Are you ready to monetize, or looking for alternative methods of monetizing online?
There’s a huge volume of advice to wade through out there, from white labeling your own products to affiliate marketing to many other tactics. Not all the suggestions out there are going to work for you, but we’re here to make the case for dropshipping.
You may have heard all sorts of claims as to how dropshipping works to make people “rich,” but we’re going to give it to you straight. Yes, you can make good, even great money from dropshipping. No, it’s not a strategy to “get rich quick” (and we suggest you run from anyone who claims that).
Dropshipping is where you sell products on your website or social channels, but a supplier stores the product, fulfills your orders, and ships them out. It takes care of some of the common headaches of ecommerce, while allowing you to make an income.
Here’s why it’s worth considering for anyone who has a strong online presence:
How does dropshipping work?
In a nutshell, you, the seller, sell products that you don’t have to keep on-hand in inventory. When a customer arrives on your website or via your social media profile, it looks as you’d expect in any other ecommerce store. They shop your store, add items to a cart and check out on your site.
The huge difference is that once the customer has completed checkout, you’re not doing the work behind the scenes to pick, pack and ship orders. You send that order to a third party supplier, such as the manufacturer, a wholesaler, or another retailer for fulfillment.
As the retailer, you’re the “face” of the operation. The customer doesn’t see what’s happening behind the scenes to ship out their order, and with checkout still on your site, they won’t usually know any difference unless you tell them.
How do you make money from dropshipping?
The terms will often vary between different suppliers, but as a general rule, you make money from dropshipping by collecting the difference between the wholesale price and the retail price at which the product is sold to the customer.
Sounds simple enough? Mostly, it is, however, there are still costs you have to cover in following this strategy. For example, you can’t sell products if you don’t have an audience to sell them to, so that’s on you. Marketing costs should be factored in when you consider pricing and margins.
The pros and cons of dropshipping
It’s important to weigh up whether dropshipping is a good choice for your business. Here are some relative pros and cons:
Dropshipping: The pros
You don’t need a huge amount of capital to get started. Traditional ecommerce retailers have large amounts of money tied up in inventory, which is a risk as well as a barrier to entry. With dropshipping, your costs lie in setting up your chosen platform and any marketing you do.
It’s easy to get started. Managing inventory can take up a huge amount of time for traditional ecommerce store owners. You need to source it, negotiate pricing, ship it, store it and forecast your inventory needs. When someone orders, you need to pick, pack, and ship. None of this is necessary with dropshipping, giving you an easier path to get started.
Your overheads are low. It costs money to warehouse inventory, and to order it in the first place. Dropshipping offers you the opportunity to avoid those costs and keep significantly lower overheads. In fact, you can follow a dropshipping strategy using your home office as your base.
You can choose from an array of products. Most traditional ecommerce retailers are limited on inventory based on pricing and their own budgets. As a dropshipper, you can choose from a wide range of products without worrying about capital outlay. (Although we will say, you should still be picky about your product catalog!)
You’re not tied to a location. If you enjoy the freedom to travel, or prefer to base yourself in a remote mountain cabin, those are options that may be open to you with dropshipping. All you need is the ability to communicate with suppliers and customers.
You can scale up more easily. Let’s say you get a huge volume of orders: if you were a traditional retailer holding inventory, you might find you can’t cope with the influx and your fulfillment is delayed. When you use drop shipping partners, you can leverage their ability to process additional orders (it’s always good to have a conversation about their ability to deal with a higher volume of orders).
You can test out new product ideas more easily. If you have ideas about new directions you’d like to go with products, dropshipping can offer you a relatively low-risk way to test out the appetite of your customers. You can add new products to your catalog and if they don’t sell, remove them whenever you like. No trying to sell off inventory at a heavy mark-down.
Dropshipping: The cons
Lower margins. Arguably, the primary con of dropshipping is that you as a seller receive lower margins on product sales than you otherwise would as a traditional ecommerce store.
In some cases, particularly if you’ve gone through a dropshipping marketplace, you might find that other retailers also enjoy the low barrier to entry and are prepared to accept even lower margins to compete. In this sense, it can become a race to the bottom, which is never ideal.
On the other hand, if you find the right products and supplier relationships, you may not have many competitors at all. You may find you prefer to accept the lower margins of dropshipping over the additional stress of inventory management.
Potential complexities with shipping. Let’s say you have a few different suppliers for various products in your store. The customer purchases different products in one transaction and each is shipped by a different supplier. You will be responsible for each separate shipping charge, but you can’t really pass this onto the customer as they will more than likely abandon their order rather than pay out on extra shipping. There’s also the potential for the customer to have a different experience in receiving each different item from their order. You don’t control the supply chain, so this limits your ability to provide a consistent experience in cases like this.
You don’t control the product. You can (and should) do due diligence to check out whether products meet the standards you’d like for your own store. However, you don’t have control over things like the manufacturer’s choice to change out parts or design in some way. You also may be limited in terms of customizations, or not have that option at all.
It’s your reputation. If there are any supplier errors or quality issues, it’s your reputation on the line as the “face” of the store. Sometimes orders are incorrect or product is damaged, and you will need to take responsibility for it yourself.
Practical ways to use dropshipping
Here are a few common dropshipping scenarios:
Traditional ecommerce retailers can use dropshipping to experiment with their product catalogs. For example, if you’d like to know whether a new product will sell, starting out by dropshipping it minimizes your inventory risk.
Bloggers and social media influencers can monetize their platforms. Find products that are a good match for your brand and dropship them for a low barrier to entry into ecommerce.
Experiment with print or manufacture on demand. There are some dropshipping options for this, for example for t-shirts and other merchandise.
Media brands can monetize. If you run a popular cooking show, you might monetize by dropshipping high quality kitchen equipment.
Dropshipping, when set up well, represents a lower-risk, low barrier to entry strategy for monetizing an online platform. It can also be an inexpensive, helpful way for current ecommerce sellers to experiment with new product lines.
With that said, dropshipping only solves for having a product to sell. You’ve still got to have a platform on which to sell it and an audience to sell it to. The audience piece can be the most challenging part! It is by no means a fast road to riches, so ignore anyone claiming that it is.
For anyone thinking of giving dropshipping a try, there are many positives that make it an attractive option. Consider what products make sense for your brand and who might be a supplier. Look out for future articles from us on how to find the right suppliers for your business.
With over 2,400 apps available in the Slack App Directory.