Dropshipping is becoming increasingly popular with the evolving e-commerce scenario. You may have come across the term on social media or while browsing through the best possible methods to start an online business. Now that you’re here trying to figure out what dropshipping is and how you could use it to your advantage, we will take you through the process step by step.
Table of Contents:
1. What is Dropshipping?
Dropshipping is the new cool method to start your online business without having to invest loads of money and worrying about managing an inventory. You read that right. You don’t have to manage an inventory.l All you have to do is set up an online store from where you can take orders, buy the items required from the supplier or a third-party and once an order is placed, you can directly ship it to your customers. Like everything else, the dropshipping model comes with its own pros and cons. Let’s dwell on those and see how it could work out for your business.
2. Advantages of Dropshipping
Set-up your business at ease
As mentioned earlier, you do not need a considerable amount of money to start your business; you can start with a minimal amount as you do not need to invest in inventory, a physical shop or a warehouse. This will not only save money but time required to start your business. Another plus point is you do not need any prior experience to pull off an online business with the dropshipping method. You can get the hang of the process through various online platforms and the rest you can learn as you work with the market. Practical experience is the best.
Never worry about the location
One of the best things about the dropshipping method is that you can work from anywhere, literally. You will never have to worry about setting up an office or paying for a warehouse. You are clearly not managing an inventory if you picked the dropshipping method so you can benefit from it by working from anywhere. All you need is a stable internet connection. And of course, there’s no dearth of time; you can figure out what works best for you.
Easier to manage
With dropshipping, it’s not only easy to set-up an online business but to manage it as well. After initial arrangements such as setting up a store and finding suppliers, you can carry on at a more relaxed pace. Pretty much all you have to do is manage your online store as you don’t have to manage inventory, supply chains or any other physical commitment.
You can scale your business
You can easily scale your business with dropshipping and need not have to change your business model per se. Your daily activities might remain the same; only the marketing and sales will require a little more effort as you grow your business. Since you do not have to invest in physical equipment, you can allocate all your money and energy to marketing and customer service. This way, you can double down on your sales and upscale without much hassle.
3. Disadvantages of Dropshipping
Profit margins are low
You would not expect huge profits in the beginning. Dropshipping can be highly profitable in the long run but the margin of profit could be small especially for specific niche markets. For example, if you have opted for a niche market with high competition, it can be difficult in the beginning to ask for higher profitable rates . Whereas, if you have chosen a niche market with low competition, you can expect higher profits but the sales could be unpredictable and shaky. You should also remember that the longer the supply chain, the lower the profit margin. So try to make the process easy for yourself, which will help you gain profits as well.
Not having an inventory
Yes, not having an inventory can be a con too. When you depend on different suppliers for your orders to supply products to other retailers or dropshippers, you cannot depend on the inventory. You can never be absolutely sure that the items you may require would be readily available at any given time.
The ordering and shipping process can be tricky
It might seem easy but at times, you can run into trouble. As you would be working with various suppliers, their shipping charges and delivery methods may vary. Hence, it could get difficult for you to set a process and make it smooth for your customers. For instance, if a customer has ordered two products from you which are to be supplied from different suppliers in different localities with different shipping charges, then it could be a task to figure out the right way to charge them for the shipping without making the customer feel they were being overcharged.
Customer service can be another challenge
Since you do not have complete control over the process, maintaining high-quality customer service can be a challenge. Even after you give your best and ensure everything is in order, something could still go wrong, such as a manufacturing defect with the product or the supplier’s failure to deliver the product etc. Although these could be situations you were not in charge of, you would have to take responsibility when the customer has a complaint regarding their orders. This is part and parcel of the dropshipping business model.You need to be aware of this and figure out an effective process to reduce the chances of error.
4. How does Dropshipping Works? – Step by step procedure
As you know by now, dropshipping is a business model where you do not need to stock your inventory; you could rather tie up with suppliers to get the required products delivered directly to a customer when an order is placed. So what is the role of your business in this model? You would act as the supply chain manager. A supply chain is basically a chain of manufacturers, suppliers and retailers who ensure that a product is seamlessly created and delivered to the customers. Here are the steps:
- The manufacturer produces the products and sends it off to the suppliers/wholesalers and retailers.
- The wholesalers stock products from multiple manufacturers and typically sell them to retailers after marking them accordingly.
- The retailers then sell these products directly to the customers.
Here, your role would be to tie up with wholesalers or manufacturers, who will deliver the products to your customers on your behalf. Here is how it works:
- A customer will place an order with you.
- You will get in touch with your supplier and inform them of the requirements.
- Your supplier will arrange the requirements, pack them and deliver them to your customer.
- The supplier will charge you for the service they provide to you.
- You, in turn, will charge the customer, thus completing the chain.
Dropshipping Return Policy
You must be thinking about dealing with return orders or return policy in dropshipping when you do not even handle the product directly. But that is no excuse as the customers are not even aware that you are running a dropshipping business. And having a return policy is a great way to build the trust of your customers.
As stated above, dropshipping depends upon the agreement between the seller and the third party supplier. So, it would be best to decide on the return window and mode of return with your supplier. There can be two modes of return,
- The supplier collects the product back from the customer, or,
- The customer sends the product back to the supplier.
Once you accept the return order, you need to pay the refund to your customer, and the supplier will refund you the wholesale price of the product.
In case your supplier is not ready to accept a return policy, here are some strategies to follow:
- Provide a refund to your customers without asking them to return the product.
- Politely turn off the return request by giving store credits, exclusive offers on the next purchase, gifts, etc.
Is dropshipping Worth It?
Dropshipping has transpired as an efficient method for online business, having several merits. Let’s glance through a few of them:
Required Low Capital
Dropshippers needs significantly less capital investment in starting their business because they do not need to stuff up inventories. You are only required to launch an e-commerce store which can be done at a minimum cost. Also, there is no need to hire staff in the initial stage of the business. Once you start generating a profit and huge orders start coming in, you can hire staff to fulfil orders.
Low Overhead Cost
The overhead cost is also comparatively low because, as already said, there is no need to purchase inventories. The suppliers’ purchase and maintain the stocks for you, so there is no need to rent a warehouse. The costs related to your website, i.e., server cost, framework cost, plugin costs, maintenance cost, etc., are the only things you need to worry about. And, If you could look after the orders single-handedly, you could turn it into a home-based business too, hence cancelling office rent.
If you think businesses can not be flexible, you need to rethink it. Dropshipping, a completely online-based business strategy, could be operated from anywhere and everywhere, and you can fulfil orders even while on vacation in the Maldives.
Wide Range of Products
You can list a wide range of products on your website without stressing about the cost of the inventories. You can also make deals with different suppliers dealing in different categories of products.
Dropshipping consists of lower risk than other business strategies because you are not pre-purchasing the products. So, even if the business doesn’t go well, you do not have to lose sleep getting rid of the inventories.
Challenges In Dropshipping
Despite several benefits, dropshipping has its demerits as well. The challenges in dropshipping are:
- It is a highly competitive business where you have to deal with many competitors.
- It has low-profit margins.
- You don’t have any control over the inventories. So, you lose sales if the suppliers do not stock up the high demand products at the right time.
- It is challenging to build a brand of your dropshipping.
- You would have to deal with a lot of shipping complexities. For example, you have to depend on suppliers to deliver an order.
- The suppliers may not agree to return policies that might hamper the growth of your business.
5. Tips for a Successful Dropshipping Business in India
Now that you know the pros and cons of dropshipping and the process, you can further look at these tips to make sure you nail it.
Do Your Research Well
Prepare yourself with a bit of market research and use drop shipping as practical research. Yes, you read that right. You can use dropshipping as an experiment by trying new and tricky products in the market without committing to it.
Make it Fun for Your Customers
People are going through a lot of processes everyday. Do not make shopping a task for the customers by adding multiple or confusing steps. Keep it simple and fun.
Do Not Sell Too Much
This sounds unusual but it is important. Since the inventory is not in your hands, cross-check with the supplier before taking in a large number of orders especially during seasonal flows.
Quality Should be Your Priority
Although you cannot micro-manage the supplier and take care of the quality of the products at every stage, you can still ensure that you choose a supplier you can rely on in terms of quality. Even at a later stage, you must run regular quality checks to ensure everything is in place.
Do Not Try Everything at Once
It might seem alluring to work with multiple products at once since the dropshipping model gives you the freedom to do so. But you need to fight that urge and do your research well, as mentioned above. You could surely experiment with different products but not everything at once. Now you are well-equipped to start your dropshipping business. For that, you would need to set up your online store. With Bikayi, you can set up your online store in less than a minute.
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