He\u2019d been looking for a camel-colored coat, but\u00a0 had only been able to find rather pricey ones. One day, he came across an ad on Instagram for such a coat at a fraction of the usual cost. He hit buy, waited for it to arrive, and then opened the package – sent by China Post – to find a coat that was an outrageously low-quality version of what he viewed online.<\/p>\n
<\/p>\n
Contents<\/p>\n
- \n
- What Exactly Is Dropship?<\/a><\/li>\n
- How Dropshipping Lowered Entry Costs for Retailers<\/a><\/li>\n
- What Are The Advantages and Disadvantages of Dropshipping?<\/a><\/li>\n
- Big Brands Using the Dropship Model<\/a><\/li>\n
- A Step-by-Step of How Small Businesses Employ Dropship<\/a><\/li>\n
- Dropshipping Is An Opportunity to Start Your Business, Not a Get-Rich-Quick Scheme<\/a><\/li>\n<\/ul>\n<\/div>\n
A buying experience like this is only possible due to dropship: a product of the intersecting worlds of digital marketing and ecommerce<\/a>. Today, anyone with a high-speed internet connection can ship products they\u2019ve never seen or used, from suppliers they\u2019ve never met, through a brand that\u2019s less than a day old.<\/p>\n
Some have even built entire businesses off of teaching other people how to make thousands of dollars through dropshipping – oftentimes when their own dropship business is failing to see a profit.<\/p>\n
Stories like the camel-colored coat tale lead people to wonder if dropshipping is nothing more than a scam. In theory, dropshipping sounds like a genius \u201cget-rich-quick\u201d scheme. In practice, it\u2019s a legitimate supply chain management strategy that requires a little more work to do correctly, especially if you actually care about your customers.<\/p>\n
In this article, we\u2019ll outline what dropship is, how it\u2019s implemented successfully, and detail some of the shady practices currently giving dropshipping a bad name.<\/p>\n
What Exactly Is Dropship?<\/h2>\n
Traditionally, retailers operated like this: They would purchase goods from a warehouse or wholesaler<\/a>, stock it in their inventory, and sell it to customers. This business model relies on making a profit on the difference between the wholesale price (bulk and cheap) and the retail<\/a> price (individual and marked up).<\/p>\n
This model comes with some risks and responsibilities for the retailer, specifically:<\/p>\n
- \n
- Managing inventory and absorbing the carrying costs<\/li>\n
- Acquiring wholesale inventory and selling enough of it to earn a return on investment<\/li>\n<\/ol>\n
Managing Inventory and Absorbing The Carrying Costs<\/h3>\n
A decent chunk of change goes into managing inventory. For starters, you need workers to organize and count inventory, which raises warehouse labor costs. You also needed supervisors for the people who manage inventory, and need to train a diverse inventory team since changing up the stock counters is one good way to limit theft. This further increases labor costs.<\/p>\n
Even if you have upstanding employees, you still have to absorb the cost of lost or damaged items. Then, there\u2019s also the cost of insuring your inventory, the cost of the space for storing the inventory, the additional heating and lighting costs, and more.<\/p>\n
As a business owner, you also have to invest mental energy into your inventory management processes. One of the key inventory management activities is maintaining the balance of having just enough <\/i>inventory at the right time.<\/p>\n
If you have too much inventory, you\u2019re raising your carrying costs and also increasing the likelihood of spoilage or obsolescence (something any restaurant owner or consumer electronics retailer understands).<\/p>\n
If you have too little inventory, you run the risk of stockouts. This reduces revenue and erodes customer loyalty, which affects recurring business.<\/p>\n
Acquiring Wholesale Inventory and Selling It At Retail Prices<\/h3>\n
You know what they say: It costs money to make money. Retailers understand this more than anybody. If you want to buy at wholesale and sell at retail, you need money to acquire enough inventory to fulfill your orders.<\/p>\n
Once you have the inventory, there\u2019s the risk of being unable to sell at full retail price or even having to take a loss on some items, which can negatively impact your bottom line. In the past, this was a considerable barrier to entry, which brings us back to back to dropship.<\/p>\n
How Dropshipping Lowered Entry Costs for Retailers<\/h2>\n
![\"dropshipping-image-730x368-tinified\"](\"https:\/\/f.hubspotusercontent30.net\/hubfs\/3469233\/Images\/Emails\/Blog\/dropshipping-image-730x368-tinified.jpg\")
<\/p>\nOnce you understand the traditional pain points of retailing and inventory management, it\u2019s easy to see why the dropship method, fueled by inexpensive online advertising opportunities, took off like a rocket. Simply speaking, dropship works like this:<\/p>\n
- \n
- A brand or retailer chooses a selection of wholesalers (or, in some cases, other retailers)<\/li>\n
- A brand or retailer creates an online catalog of products – without any inventory<\/li>\n
- This online catalog of products, usually presented through ecommerce platforms like Shopify<\/a>, is marketed to potential customers using digital channels like Google, Facebook, and Instagram<\/li>\n
- A customer places an order through the retailer\u2019s online store<\/li>\n
- The retailer orders the customer\u2019s order from the wholesaler and enters the customer’s address as the delivery address<\/li>\n
- The wholesaler sends the product to the customer<\/li>\n<\/ul>\n
Ultimately, the retailer is a middleman connecting consumers to products they may not have otherwise seen.<\/p>\n
What Are The Advantages and Disadvantages of Dropshipping?<\/h2>\n
Dropshipping presents a number of advantages and disadvantages. Let\u2019s start with the positives.<\/p>\n
The Advantages of Dropshipping<\/h3>\n
On the consumer side, dropship makes new products available to consumers \u2014 it amplifies the global marketplace. These could be products consumers in a particular market may have never seen. If there\u2019s a fantastic clothing brand in South Korea, consumers in the U.S. can buy items from the line.<\/p>\n
On the retailer side, dropship virtually eliminates inventory costs. While there are still other costs of doing business, like online ads and subscription fees for an ecommerce platform, these costs are significantly lower than purchasing an entire collection of inventory and managing it.<\/p>\n
That said, there are a few downsides…<\/p>\n
The Disadvantages of Dropshipping<\/h3>\n
On the consumer side, dropshipping opens up the possibility of being on the receiving end of false advertising. A retailer may put up a nice image – sometimes a stock image -enticing the buyer to purchase this amazingly cheap find. When the product arrives, it\u2019s a mere shadow of what was advertised.<\/p>\n
On the retailer side, there\u2019s significant risk when working with vendors you\u2019ve neither met nor vetted. A warehouse likely won\u2019t care about your customers as much as you do, so there isn\u2019t as much urgency when it comes to shipping products on time or delivering excellent customer service<\/a>.<\/p>\n
Delayed shipping is one of the most common reasons dropshipping businesses fail<\/a>. With consumers conditioned by Amazon to expect products within a matter of days and at low shipping costs<\/a>, the thought of waiting weeks for a shipment from China is simply unacceptable.<\/p>\n
On top of that, since retailers have a very limited relationship with their suppliers, it\u2019s difficult to obtain the information needed to provide status updates to their customers.<\/p>\n
Big Brands Using the Dropship Model<\/h2>\n
It\u2019s easy to dismiss dropship as the exclusive domain of social media influencers and stay-at-home parents trying to build an online company. In reality, many large brands have used dropship to grow their business.<\/p>\n
Companies like Macy\u2019s and Home Depot were early adopters of the dropshipping model<\/a>. Why? Well, big-box brands have (rightfully) been concerned about losing market share to ecommerce companies. One strategy they\u2019ve embraced is using dropshipping to expand their collection of available to sales<\/a> goods.<\/p>\n
For example, rather than stocking every color of one sweater in the store, they can stock only the most popular colors and make the rest available through dropship.<\/p>\n
Large, experienced players still face risks with the dropshipping model. One of the risk factors for big companies is brand reputation. Shipping and order status updates come from the retailer\u2019s name, so, if a warehouse ships a product late, the customer\u2019s frustration is directed at the retailer.<\/p>\n
Additionally, direct shipping gives warehouses access to consumer data, turning them into competitors rather than retail partners. In fact, many warehouses are leveraging consumer data to adopt a direct-to-consumer model<\/a> and ditch retailers altogether.<\/p>\n
Don’t Let Your Inventory Become a Liability:<\/strong> Poor inventory accuracy leads to a host of issues that cut into your margins. Learn how Logiwa integrates all your sales channels and provides real-time inventory tracking.<\/a><\/p>\n
A Step-by-Step of How Small Businesses Employ Dropship<\/h2>\n
While there are many companies using dropship to take advantage of consumers (by marketing products that look nothing like what the customer receives), there are some who use dropship as an honest supply chain strategy. Below, we\u2019ve outlined a step-by-step guide on how to run your dropship business.<\/p>\n
Find Your Specialty Space<\/h3>\n
Dropshipping works best when you have a niche and you\u2019re connecting consumers to products they otherwise wouldn\u2019t find. If you\u2019re simply selling lipstick at hyperinflated prices<\/a>, then you\u2019re probably in dropshipping for the wrong reasons.<\/p>\n
When picking a niche, choose one with enough demand to generate business. Google Trends is one way to gauge consumer interest in a particular area over time. In addition, choose a space that you\u2019re actually interested in so that you remain motivated.<\/p>\n
Set Up Your Ecommerce Platform<\/h3>\n
Once you\u2019ve chosen a niche, you\u2019ll need to set up a website. Shopify<\/a> is a popular choice for both beginner and expert retailers. Making ecommerce easy is the company\u2019s bread and butter. You\u2019ll need to design an enticing website that encourages consumers to browse. Remember: Your entire role in this ecosystem is to be the <\/i>go-to middleman, so you\u2019ll need to look impressive.<\/p>\n
Once you\u2019ve set up a website and designed it, it\u2019s time to add products.<\/p>\n
Add Products To Your Retail Site<\/h3>\n
Once you\u2019ve chosen products for your site, you can either add them manually or use apps like Oberlo (which Shopify acquired) to automatically link to products on sites like AliExpress.<\/p>\n
AliExpress has become a popular way to find suppliers, but there are a few things retailers should keep in mind when using sites like AliExpress<\/a> for their dropship business:<\/p>\n
- \n
- Write compelling copy for your product descriptions. <\/strong>Since you aren\u2019t actually manufacturing or storing these products, your storefront is your competitive advantage. Write copy that tells a story and entices potential customers to buy. That said, be honest in your product descriptions. While marketing is all about persuasion, lying about the quality of your product is a sure way to erode consumer trust.<\/li>\n
- Be honest about delivery times. <\/strong>Dropshipped items from China can take up to a month to reach your customers. Be up-front about your shipping times. Most consumers expect speedy delivery, and they won\u2019t automatically understand that you\u2019re using a dropship business model, so unexpected, long wait times could lead to frustrated buyers.<\/li>\n
- Offer order tracking:<\/strong> If your buyers accept long shipping times, they\u2019ll want status updates. Instead of manually responding to endless requests for status updates, consider integrating an order tracking app like the one Shopify offers<\/a> its users.<\/li>\n<\/ul>\n
Another word of advice to aspiring dropshippers is to avoid selling brand name products. These companies have relationships with retailers who are licensed resellers. Selling their products when you don\u2019t have an existing agreement could lead to legal trouble.<\/p>\n
Initiate Orders With Your Supplier<\/h3>\n
Let\u2019s say someone places an order for a trench coat on your website. To fulfill this order, you\u2019ll need to enter the customer\u2019s information into the supplier\u2019s site (e.g., AliExpress) so that the supplier can ship the product directly to the customer.<\/p>\n
You can either do this manually yourself, outsource the work to others, or use apps like Oberlo to do this automatically.<\/p>\n
- Be honest about delivery times. <\/strong>Dropshipped items from China can take up to a month to reach your customers. Be up-front about your shipping times. Most consumers expect speedy delivery, and they won\u2019t automatically understand that you\u2019re using a dropship business model, so unexpected, long wait times could lead to frustrated buyers.<\/li>\n
- How Dropshipping Lowered Entry Costs for Retailers<\/a><\/li>\n