The E-commerce business model has seen a boom for the past year, with data showing a 44 rise in money spent doing online shopping in the US, a total of $861.12 billion, on a year-to-year basis. The rise in online shopping has in part due to concerns about the covid-19 pandemic and lockdowns, which drove people to e-commerce as their primary source of retailing shopping.
The meteoric rise of the E-commerce industry has also given rise to a new class of entrepreneurs who do dropshipping to sell products to their potential clients.
What is dropshipping?
Dropshipping is a business model that allows entrepreneurs to sell products online without ever actually stocking the items themselves. The online business model is a retail fulfillment method, where, instead of stocking the products on their store, entrepreneurs use third-party suppliers to fill orders for their clients.
During the entire process of dropshipping, an online store is not involved in the handling of the products. When a potential buyer orders a product through an online dropshipping store, the store purchases the product from a third-party supplier and has it shipped directly to their customer.
The biggest difference between the standard retail model and the dropshipping business model is that, in dropshipping, the selling merchants do not stock or own inventory. Instead, they rely on third-party suppliers for all purchases made on their online store to fill orders.
Benefits of dropshipping
Competing with online giants such as Amazon and Alibaba is almost impossible, and for online entrepreneurs looking to get a slice of the E-commerce business, dropshipping has come in handy. With dropshipping, entrepreneurs are able to test different business ideas with little to no downside while allowing them to earn while coming up with a concrete business plan. Here are some of the reasons entrepreneurs get into dropshipping business.
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Easy to start
To start your own dropshipping business, you do not need prior experience in running a business. This means that anyone can start their own dropshipping store at a moment’s notice with a lot of overhead costs associated with retail business, such as having a warehouse to store your products.
The amount of time spent on dropshipping also does not need to be full-time, and a lot of people are able to run their store as a side hustle. This is because the whole dropshipping process can be automated, especially after it catches on, and you know have the full picture of your online store. -
Less capital is required
To start a dropshipping business, you are not required to have a warehouse or an inventory of the stock on your site. With dropshipping, you don’t have to purchase a product unless you are certain that it is in demand and a customer is waiting for it to be shipped.
Without significant upfront investment, it makes it easy for anyone with little money to get started in the profitable business of E-commerce. The business model is also less risky because you are not required to keep an inventory of products. -
Easier to scale
Traditional retail stores are not well adapted to a spike in demand. However, for dropshipping sites, a spike in the number of orders can easily be met through coordination with third-party suppliers.
Dropshippers are also very flexible, making it easy for them to have alternatives for products that have run out of stock. This scalability is why over 30 percent of all Amazon orders are fulling by dropshippers. -
Dropshipping is flexible
Dropshipping business is one of the most flexible models that an entrepreneur can take. It takes the idea of being your own boss to a new level, where entrepreneurs can work from home with only a laptop and chose the time they want to work that is convenient to them.
The decisions about what products to sell in your store are also flexible because they can have more than one supplier. -
Easier to test
Online businesses with their own inventory can also hop in dropshipping to test how customers are excited about a given product. For instance, they can start an accessories dropshipping category to test if the products are marketable to their clients. In case there is demand for the products, they can then fill their inventory at zero risks.
Capital needed to start a dropshipping business
One of the biggest deterrents for great business ideas is the lack of capital. However, dropshipping makes it easy for entrepreneurs to start with virtually no capital and be able to build their brands through hard work and capital. Here is a look at what you need to get you started in dropshipping.
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An online store: This is your actual site where your potential clients will be able to find your dropshipping products, place them in carts and order them. Your online store should also be able to schedule the orders and ship them. For a good hosted dropshipping store such as Shopify, you will part ways with a few dollars per month. You can also look for a custom online store by hiring a web developer to do your store.
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Domain name: It is hard to build a brand online without your own domain name. The total cost of a domain name will cost you between $5 and $20.
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Hosting services: If you decide to do self-hosting for your online store, you will also need to purchase web server space or a cloud-based service.
How will your dropshipping make money?
As a dropshipping entrepreneur, all the marketing costs are incurred by you. The cost of customer acquisition, providing customer support and in case of shipping issue, the cost involved is also incurred by you.
To make money as a dropshipper, you need to calculate all your expenses to determine how you will price your products. Dropshipping business is a product curator, and hence it is able to run on large economies of scale.
Hence as an entrepreneur, your pricing should have the cost of customer acquisition in order to turn a profit. The good news is, once it catches, many dropshippers report making good returns from their dropshipping businesses.
Looking to get started with dropshipping and you don’t know where to begin, contact us today for a free consultation to get your dropshipping business going!
