In this post I am going to tell you what Dropshipping is, how it works, its characteristics and its main advantages and disadvantages compared to traditional electronic commerce.
This work is the result of an arduous personal investigation when facing for the first time an order from a client who decided to enter the Dropshipping business.
This article is complemented by the next three, where I intend to show you a general idea of what you should know before starting a business as a dropshipper.
I also recommend you read the other 3 articles that I have written about Dropshipping, which are the following:
How to start your Dropshipping business , How to create an online store for Dropshipping and How to add products in a Dropshipping online store
Throughout the 4 posts I will refer to specific examples of work requested by my clients and you can visit their respective websites to see the results obtained.
Do you know what Dropshipping is?
Dropshipping is a type of online sale where the seller does not have in his inventory the products offered in his own virtual store.
Therefore, the merchant buys inventory from a third party as you need to fulfill your customers' orders.
This third party is generally a wholesaler or even the manufacturer of the product itself, and can be domiciled anywhere in the world.
The vast majority of suppliers of dropshipping are of Chinese origin.
How does a Dropshipping business work?
Although the literal translation of Dropshipping is "direct sale" it is actually a "Triangulation of shipments" , where the seller is an intermediary between supplier and buyer.
As a seller, you must find wholesale suppliers that make the products you want to sell.
Then, the items will be listed in your own online store, where customers place their orders and pay you for the product and shipping costs, if any, as some wholesalers offer free shipping.
You receive the order with the buyer's data as if you were a traditional online store.
The commercial operation is summarized in three steps:
- The customer buys from your online store at a retail price, including shipping costs.
- You charge for the purchase on your website and send the order to the supplier, paying the wholesale price and shipping.
- The supplier will process the order, package and ship the products directly to the customer.
In other words, you only help the customer to buy the product.
In the dropshipping business, it is not necessary to manage inventory management systems, warehousing, shipping costs and logistics.
However, dropshippers have to calculate the prices of the margins, do the marketing of the product and generate business ideas .
Also, if a customer encounters a problem with the shipment or the product, they will contact you first and not the supplier.
That is why I advise you to provide good customer service.
Differences between dropshipping and traditional e-commerce
Before starting your business with Dropshipping you should know the main differences with traditional e-commerce, which we can summarize in the following aspects:
One of the main differences with traditional e-commerce is manifested in the time that elapses between making the purchase and receiving the item by the buyer.
Whenever we talk about Dropshipping we will have "deferred terms" that can be extended between 5 and 45 days from the purchase.
This depends on the type of product, its geographical origin, its supplier and the type of shipment.
The most of the suppliers are in China and that represents such a delay in final delivery.
The wholesaler is the one who establishes delivery times and manages possible returns, disregarding the seller from any participation in said process.
For this reason, it is advisable for the buyer to know in advance that your online store uses the dropshipping method .
That is a difference perceived by the buyer.
Triangulation of shipments
Another important difference, (this time perceived by the seller) is the one referring to the dropshipping operating system that I mentioned earlier.
This is that the supplier automatically receives the same order form as you, and sends the products directly to your customers.
This means that you never see or manipulate the products you sell, and you ignore much of the management of shipments to the buyer.
Therefore, the supplier is in charge of storing, packaging and shipping the products to customers on behalf of your online store.
The supplier automatically charges “its share” corresponding to its own cost of the product and shipping, and you earn the difference.
In this way, the traditional logistics of e-commerce changes completely.
Your online store is only responsible for managing customer orders, billing and generating a database.
On the other hand, in traditional e-commerce stores, the seller has a stock of products, manages the orders and makes the delivery to the customer.
Your customers at no time know or can have contact with the supplier, nor do they know their prices or your profit or profit margin.
The shipment is dispatched as a "masked package" that does not include logos or inscriptions.
By therefore, the supplier ships and delivers the products anonymously. No identification on the package will indicate the actual origin of the product.
Advantages and Disadvantages of Dropshipping
The Dropshipping business has grown in popularity around the world in recent years.
Like any business model, it has positive and negative aspects that it is important to consider before starting our project.
Let's review what are some of the advantages and disadvantages of Dropshipping.
- Getting started is easy: Unlike other ventures that require following some complex procedures and having certain resources (a local store, merchandise warehouse, employees, logistics, etc.) you only need to have a laptop and a stable internet connection.
- Flexibility: When conducting business through a laptop, you can work from anywhere, even from your own home or office.
You only need to communicate with suppliers and customers to manage and manage your business with ease.
- Menor capital inicial: La mayor ventaja de dropshipping es que se puede lanzar una tienda online sin invertir demasiado dinero por adelantado.
Sólo pagas el diseño y puesta en marcha de la tienda virtual (Lee mi artículo Requirements to have a website para más información)
- Low cost: You don't have to think about inventory costs or hire employees to take care of it. You don't need to buy a product unless you've already sold it and received payment from the customer.
- Very few fixed and / or maintenance expenses: By not having to deal with purchasing inventory and managing warehouse, the fixed costs are very low.
You pay your webmaster for it maintenance of the online store and / or the publication of products, in case you do not want to do it yourself.
It is also advisable to invest in product marketing, publication on social networks, campaigns aimed at improving SEO, advertising, etc.
- Wide selection of products: Since you don't need to buy items to sell in advance, you can offer a wide range of products to your potential customers.
If the suppliers have it in stock, you can include it in your web catalog at no additional cost.
- Sale of several products: You can sell the products of more than one supplier and not limit yourself to a single type of product.
- High scalability: By having the freedom to choose products and be able to try different providers, a business of this type can grow rapidly.
For your business to be scalable you must have a robust e-commerce and well developed.
Contact a web designer who has experience in designing this type of online store.
- Lower Labor Demand: Most of the order processing work will be done by suppliers, allowing you to expand with lower costs and labor.
- Very hard competition: There are many people who participate in the dropshipping business, so you will have to work hard to stand out, with a greater investment in your online store, social networks, advertising, etc.
- Low profit margins: Since you are faced with many sellers, there may be a price war.
Which means you should set your price as low as possible to make your offers more attractive .
But this can be avoided if you can find a niche of low competition products to sell.
- Problems with suppliers: Your business can fail if you choose a disreputable supplier.
A bad supplier can ruin your online presence with shipping errors, poor packaging and delayed responses.
- Lack of control over shipments: If a customer orders products from different suppliers, they will have to pay for more than one shipment and it is likely that the orders will arrive at different times.
This can make things difficult when handling sales.
- Inventory difficult to manage: You need to be aware of and frequently track your supplier's inventory to match the amount of stock available in your store.
Although the products in your store are synchronized with the stock of your suppliers, you must be aware of availability and "pause" the products without stock to avoid inconveniences.
- Shipping logistics can get complicated: If you work with multiple suppliers, the products on your website will come from multiple dropshippers. This complicates your shipping costs.
Suppose your customer orders three items and they are all available, but from different suppliers.
You will have to pay three separate shipping costs to ship each item to the customer.
It is not advisable to pass this charge on to the customer, as it can make shipping too expensive.
But do not be discouraged, there are thousands of products that offer free shipping, so I recommend that you choose those items to offer them in your store.
- Customer service: The seller is the one who is directly connected to the customer. So if there is any problem, you will need to take care of it.
- Drowback to build an online brand: When sending third-party products and not participating in the shipment, you will not be able to include any type of brand logo on the products.
This is usually an important factor in the Internet sales.
- Risk of supplier errors: Even the best dropshipping suppliers make mistakes when completing orders; for which you will have to take responsibility and assume them.
Mediocre suppliers will cause you inconvenience by losing items, ruining shipments and using poor quality packages, which can damage the reputation of your company.
That is why I always advise you before to publish products in your store, check the reputation and responsibility of each supplier, and that they have robust logistics to reach your customers.
I suggest you contact them and inform them that they will be "allied partners".
What profit do I get with Dropshipping?
The seller receives a commission or fixed amount on each sale, and makes a profit by taking advantage of the margin between wholesale and retail prices.
You must configure a series of formulas that are automatically applied to wholesale prices according to the value of each product , and that will determine your profit.
Generally the suppliers are Chinese wholesale companies that publish their products on portals such as AliExppress, Ebay, Amazon, etc. from where you will take the articles to add to your web catalog.
The prices published in these megastores are very low since they are wholesale prices, your customers will not find those prices in traditional retail stores.
Your mission as a seller is to offer those same products in your own online store, with a personalized design and with your own sales prices.
In this way, your customers will never know the real origin of the product you are selling.
I am not referring to the country of origin of the product, but to the place where you purchased it.
For this business to be profitable, you must think about the price of the product you offer.
Your profit is simply the difference between the cost of your own purchase and the money you asked your customer for.
Therefore, the difference between the sale price of the wholesaler and the price that you can set as a retailer, it can be really very convenient and thus justify having an online Dropshipping store.
Why would a client buy on my website if these megastores exist?
Surely you wonder why they would buy from you, being able to pay a much cheaper price for the same product.
Many customers prefer to buy in specialized stores, as if they were local stores instead of large supermarkets.
Not all people they feel confident to buy in mega stores, and much less if they are Chinese or are in another country.
Taking this example to everyday life, you would choose to buy your weekly or monthly purchases in a large supermarket, where you supply yourself with a wide variety of products. (food, cleaning, etc.)
But when you need to buy something more specific (clothing, electronics, machinery), you choose a specialized store that only sells what you are looking for and can give you more advice.
Your accessible, friendly and reliable store
A retail "theme" store is reduced to a specific niche and the customer is not distracted by thousands of products that do not interest him.
In addition, it provides the customer with a friendly and reliable trade image, where a specialized person can answer their questions. concerns.
On the contrary, these mega stores offer a very poor post-sale service, where anonymous people who do not speak your own language respond.
They generally use automatic online translators and the results can be very imprecise, generating distrust or fear in The buyer.
When a customer buys from a dropshipping store, they are paying for accessibility to the product, which they probably would not have known without us.
This accessibility is not only manifested in the price but in the way we present the product in our store online.
They should always be displayed in a simple, limited way, with detailed information and with an excellent design.
El cliente paga por la comodidad y experiencia de usuario de nuestra tienda, y también por la atención al cliente y confianza que le damos.
Con el marketing que realizamos del producto estamos aumentando el valor percibido que, junto a lo anterior, justifica el precio que le ponemos.
Esto nos permite vender el producto a un precio mayor (minorista) del que lo adquirimos (mayorista), y esta será la base de nuestra ganancia.
I suggest you read my article How to start your Dropshipping business for more information.
I hope you enjoyed this article and that it was useful to you.
The possibilities that Dropshipping offers you are so many, that there is definitely no reason not to try to start your own business.
Si quieres saber How to start your Dropshipping business lee mi siguiente artículo donde encontrarás unos cuantos consejos y sugerencias para tu emprendimiento online.
Si te dieron ganas de tener tu tienda virtual y consideras que soy un profesional idóneo, no dudes en contactarme que te asesoraré con mucho gusto.
In the Related Articles section below, you will find many articles with specific topics that complement the one you just read. Thank you!
Adrián Pablo Conti
I am a Graphic and Web Designer graduated from the University of Buenos Aires (FADU-UBA)
Since 1993 I have run Web4, my own freelance graphic and web design creative studio, located in the City of Buenos Aires (Argentina)
Me I specialize in the development of visual identity, institutional communication, web sites and online stores, editorial design, catalogs, magazines and packaging design, among others.
The images shown in this article were obtained from the web for illustrative purposes and belong to their respective authors.
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