Dropshipping is a terms you may have heard many times over the past few years. Whether you’ve come across it as a ‘get rich quick’ scheme or as a way to run your business, dropshipping seems to be everywhere.
But is it actually possible to set up a company using dropshipping?
The answer is yes, and actually, it’s a great way for small businesses to sell stock without needing copious amounts of storage.
If, if you are looking to start a business in the UK and are looking at dropshipping, you’ve come to the right place. In this guide, we explain everything you need to know about dropshipping so that you can set your business up right from the start.
What Is Dropshipping?
To put it simply, dropshipping is a way to sell products online without having to store the stock yourself.
Instead, you run a shop online that lists products for sale. When a customer buys one of those products, you don’t process the order yourself. Instead, you send the order to a third party and they pack and ship it straight to the customer. Think of your store like a broker – you secure the deal with the customer, and the supplier sends out the order.
To the customer, you’re still the shop that they have bought from. From your perspective, the supplier does the heavy lifting for you.
Wondering how this is different from the standard retail model? Well, the main difference is that with a normal commerce business, the seller holds and sends out the stock. However when it comes to dropshipping, the shop will buy the inventory from a third party as and when an order is made, and it will be fulfilled through them.
How Does Dropshipping Work?
So, you decide you want to set up a dropshipping store. But how does it actually work?
Step 1: Set Up An Online Store And Pick Products To Sell
You build a shop (on a platform like Shopify, WooCommerce or another marketplace) and design product pages with photos, information about them and prices based on a specific supplier.
So, say you are selling bath bombs, you’ll find a supplier that makes them and set up a store with their products listed for sale. Crucially, it’s important to price the products with a profit in mind. Think about what they will cost you from the supplier, your marketing costs, time and effort and make sure you price them for profit.
Step 2: Marketing
You market your store as if the product is your own. This might be through social media or SEO – all the usual routes.
Step 3: A Customer Buys
A customer comes to your shop and places an order with you. From their perspective, they are buying from your shop. They pay, get their order confirmation and wait for delivery as normal.
Step 4: You Pass The Order On To The Supplier
Once the order lands in your system, you send the details to the supplier and pay them for the item. Dropshippers will price products higher than what they buy them for, whatever is left after fees and costs is yours to keep.
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Step 5: The Supplier Ships The Items To Your Customer
The supplier packs the item and posts it out to the customer for you.
And voila! You can sell without actually holding stock. But finding the sales? That’s all on you.
What Are The Benefits Of Dropshipping?
There’s a reason dropshipping has become a popular method of selling online. Some of the benefits include:
You don’t have to buy the inventory yourself: In a normal retail environment, you’d have to buy stock, store it, hope it sells and take a loss if it doesn’t.
With dropshipping, you get a lot of the reward but with little risk – you only pay for the product after the sale, so profits feel more guaranteed.
You don’t need to worry about storage: Storage can be very expensive – not to mention time consuming managing inventory, creating systems and finding space for excess stock. Dropshipping removes this barrier, as inventory is managed elsewhere.
You can try and test different things quickly: Because you’re not sitting on unsold stock, you can experiment with what works. You can try a product, see what generates sales, and change direction without worrying about a store room full of unsold stock.
You can do it from anywhere: Because you’re not sending out the products yourself, you can speak to customers and manage the business from anywhere, making it a great remote business.
The Drawbacks Of Dropshipping
Dropshipping might sound easy, but the truth is it can be difficult to crack.
The same things that make it accessible and easy to do also make it brutally competitive. In fact, according to stats by AppScenic over 90% of dropshippers fail, so it’s definitely not for the faint hearted.
Some drawbacks include:
It takes a lot of testing: It’s all very well finding a good product and trying to sell it, but finding the right supplier, the right marketing tactics and the right tools for selling take time – and a lot more than you think.
Low profits: Because lots of people can sell the same product, you have to stay competitive in your pricing. If you’re relying on paid ads or other expensive methods, you might end up spending more than you make with thin margins.
You have no control over the product quality: Your supplier holds and controls the product quality, packaging and shipping speed. If they mess up, customers don’t blame them, they blame you.
Why Do So Many Dropshippers Fail?
The stat that 90% of dropshippers fail is quite a big one. But once you dig into the reasons, it’s easy to see why so many fall into traps. Some of these include:
Not Researching
Firstly, one of the most important things you need to do is research. You need to understand demand for a product, how competitive it is to market and how good the product actually is.
A lot of people jump in without understanding these things. They choose products because they think they will sell, without any data to actually back it up.
Choosing The Wrong Suppliers
The other big mistake people make is that they choose unreliable suppliers.
If the supplier has bad product quality control or is slow to ship, the business will never get off the ground. In the early stages, it’s important to order samples, check delivery times and make sure everything is set up to run in the best way possible. That way, you won’t be drowning in customer complaints at every twist and turn.
Using The Wrong Marketing Tactics
Even if the product is good, it won’t sell if nobody sees it. Dropshipping is about the product, but it’s also about marketing skills. You need to think about creating the right ads, making the website look good and building a real brand people are drawn to.
Testing is a big part of the process – but finding out what works can be expensive.
Setting The Wrong Profit Margins
You might not need to buy stock, but you still need money to set up your website and complete your marketing.
A lot of people underestimate how much you need to spend to see what works. In fact, a lot of dropshippers will think that since they aren’t buying inventory – dropshipping is all profit. The problem is you have to spend to sell, and pricing items with this in mind is important if you want to make a real profit.
Is Dropshipping Worth Doing?
The answer is, it can be. But you need to look at it in the same way as any other business. The important thing is that you test the market, make sure you understand marketing and price your items correctly.
Dropshipping is not a get rich quick scheme. It is, however, a great way to run an online business without holding inventory.
If you go in expecting a quick win, you’ll probably be disappointed. If you go in expecting to build a real business, it can be a great way to start.
