If you are looking to start a business, but you don’t have a lot of capital to invest, then drop shipping might be a good solution for you. Here are some of the common questions to consider.
Drop shipping is when someone sells goods online at a higher price than they buy it from their supplier, and it provides direct delivery from the manufacturer to the end user.
What are the pros and cons of drop shipping?
The biggest reason to drop ship is that it is very low risk because you don’t have to invest a huge amount of capital into the business to get started. You only need to buy something when somebody else orders it from you, without the need for storage space or inventory, which are usually the most expensive side of starting up a business. Plus, because you don’t have to buy the products you’re selling upfront, you will be able to offer your visitors a much wider product selection, and you won’t have to worry about managing your inventory. Additionally you can be location independent as long as you have a WiFi connection.
Dropshipping businesses are usually simple to scale up, but there is a lot of competition. Margins are also generally lower as well because of the competition. Because of the slim margins it means that you will have to sell a lot of units in order to make a profit, and so you won’t have as much to spend on marketing activities that would traditionally bring in a lot of customers.
What kind of margins can I expect if I drop ship?
It all depends on what you’re selling but typically in the region of 15-20%. For items like electronics that number goes down to about 5-10%. For things like accessories margins can be up to 100%.
How do you start a drop shipping business?
Starting a drop shipping business can be broken down into steps
- Find your niche
- Find your supplier(s)
- Decide where to sell
Finding your niche is about doing enough research that you find something that has low market saturation. This handy guide on finding your drop shipping niche has some good methods to find your best option.
It’s a plus if you can create a drop shipping business that you’re passionate about, or that you know a lot about. That way you can use your knowledge on the subject matter to attract new customers, but it’s not 100% necessary for it to be successful.
Where can I find a drop shipping supplier or wholesaler?
A quick google search will reveal several drop shipping companies that can help you to manage your inventory - competition is steep. Some of the more popular drop shipping companies include Oberlo, Doba, Salehoo and Alibaba.
Oberlo: The biggest plus for Oberlo is that it’s already integrated with Shopify as an embedded app for new users, so it is fairly straightforward to use. It saves you the hassle of checking on AliExpress to find a drop shipping supplier for your business and gives you access to the product images, details and pricing. Another big plus to this is that if you use the app, you can see which suppliers have a higher rating (and therefore are more reliable, which is so important if you’re drop shipping.)
Drop shipping fees at Oberlo: They have different plans available, including a free plan which gives you up to 500 products and 50 free orders a month. Once your business starts to scale you can move up to a plan that better suits your business. The basic plan costs $29.90 per month and includes up to 10,000 products and 500 orders per month. Their unlimited plan is $79.90 per month and gives you up to 30,000 products and an unlimited amount of orders per month.
Doba: Doba is another drop shipping option that has a directory of different suppliers and directories, but you can also choose an individual product without having to partner with several drop shippers. They offer an option for a free 14-day trial, and you can get free lessons on drop shipping if you’re new to it.
Dropshipping fees at Doba: Their basic plan costs $29.99 per month, and a 0.99 cent fee per sale, so this definitely isn’t the cheapest option out there.
Salehoo: Salehoo is more focused on providing you with detailed directories so that you can find your suppliers more easily. You can filter your search so that you can easily find what you want to sell, and they have market research to tell you which products are the most popular.
Drop shipping fees at Salehoo: It costs a one off fee of $85 AUD to access the directories.
Alibaba: Alibaba is a huge website that can be used to drop ship different products to your users. You can filter your search so that it only shows results from drop shippers - this can be a way of managing everything yourself - it depends on how you want your business to work. You need to type in drop shipper into the search box and filter until you find something you want to sell.
Drop shipping fees at Alibaba: Free
Remember that when you’re choosing your products and suppliers, to make sure they have a good reputation. The last thing that you want is to start your company, and have unreliable suppliers, which will result in complaints, and could hinder your growth.
Where can you sell your products?
There are so many options to sell your products as a drop shipper. You could either set up your own website, or list your products on another website.
Set up your own website to drop ship: Setting up your own website to drop ship can be time consuming, but it depends on what you set out to achieve in the first instance. If you have the time and skills to set it up yourself, and know about marketing and SEO, this can be a great way to scale your business. Although there will be an initial cost for setting up your own site, the biggest advantage of this is that you aren’t hit with extra fees for using a website like eBay which would reduce your margin.
Selling via another website: If you’re looking to test out the waters and find out if your niche will be successful, it’s possible to sell via another website. The two biggest examples are eBay and Amazon. Selling via a website has a lower risk level than setting up by yourself, because if it doesn’t work, you can go back to your research to see if you can find a better niche. However, make sure you factor in the fees, and what your margin is so that you don’t end up losing money.
Advertising your drop shipping business: One of the best things you can do to start getting orders in is to advertise your business. Set up a Facebook page, tell all of your family and friends and work on an SEO strategy to get new customers.
Don’t forget about customer service! If people are using your website, make sure that you communicate with your customer to make them feel valued and so that they want to return.
Drop shipping is a great low-risk way to start a business and scale up from there. Once you have spent some time figuring out your niche, make sure you choose the right drop shipping suppliers with a good reputation so that your business doesn’t suffer. With margins, make sure you factor in extra costs (especially if you’re selling through a website like eBay or Amazon) and don’t forget to advertise - use word of mouth, Facebook, SEO - anything you can do to get customers to buy.