Dropshipping: What is it? How does it work?


What is dropshipping and how does it work? Perhaps you have already heard about this particular activity, which is in effect a new form of digital entrepreneurship, linked to web marketing, and specifically to e-commerce. But what is it in a nutshell? Does its definition exist?

Broadly speaking, we can say that dropshipping is the online sale of a product that you do not own. It’s strange to say, but that’s right. Now let’s try to understand better and, above all, let’s try to understand how to start. We will see that it is essential to choose the right products and, before that, to evaluate the budget to invest in the business (by calculating costs and revenues, to accurately forecast margins).

The definition of dropshipping

We have already said that doing dropshipping means selling specific products on the web to a specific target of customers, without having those products in stock, that is, in stock. The principle of operation of this type of online business is simple …

  • First of all, you need to open an e-commerce (typically with platforms that provide low-cost service, such as Shopify, WooCommerce, Wix, PrestaShop and other platforms suitable for the purpose).
  • Then you have to look for products on AliEpress or Alibaba (you can for example help yourself with a plugin like Oberlo, which helps you to import all the data of the product that, in your opinion, can be successful and make sales in your e-commerce. Just one click to Oberlo to import all the images and all the data of the single product into your online shopping).
  • Then you have to bring your customers to your dropshipping e-commerce. (Customers obviously do not know that you have no warehouse, that is, they do not know that you are simply a collector of orders that will be sent by others, that is, by those who have the physical availability of those products or are even the manufacturer).
  • Whenever a potential customer makes an order to you, you in turn make the order to the supplier, telling him to send the goods directly to your customer that is to the final customer. Keep reading http://www.webmagazinetoday.com/business-trends-with-future-in-2019/

Seen? The mechanism is really simple. Starting it up however is rather complicated, because it is necessary to have a whole series of entrepreneurial, technical, advertising and relational skills that are not trivial. In other words: starting is not difficult, all in all, but making money is another matter!

Advantages and disadvantages of having an e-commerce without a warehouse

If you want, a dropshipping salesman is like a business procurer, an intermediary: he puts in contact those who physically have the product (the so-called dropshipper) with the consumer, earning for this his mediation.

Generally, those who have the product in stock are happy to rely on intermediaries, because they do not have the capacity or the financial resources to make promotion and sales (especially if they concern foreign markets). Indeed, it is the seller who is responsible for promoting and selling the goods. And it is natural that you get money from this (which comes from a substantial increase in the price of the goods compared to the figure to which the manufacturer sells, i.e. the dropshipper).

What is the advantage of doing dropshipping for you who have e-commerce with Shopify or another platform? You are selling a product without stocks, asking your supplier to ship directly to the customer. It is obvious that the price you ask the customer to pay you is higher than what you pay to the supplier (and that for you it is the cost of the product). This mechanism keeps you from having unsold product residues. And it prevents you from hiring staff to manage the warehouse and ship the goods.

The trouble is that, on average, there are quite long delivery times for the end customer (even 30-40 days). There is work to be done on this to prevent the end customer from getting tired of waiting and asking for a refund of the money paid. However, dropshipping is an effective way to start making money online, all in all with little financial risk.

I told you about the most popular sites for sourcing dropshipping products. I repeat the names: Aliexpress, Alibaba, Gearbest, Bigbuy. You can do this e-commerce activity without stock to any state in which the supplier can export and deliver to the end customer.

It is also useful to find a person to help you manage the orders that come from customers and those you need to do with suppliers. In other words: a person who carries out a type of white-collar job, working on the entire management and shipment of orders (and also on all correspondence via e-mail with the end customer).

What is the method to find a product to sell?

It is first of all essential to find what is called a niche. More precisely, a niche of something enthusiasts. Each niche is a small market, with a more or less large number of possible buyers, perhaps a few thousand or even a few hundred. You must appear to them as a specialist, which is a connoisseur of their specific need.

Once you find a market that looks interesting (for example, beauty, where to sell organic cosmetics), you need to look for suppliers on one of the sites on which you can do dropshipping. Once you have found a reliable supplier, with a product that has a real sales potential (there are software that help you understand if a product has sales potential or not), send it to check its quality. Therefore, you will also be able to assess any delays and the real reliability of your business partner. If all went well, you can finally place the product in your e-commerce and promote it.

But does it earn dropshipping or not?

My opinion on dropshipping is simple: anyone who tells you that there is no money to be made with this activity is wrong. This sales method really works. But beware of sellers of easy illusions: many try to enter the circle, but few are successful. Because this is an activity that, as I told you, requires various skills. In short: you can  make good figures with dropshipping, but you have to take into account the fact that it’s not all as easy as some gurus on the web claim. On the other hand, this is not even a stable business: every month you have to withdraw from the e-commerce of the products, because they no longer sell, having squeezed the niche for what it could offer. In short: it is a business that requires your constant supervision, and the continuous discovery of niches (and products to sell in them).

This is why, before any launch, those good at dropshipping do market research or at least a test. They move in this way to understand if that particular product will please the public they have identified. This is a fundamental thing, which few people unfortunately do. And this is the reason why there are few who earn with dropshipping: the majority lets themselves be guided by an erroneous assumption on the product, which then ends up not being liked! In reality, the opposite is fundamental: finding a product that meets a demand. It doesn’t matter if a product is sensational for you: if there is no online request, there is no market. So, you won’t make a sale with your online store! I repeat: selling online, as well as offline, is easy in words only.

How to do dropshipping?

How do you approach this e-commerce business without a warehouse? There are various steps to follow. Of course, the creation of online shopping is needed. In essence, there are three ways to create your own online sales site quickly and easily:

  • Shopify, which is probably the number one solution for doing dropshipping without investing too much money in the “box”.
  • PrestaShop, which is close to the concept of Shopify.
  • WordPress with WooCommerce, which allows you to create a site comparable in effectiveness to the first two solutions mentioned, but which requires a little more expertise that is technical.

And then? Once you have created your online store, you will need to import products for sale through Oberlo, for example. As I explained to you, the plugin will directly import all the products that you seem to have a potential, their images, the description, the price, and the stocks in stock and so on your dropshipping shop. At that point, what you need to do is give the product a tempting title or name and refine your sales page, i.e. its product sheet within e-commerce. Now everything is finally ready: the visitor of your site can click on the “add to cart” button and pay to become a customer.

In terms of traffic to e-commerce, there are several ways to bring visitors to your online store. For example, by advertising on Facebook, YouTube, Instagram and other social media. Alternatively, you can do dropshipping even carrying “free” traffic with SEO or paying for it through Google Ads. Promoting e-commerce is a job at work; I’ll talk about it soon.

Watch out for these three things!

I often receive e-mails from small entrepreneurs who have created the e-commerce of their business from a web agency. They have spent significant amounts, often thousands and thousands of euros. And e-commerce (sometimes even in dropshipping) doesn’t sell a pin or almost. These people are worried. They understand that, by continuing this way, they will not be reimbursed. On the contrary: they will have to face other investments, to try to straighten the cabin. A real drain of money.

Where did they go wrong? Let’s say they were badly recommended. Or that they just weren’t. Here are three examples of errors that you should avoid when launching a business that relies on an e-commerce, no matter if in dropshipping or with a warehouse. These are things that you usually don’t think of, but that can lead to the failure of your business quickly.

1) Open e-commerce without a strategy

Many think that an e-commerce, only because it exists, will sell. It is obviously false. Maybe things were so simple! The point is that, almost certainly, someone has already had your business idea and has successfully accomplished it.

So what should you do to succeed in dropshipping? Selling online is not so different from selling in a physical store: to get things right, you should first do a market research. That is, you should understand if there is someone out there willing to buy your goods. Careful: it is not enough to go to intuition; it takes numbers that support your intuition.

Then, since it is likely that someone already sells products similar to yours, you should differentiate yourself from your competitors. In other words, you should become a brand, giving your business a specific identity. This means doing strategic marketing.

Finally, you need to translate marketing into coherent communication. The things you write in e-commerce must transfer perceptions to potential customers in line with your brand. So to convince them to buy from you.

As you can see, it is a complex process, which also applies to dropshipping. If you miss the strategic phase, your project starts lame. More: it does not have a precise direction to follow, and it is certainly destined to fail.

2) Neglecting traffic and conversions

If I had to write the formula that an online shopping must satisfy to be profitable, this would be more or less:

Profit = strategy + box + traffic + conversions

I’ll comment. Because an e-commerce (in dropshipping or not) you earn, there is a need first of all to do strategic marketing, as I explained to you in the previous point. Then, you need to set up an e-commerce, which I called the box. I called it that because it is: a container of products. Without the other three terms of the equation, it doesn’t even make sense to exist, because, as I said, the creation of the box alone does not guarantee any sales. Then there is traffic. That is, it is necessary that you carry your potential customers over the box. This is typically done through online advertising campaigns or even SEO. Finally, the collected traffic must be converted, that is: potential customers arriving on the site must open their wallets and become paying customers. It is not a foregone thing:

This second point can be summarized as follows: creating an e-commerce is a necessary but not sufficient condition to earn (with dropshipping or not). You also need to be good at advertising to intercept the right customers and then, once you get on e-commerce, let them buy. This is a non-trivial job.

3) Advertising online is not easy

Maybe you might ask yourself: “What does it take to do a little advertising on Facebook and on Google? What does it take to intercept the right web traffic for my online shopping? “. I assure you that advertising on the Internet is not a walk. It is indeed a specialist thing. You can’t improvise. Many dropshipping close because they don’t sell. And the reason for lost sales is precisely the inability to bring potential customers into the target on the product data sheets.

I repeat: bringing generic traffic is rather easy, but bringing the right traffic (i.e. the one that has the greatest chances to convert because in target) is something else. And the two results are quite different in terms of earnings produced.

In conclusion…

We have seen what dropshipping is and, in broad terms, how it works. More and more small entrepreneurs (if not ordinary people) are approaching this mode of electronic commerce. They do well, because in some niches really profitable online businesses can be launched. However, one must be scrupulous, because every approximation is paid dearly. This is witnessed by the contacts I receive every month, from those who made mistakes in the creation or management of their e-commerce and now must remedy. Most of the time having now cleared the budget.

And you? Are you a seller who leans on a dropshipper? Have you ever tried to start a business of your own, based on the dropshipping business model? With what results? Were you able to monetize your time and money investments? Have you recorded a positive ROI? Did you manage to make money from buying and selling goods from e-commerce that I mentioned in my article? Leave your opinion below!