Dropshipping 101: Everything You Need to Know about This Disruptive E-Commerce Business Model

07 December 2017 4820

For the first time in retail business history, Black Friday no longer means crowded malls. Why? Because e-commerce has reached its critical mass, is getting mainstream, and more people prefer purchasing online than browsing the malls. For entrepreneurs and those with an entrepreneurial spirit, it's great news, as now is a good time to plunge into online retailing. 


In this article, written by Jenifer Xue, Digital Strategist at Oberlo - our honored partner and a trusted tool for running dropshipping stores, we will discuss what dropshipping as well as its pros and cons. what dropshipping is and its advantages and disadvantages. Also, we'll have an FAQ session answering popular questions.


Selling online requires more than a well-designed website. You'll be faced with numerous business issues. To begin with,  you need to solve the first problem: Looking for suppliers. 


Of course, if you manufacture the products by yourself, sourcing products isn't a problem. However, most likely, you wouldn't be creating your own products, as it would require considerable financial investments, advanced technical skills, and tremendous working capacity.  


If you're like most people, most likely you have a limited amount of capital and wish to earn profits rather quickly. For this, there is one plausible option: Dropshipping.


1. What is Dropshipping?

Dropshipping is an e-commerce business model, where the online retailer acts as an intermediary between suppliers and buyers. This business model further eliminates the need for warehousing. It, for sure, doesn't require a production plant to manufacture your own products.


As an online retailer, your main task is ensuring the customers receive their orders. You'll only buy the ordered product from the supplier after the customer submits their order. This would eliminate the need for stocking inventory and warehousing.


Also, the shipment processing part will be done by the supplier. The marketing part of the online retail store, however, is your responsibility.

2. Advantages

Let's discuss dropshipping advantages.


1. The absence of costs associated with the production of goods. 

Of course, any commodity production process requires considerable financial investments. To hire employees, buy materials and equipment, as well as rent or buy a production facility, you need quite a lot of money, to begin with. Dropshipping is, thus, suitable for those with limited finances or time and other resources necessary for manufacturing.


2. The absence of the need to store goods. 

The next problem a manufacturer faces is the need to buy or rent and equip warehouses. With dropshipping, this problem is eliminated by itself. The storage requirement falls onto the suppliers.


3. The absence of the need to make large prepayments. 

Dropshipping aims at retail sales. You wouldn't be required to make any advance payment related to the total contractual amount, which is typical for wholesale buyers. You only purchase the specific products that the customers have ordered through your website. Thus, you only pay what the customer has bought.


4. The absence of the need to deal with customs clearing and local certification, in the case of imported goods. 

This responsibility falls onto the local representatives or distributors of the original manufacturer. As the owner of an online dropshipping retailer, you don't need to worry about this.


5. Less time to deploy a business. 

You can start an online retail business with dropshipping right away. It only takes a few minutes to start an online store with Shopify and connect it with Oberlo dropshipping app, both of which can be started for free. You can use the remaining capital for marketing activities.


6. The simplicity of preparing content for your site. 

With the dropshipping model, you can easily upload product images and specifications in a few minutes, especially if you use Oberlo dropshipping app. The images and specs will be provided by the suppliers of the products, so you can focus on finding new customers and marketing, instead of worrying about how your site would look like.

3. Disadvantages

Now let's discuss the main drawbacks of dropshipping.


1. High competition. 

The main drawback of dropshipping is the possible high competition. The barrier to entry with this business model is so low that almost anyone can do it. Therefore, if you decide to enter the market, you'll need to find products and ways to market them that don't have many competitors.


2. You are not the owner of the sold products. 

With the dropshipping model, it means that your business doesn't carry any significant material value. All that you have is a well-organized supply chain of goods. 


3. Lack of quality control. 

When buying goods from a supplier or manufacturer, you can't test the manufacturer’s quality assurance department. For example, you are unlikely to submit individual samples of cosmetics for biochemical analysis. 


4. The possibility of complication with deliveries. 

Dropshipping business owners don't have the full control over the logistics. You can, however, influence the supplier to take good care of your customers' orders. With good relationship with suppliers, you should be able to communicate and work together in solving issues.


5. The possibility of copyright infringements.

Almost all manufacturers sell their licensed goods only through official partners. If you partner up with a side reseller on licensed products or what you thought to be licensed products, you may face a copyright infringement lawsuit. Thus, we recommend contacting official trademark representatives, to be on the safe side.


6. Costs associated with refunds. 

If your customer decides to return the goods, you will have to refund the payment to the customer. Also, you'll need to pay the delivery to the supplier or manufacturer. In some cases, the cost of shipping may exceed the cost of the goods themselves. Thus, it's quite possible that you will have to store them at your own expense.

4. FAQs 

In this section, we'll discuss the frequently asked questions related to dropshipping.


1. How to find the best products.

Finding the most appropriate products to sell may require some experimenting. Selling hugely popular items may seem natural, but the competition can be a bit too much. If you already know your niche and have access to the captive market, it's ideal. If not, you can start with products available through Oberlo app. These suppliers have been vetted by Oberlo, so it gives you an extra peace of mind.


2. How to add value to customers.

The most successful dropshipping stores know and understand their customers more than their competitors. While excellent customer service is a must, create value with creatively, such as posting reviews, tutorial videos, testimonials from satisfied customers. If you sell photogenic products, you can have a specific page in your store dedicated to customers' photos. The key is being creative, interactive, and communicative.


3. How to manage product listings.

Managing product listings with Oberlo dropshipping app is simple. You can click-and-upload multiple (up to hundreds of) product images and specifications. In the case of price changes, the app will automatically update the prices on your site.


For profit margin mark-ups, you can choose the global formula, which is manageable automatically through Oberlo dashboard. If you prefer to add profit margin one product at a time, you can do so as well. 


4. What the common mistakes in dropshipping are.

Dropshipping comes with a low barrier to entry, which means anyone can start an online store immediately. This translates to many common errors, most of them are related to product choices and marketing strategies. If you choose commonly available and extremely popular products, most likely there are tons of competitors out there. 


If you choose the wrong marketing avenues, such as PPC (pay-per-click), you might end up paying too much for advertising with minimal ROI (return on investment). The key is to dig deep into product choices, ensuring it's a strong niche with less competition and you place ads where people tend to purchase based on impulse (impulse buying). 


5. Whether or not to use AliExpress for supplier sourcing.

AliExpress is a popular dropshipping product sourcing destination, and most suppliers have already worked with drop shippers. Thus, most of them already know how dropshipping works. 


In Oberlo app, AliExpress is already built in, so you can choose and upload product images and specifications with a few clicks. Also, the Oberlo's pre-vetted AliExpress suppliers feature provides you with an extra convenience and peace of mind. 

5. Takeaways

In conclusion, since e-commerce business, in general, has reached a critical mass and more businesses and individuals are considering selling online, dropshipping is gaining momentum.


Considering dropshipping comes with many advantages, including low startup capital, non-existent stock inventory, non-existent warehousing, non-existent shipping and delivery hassle, and overall convenience to the business owner, this business model is likely to stay.


The key to dropshipping online retailer's success is the right product choices and appropriate marketing channels that focus on impulse buying. For some inspiration, check out these success stories. You'll be pumped up to start a dropshipping online store right away.

Jennifer Xue

Jennifer Xue is an award-winning author, columnist, and serial entrepreneur based in Northern California. She works as a digital strategist for Oberlo.com and blogs at JenniferXue.com. Her works have been published in Forbes, Fortune, Esquire, Cosmopolitan, Business.com, Business2Community, Good Men Project, Addicted2Success, and others.

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