The dropshipping business model has become increasingly popular in recent years as a simplified way to break into the e-commerce market. If you’re interested in expanding your product selection without the added cost of maintaining extra inventory yourself, it may be worthwhile to explore dropshipping.
- What is dropshipping?
- Benefits of dropshipping
- Challenges of dropshipping
- What tools do you need to start dropshipping?
- The future of dropshipping
What is dropshipping?
Dropshipping is an e-commerce business model in which the seller does not maintain their own inventory. Instead of keeping products in stock in their own physical workspace and mailing them out to customers, retailers fulfill orders through a third-party wholesaler or manufacturer.
The retailer is responsible for advertising the products and managing customer relationships, and the dropshipping supplier is responsible for maintaining the inventory and sending orders in a timely manner. The customer may or may not be aware that the retailer has outsourced logistics and fulfillment.
Benefits of dropshipping
Dropshipping is becoming incredibly popular among small business owners, and for good reason. Dropshipping comes with some major benefits, including:
- Lower start-up costs. One of the largest e-commerce start-up expenses is inventory management. Dropshipping circumvents this, thus requiring a much smaller initial investment.
- Ability to offer a larger variety of products. You can add a wide variety of products to your online store without worrying about minimum purchasing requirements for inventory or the fear of being stuck with a bunch of excess product if a new item doesn’t sell.
- Scalability. Many small business owners struggle if their store suddenly goes viral on TikTok or they are met with a big increase in demand for a particular product. Retailers can grow their business more rapidly with dropshipping because they don’t need to worry about having the space, inventory, or labor available to pack a big rush of orders.
Challenges of dropshipping
While there are a lot of benefits, there are some challenges that you can expect to encounter when introducing dropshipping for your business. Some of the biggest challenges that you need to be aware of are:
- Higher competition. You may find that several other e-commerce retailers are selling the same dropship products as you. This means that you will have to work harder on branding as you won’t be able to compete through product differentiation.
- Lower margins. Because other retailers will be offering the same products, and customers may even be able to find the product on wholesale websites if you’re using a major one like Alibaba or AliExpress, you’re likely not going to have much success putting high markups on your products.
- Potentially negative perception. Dropshipping is a legitimate business practice, but there’s a chance you may be viewed less favorably by consumers since you’re not designing or creating an original product. Dropshipping tends to get a bad reputation from consumers.
- Less control over shipping and inventory. You’ll save a lot of money by offloading much of the product and fulfillment responsibilities to a third-party. However, that also means that you’ll have less control over shipping delays, product quality issues, and other factors that can lead to customer dissatisfaction.
What tools do you need to start dropshipping?
The most important things you need before you can implement dropshipping are a supplier, an e-commerce platform, and marketing tools.
Finding a supplier to partner with is important, as they are the ones that will be in charge of product manufacturing and fulfillment. Many retailers work with multiple suppliers in order to offer a wider range of products. Some use wholesaler directory platforms like Wholesale Central to connect with a variety of suppliers and source dropshipping products.
AliExpress is one of the most popular dropshipping suppliers. It is the sister company to wholesale seller Alibaba. While Alibaba is frequently used for bulk supply orders and private labeling, AliExpress has no minimum order quantity so it’s ideal for dropshipping. They also offer products at incredibly affordable prices.
The one drawback of using AliExpress is that it is based in China, which means shipping times can be lengthier if you plan to primarily market to US-based customers. Many wholesalers are based overseas and require more time for international shipping, so be aware of this when choosing a supplier. Many of the internal options are more affordable and have vast product catalogs, so they are great options.
Some retailers prefer using US-based suppliers to leverage fast shipping as a competitive advantage since many consumers have come to expect shorter shipping times. There are suppliers such as Sunrise Wholesale that are US-based and offer faster fulfillment options.
Check out our list of the top wholesale suppliers for small businesses to explore more wholesale supplier options.
Read more: Top Wholesale Suppliers for Small Business
An e-commerce platform
You’ll need a website and e-commerce platform to display products and process orders online. Two of the most popular e-commerce platforms are Shopify and WooCommerce.
WooCommerce is an e-commerce plug-in for WordPress, which is one of the most popular website builders. With WooCommerce, you’ll only get access to the tools you need to create an online store—you’ll need to look elsewhere for web design and hosting capabilities.
Shopify is a popular option for small retailers, as it offers a variety of social commerce tools. Since businesses that use a dropshipping model gain a lot of their traffic through social media advertising, they are likely to find these tools helpful.
Read more: Best E-Commerce Platforms for Small Business
Marketing is a key strategy for running a dropshipping business. Other e-commerce stores may sell many of the same products as your store, so you need to build a strong online presence to make sure consumers buy those products from your store rather than your competitors. The success of your business will come down to how you brand yourself and market your products. There are several marketing tools that can make this task more effective.
First, you’ll want to choose a customer relationship management (CRM) system and an email marketing tool. You’ll need a system that can store your customer’s information and facilitate ongoing email outreach. This will help you stay in touch with your customers and encourage repeat orders. Some of the top options that combine CRM and email functionality are HubSpot, Mailchimp, Salesforce, and Zoho CRM.
Since most retailers in the dropshipping market rely heavily on social media marketing, it can also help to use social media management software to organize and schedule your posts and track content performance. Some options to consider are Buffer and Hootsuite.
Lastly, you’ll want to look into search engine optimization (SEO) tools. SEO can help your product listings appear higher in search results for customers who are already searching for related products. SEO tools such as Ahrefs, Google Search Console, and SEMRush provide insight around keywords, linking opportunities, and other elements that will optimize your website.
The future of dropshipping
Dropshipping is a rapidly growing strategy for online businesses. The global dropshipping market is currently forecasted to grow at a compound annual growth rate (CAGR) of more than 27 percent from 2021 to 2027.
In simple terms, this means that the market is still expanding at a very fast rate and is expected to do so for at least another five years. While the business model may not be right for all business owners, it can be a good option for people looking to break into the e-commerce space without incurring a lot of startup costs.
Read next: 5 Small Business E-Commerce Trends for 2022