Making money online can take many different guises. A lot of the time you’re taught to focus on digital products such as e-books, training, and software.
The idea behind this is that it’s not only easy, but the overheads and risks are generally quite low, with high margins.
That’s all well and good, but the amount of physical products out there is immense meaning you can easily find a niche that most internet marketers aren’t focused on.
The problem with physical goods is the cost, from buying them and storing them, as well as the risk of having your money tied up in products. Not only that, the margin on physical goods is much smaller due to the actual cost of making each individual item (that’s why Amazons commissions are all under 10% whereas a digital product can offer a commission of 100%).
What if I told you there was a balance between the two, an option that provides the variety of physical goods along with reduced risk and decent margins, would you be keen?
I’ll bet, and luckily there is an option: dropshipping.
What is Dropshipping?
The basic process behind dropshipping is simple:
- The customer places an order
- The dropshipper places the order with the supplier
- The supplier ships the product
Obviously that’s a simplification of the process, but if everything goes according to plan it really is that simple.
Orders can come in from a variety of sources, depending on how you are promoting the products.
The most common method these days is to set up a web store and sell the products that way. This has the advantages of being relatively low on overheads, being accessible worldwide and being easily maintained and modified.
Other options include:
- Auction sites like eBay
- A physical store (really!)
- Advertising in magazines and newspapers
As a dropshipper you will have set up an account with a wholesaler (the supplier) who will provide the products. Depending on the set up, your system will either automatically contact the supplier on order, or you can manually email them.
Once they get the order they will pick, pack and ship the product to the customer. Your details will go on the shipping document, and returns will generally go to a PO Box run by the supplier.
What this means is that the supplier is effectively invisible: your business is the face of the operations.
What are the benefits of Dropshipping?
Because dropshipping is a fine line between a brick and mortar business and a digital one, there are many benefits to running a dropshipping business.
Setting up a dropshipping business is remarkably easy nowadays. There are tons of services out there that can have you up and running in no time.
You can start dropshipping with any ecommerce system like Shopify for example. Most decent ecommerce platforms have addons that can connect for you. Oberlo works for Shopify, and makes it super simple to get started.
If you’re more into WordPress, Woocommerce has multiple third-party extensions that can help you set up your dropping business. Aliexpress, a huge player in this market, even has its own Woocommerce extension.
Less Capital Required
You can get started in dropshipping with very little. According to one Reddit thread, one partnership started off with just a few hundred dollars and within 15 months had made $3 million per year in sales and sold the business for profit.
With higher capital you can hit the ground running of course, but there is nothing to stop you getting started with very little in the bank.
As well as needing little initial investment, the overheads are really low. If you’re selling online and happy to do most of the work yourself, you costs can be as little as the hosting, domain, WordPress theme and a few plugins.
If you have a laptop and a decent internet connection you can literally make money from anywhere!
With no physical stock you can run the business while traveling the world, or slouching on your couch. The choice is yours!
If done right dropshipping is highly scalable. The main costs and difficulties lie in finding the right target audience, but once that is found and maintained, scaling is as simple as adding more to your advertising budget.
Surely there are downsides?
Dropshipping is far from perfect, but what business is?
As such there are several issues that you need to take into account before getting started.
One of the biggest issues with dropshipping is suddenly having a problem with stock. This can happen from time to time as the supplier runs out, but depending on the supplier it could happen more frequently.
Not only that but some suppliers are less communicative than others.
This means that if you have a large number of orders in place and the supplier is simply waiting on more without telling you, you could have a major customer service headache on your hands as well as a raft of refunds.
If you are using more than one supplier on your site, then you may have to juggle the suppliers a little and face additional costs.
For example, if a customer buys 3 items from your store and each of those items is from a different supplier, not only will the customer receive all three items separately, there will be 3 sets of shipping charges, which in all fairness you can’t pass onto the customer, thus reducing your margin of profit.
Lack of control
This will be a big problem if you have control issues. The fact that you’re basically just a middle man means that you have to put a lot of faith in the wholesaler and if they let you down for any reason, it affects your business not theirs.
Even though dropshipping offloads a lot of the hassle and work associated with selling physical products, you will end up handling all the customer service and complaints, even when the problem is out of your control or due to the supplier.
If the packaging is poor, the product is damaged, the shipping is delayed or any other issue, it falls squarely into your lap.
Costs can be higher
If you buy in bulk and store the goods, your costs will be lower compared to dropshipping the products. Of course buying in bulk has its own issues.
Can you make money with dropshipping?
Yes! Absolutely you can. The key comes down to picking the right products and finding the right target market.
You set the prices on the products being sold. For example, a necklace might cost $5 from the supplier, but you could sell it for $10, or $20 or more.
Of course, you want to price fairly based on product quality, and competitively as well.
Still, because you can set the price you can tune it to find a balance between sales and profit.
The main reason you will hear that some dropshipper’s fail is down to a simple metric: ROI or Return on Investment.
If you invest $1,000 in advertising, you need to know that you will make more than that $1,000 plus the supplier costs, in sales.
Failure to do that will incur a loss, but with planning and investing some money in finding the right market you can make a solid profit.
That this screenshot for example:
This is from a dropshipping store that is very new. It is selling 8 products and has posted once on Facebook.
That’s $1,500 profit in about a month.
What this doesn’t show is that there was around $1,000 spent in testing Facebook adverts to find a buying market. Still, for a new store to make a profit in the first month just goes to show the potential in dropshipping.
If you’re unsure where to find a dropshipping wholesaler, you can check out the following:
- Worldwide Brands
- Wholesale Central
- Inventory Source
- Smart Living Company
- Dropship Direct
- Sunrise Wholesale
- Wholesale 2b
When starting out in dropshipping you will make mistakes; that’s how we learn and grow.
However, you don’t have to make every mistake!
Here are some tips to keep in mind:
Buy the products you’re selling before you sell them
With wholesale prices being so low, it’s a good investment to buy the products first yourself in order to gauge quality.
This enables you to not only decide whether to sell the product, but also will help you decide on the right price to sell it at.
Other bonuses of this are being able to provide an actual review of the product, enable you to take close up and odd angle photos, and even do an unboxing of the product (product dependant). These are all excellent marketing tools.
If a wholesaler is wanting to you to pay a monthly fee to use their services, look elsewhere! Seriously, unless they are the only ones supplying a product that you must have, there are plenty of suppliers out there that will dropship without a monthly or membership fee.
However you can do this do it! The last thing you need to do is sell 500 items only to find out the supplier has 3 and it will be 8 weeks before the next shipment comes in.
Have more than one supplier
Not only can multiple suppliers help provide a broader stock range; they can also help if one supplier runs out of stock.
Price isn’t everything
Competing on price is usually a fool’s errand, so look for other methods to provide value.
- Product knowledge
- Customer service
- Bulk discounts and package deals
- Free shipping
Make sure your customer service is impeccable
A lot of factors in the dropshipping business are out of your hands, so having superb customer service is very important. It will help you to smooth over delivery and quality issues, and keep your brand name reputable.
Personally, if a company has an issue and their customer service does everything they can to resolve it, I’m much more likely to buy from them again, and a large amount of people feel the same way.
The Bottom Line
Dropshipping is only one of many ways to make money online, but it has a lot of advantages compared with affiliate marketing, and selling your own products.
The services behind dropshipping are mature and are making millions daily, so why not give this unique business method a go!