With Facebook’s Business Manager, you have access to the ultimate marketing platform to create targeted campaigns.
Here’s how it works: Facebook has 2.5 billion users and knows a lot about each of them. It knows where they live, what interests they have, the extent of their family, what kind of devices they connect to, what kind of income they have, what type of content they click on, and so on.
I know it’s a little creepy, but if you have a nose for business and want to sell something, it’s an unprecedented opportunity!
I mentioned the Facebook pixel earlier. The pixel is nothing more than a string of code to install on your store that records incoming traffic and cross-references it with Facebook databases.
Pixel allows you to distill your buyer’s ideal profile and, above all, show your marketing content to people with a similar profile.
This is crucial because launching campaigns on Facebook can become extremely expensive, and concentrating the focus only on those who are more inclined to buy allows you to keep your return margins high.
To work best, the pixel needs data. The more traffic it receives, the more data it has to process, the better it can optimize your campaigns.
The best part about Facebook campaigns is that when the product works, it can be increased exponentially. Just raise your daily budget.
To scale a campaign, it’s critical to make sure your provider can keep up with the surge in demand. You need to have enough cash to keep the campaign running and buy products to ship while customer payments are processed by banks.
Finally, dropshipping is not a scam or a way to make easy money. It is a legitimate business model that allows you to manage an e-commerce business without keeping a warehouse. All with focusing just on marketing and supplier management.
Like any other business requires research, effort, and a few sleepless nights.
The significant advantage is that with the right determination and minimal start-up capital, you can create a profitable business and set yourself on the road to becoming a digital entrepreneur.
As in all activities, relying on worthy partners is always the starting point. For shipping and logistics, we at Sendcloud help more than 16,000 customers across Europe (including many dropshipping e-commerce).
With Sendcloud, the merchant no longer has to worry about the after-sales part – as it is fully automated. But to see how it works, take a look at this very short video…
Do you like Sendcloud and want to know more? Try Sendcloud for FREE or ask for one of our experts and organize a Sendcloud demo to explore all the features!