Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party. Then it is shipped directly to the customer. As a result, the merchant never sees or handles the product. Make money drop shipping if you need to work from home.
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The biggest difference between dropshipping and the standard retail model is that the selling merchant doesn’t stock or own inventory. Instead, the merchant purchases inventory as needed from a third party – usually a wholesaler or manufacturer – to fulfill orders.
Reasons to Make Money Dropshipping
LESS CAPITAL IS REQUIRED – Probably the biggest advantage to dropshipping is that it’s possible to launch an eCommerce store without having to invest thousands of dollars in inventory upfront. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.
With the dropshipping model, you don’t have to purchase a product unless you already made the sale and have been paid by the customer. Without major upfront inventory investments, it’s possible to start a successful dropshipping business with very little money.
EASY TO GET STARTED – Running an eCommerce business is much easier when you don’t have to deal with physical products. If you want to make money dropshipping, you don’t have to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking inventory for accounting reasons
- Handling returns and inbound shipments
- Continually ordering products and managing stock level
LOW OVERHEAD – Because you don’t have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop for less than $100 per month. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.
FLEXIBLE LOCATION – A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business. The flexibility can help you make money from dropshipping.
WIDE SELECTION OF PRODUCTS – Because you don’t have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list if for sale on your website at no additional cost.
EASY TO SCALE – With a traditional business, if you receive three times as much business you’ll usually need to do three times as much work. By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work. Sales growth will always bring additional work. Especially related to customer service. However, a business that utilize dropshipping scale particularly well relative to traditional eCommerce businesses.
When you make money drop shipping it is a very simple business model from both beginning and established merchants. Unfortunately, dropshipping isn’t all roses and rainbows. All this convenience and flexibility come at a price.
LOW MARGINS – Low margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Because it’s so easy to get started – and the overhead costs are so minimal – many merchants will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. They’ve invested so
The Ultimate Guide to Dropshipping 3 little in getting the business started so they can afford to operate on minuscule margins.
True, these merchants often have low-quality websites and poor (if any) customer service. But that won’t stop customers from comparing their prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that’s well suited for dropshipping.
INVENTORY ISSUES – If you stock all your own items, it’s relatively simple to keep track of which items are in and out of stock. But when you’re sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store’s inventory with your suppliers’, these solutions don’t always work seamlessly, and suppliers don’t always support the technology required.
SHIPPING COMPLEXITIES – If you work with multiple suppliers – as most drop shippers do – the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs. Let’s say a customer places an order for three items, all of which are available only from separate suppliers. You’ll incur three separate shipping charges for sending each item to the customer, but it’s probably not wise to pass this charge along to the customer, as they’ll think you’re grossly overcharging for shipping! And even if you did want to pass these charges along, automating these calculations can be difficult.
SUPPLIER ERRORS – Have you ever been blamed for something that wasn’t your fault, but you had to accept responsibility for the mistake anyway? Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments, and low-quality packing, which can damage your business’s reputation.
Is It Worth It? – And Participants Involved.
As we initially warned, dropshipping isn’t a perfect, stress-free way to build a successful business. The model has some definite advantages but comes with a number of built-in complexities and problems you’ll need to be able to address. We’ll be examining these problems – and how to best address them – in future chapters. The good news is that with some careful planning and consideration, most of these problems can be resolved and need not prevent you from building a thriving, profitable dropshipping business.
“Supply chain” is a fancy term describing the path a product takes to go from conception through manufacturing and finally into the hands of a customer. If we were talking with hard-core supplier chain gurus, they’d insist a product’s supply chain reaches all the way to the mining of the materials (like oil and rubber) used to manufacture an item. But that’s a little intense.
For the purposes of this guide, we don’t need to get quite that detailed. You simply need to understand the three most applicable players that make up the dropshipping supply chain: manufacturers, wholesalers and retailers;
Manufacturers create the product and most do not sell directly to the public. Instead, they sell in bulk to wholesalers and retailers. Buying directly from the manufacturer is the cheapest way to purchase products for resale, but most have minimum purchase requirements you’ll need to meet. You’ll also need to stock and then re-ship the products when selling them to customers. For these reasons, it’s often easier to buy directly from a wholesaler.
Wholesalers buy products in bulk from manufacturers, mark them up slightly, and then sell them to retailers for resale to the public. If they do have purchasing minimums, they’re generally much lower than those required by a manufacturer. Wholesalers will usually stock products from dozens – if not hundreds – of manufacturers and tend to operate in a specific industry or niche. Most are strictly wholesaler operators, meaning they sell only to retailers and not directly to the general public.
A retailer is anyone who sells products directly to the public at a markup. If you run a business that fulfills your orders via dropshipping suppliers, you’re a retailer.
When you make money drop shipping it is a Service, Not a Role. You’ll notice that “dropshipper” isn’t one of the players listed in the supply chain. Why? Because any of the three – manufacturer, wholesaler, or retailer – can act as a drop shipper! If a manufacturer is willing to ship its products directly to your customer, it is “dropshipping” on your behalf. Similarly, a retail merchant can offer to dropship, although its pricing won’t be as competitive as a wholesaler’s because it isn’t buying directly from the manufacturer.
Just because someone claims to be a “dropshipper” does not mean you’re getting wholesale pricing. It simply means the company will ship products on your behalf. To make money drop shipping and to get the best pricing, you want to make sure you’re working directly with a legitimate wholesaler or manufacturer, a topic we’ll be covering in-depth in the next chapter.
The Order Process
Now that you understand the players involved, let’s take a look at how a drop shipped order gets processed. To illustrate, we’ll follow an order placed with our theoretical store, Phone Outlet, an online merchant that specializes in accessories for smart phones. Phone Outlet dropships all of its products directly from a wholesaler we’ll call Wholesale Accessories.
Make money drop shipping – Here’s a sample of how the entire ordering process might look:
Step 1 – Customer Places Order With Phone Outlet Mr. Allen needs a case for his new smartphone and places an order via Phone Outlet’s online store. Once the order is approved, a few things happen:
- Phone Outlet and Mr. Allen get an email confirmation (likely identical) of the new order that is automatically generated by the store software.
- Mr. Allen’s payment is captured during the checkout process and will be automatically deposited into Phone Outlet’s bank account.
Step 2 – Phone Accessory Outlet Places the Order With Its Supplier
The Phone Outlet forwards the email order confirmation to a sales representative at Wholesale Accessories. Wholesale Accessories has Phone Outlet’s credit card on file. Then it will be billed at the wholesale price of the goods, including any shipping or processing fees.
Step 3 – Wholesale Accessories Ships the Order
Assuming the item is in stock and the wholesaler was able to successfully charge Phone Outlet’s card, Wholesale Accessories will box up the order and ship it directly to the customer. Though the shipment comes from Wholesale Accessories, Phone Outlet’s name and address will appear on the return address label and its logo will appear on the invoice and packing slip. Once the shipment has been finalized, Wholesale Accessories will email an invoice and a tracking number to Phone Outlet.
Step 4 – Phone Outlet Alerts the Customer of Shipment Once the tracking number is received, the Phone Outlet will send the tracking information to the customer, likely using an email interface that’s built into the online store interface. With the order shipped, the payment collected, and the customer notified, the order and fulfillment process is complete. Phone Outlet’s profit (or loss) is the difference between what it charged Mr Allen and what it paid Wholesale Accessories.
Drop Shippers Are Invisible
Despite its critical role in the ordering and fulfillment process, when you are making money drop shipping the dropshipper is completely invisible to the end customer. When the package is received, only the phone outlet’s return address and logo will be on the shipment. If Mr. Allen receives the wrong case, he would contact Phone Outlet, which would then coordinate behind the scenes with Wholesale Accessories to get the right item sent out.
The dropshipping wholesaler doesn’t exist to the end customer. Its sole responsibility is to stock and ship products. Everything else – marketing, website development, customer service, etc. – is the responsibility of the merchant.
Before searching for suppliers, it’s critical to know how to differentiate between legitimate wholesale suppliers and retail stores posing as wholesale suppliers. A true wholesaler buys directly from the manufacturer and will usually be able to offer you significantly better pricing.
How to Spot Fake Dropshipping Wholesalers
Depending on where you’re searching, you’ll likely come across a large number of “fake” wholesalers. Unfortunately legitimate wholesalers are traditionally poor at marketing and tend to be harder to find. This results in the non-genuine wholesalers – usually just middle men – appearing more frequently in your searches, so you’ll want to be cautious. The following tactics will help you discern whether a wholesale supplier is legitimate:
THEY WANT ONGOING FEES – Real wholesalers don’t charge their customers a monthly fee for the privilege of doing business and ordering from them. If a supplier asks for a monthly membership or service fee, it’s likely not legitimate.
It’s important to differentiate here between suppliers and supplier directories. Supplier directories (which we’ll discuss shortly) are directories of wholesale suppliers organized by product types or market and screened to ensure the suppliers are legitimate. Most directories will charge a fee – either one time or ongoing – so you shouldn’t take this as a sign the directory itself is illegitimate.
THEY SELL TO THE PUBLIC – To get genuine wholesale pricing you’ll need to apply for a wholesale account, prove you’re a legitimate business and be approved before placing your first order. Any wholesale supplier that offers products to the general public at “wholesale prices” is just a retailer offering items at inflated prices. But here are some legitimate dropshipping fees you’ll likely encounter:
PER-ORDER FEES – Many dropshippers will charge a per-order drop shipping fee that can range from $2 to $5 or more, depending on the size and complexity of the items being shipped. This is standard in the industry, as the costs of packing and shipping individual orders are much higher than shipping a bulk order.
MINIMUM ORDER SIZES – Some wholesalers will have a minimum initial order size, which is the lowest amount you have to purchase for your first order. They do this in order to filter out window-shopping merchants that will waste their time with questions and small orders but won’t translate into meaningful business. If you’re dropshipping, this could cause some complications. For example, what do you do if a supplier has a $500 minimum order, but your average order size is around $100? You don’t want to pre-order $500 of product just for the privilege of opening a dropshipping account. In this situation, it’s best to offer to pre-pay the supplier $500 to build a credit with them to apply against your drop shipping orders.
This allows you to meet the supplier’s minimum purchase requirement (as you’re committing to buy at least $500 in the product) without having to place a single large order without any corresponding customer orders.
Finding Wholesale Suppliers
Now that you can spot a fraud from the real deal, it’s time to start searching for suppliers! You can use a number of different strategies, some more effective than others. The methods below are listed in order of effectiveness and preference, with our favorite methods listed first:
Contact the Manufacturer
This is our favorite way to easily locate legitimate wholesale suppliers. If you know the product(s) you want to sell, call the manufacturer and ask for a list of its wholesale distributors. You can then contact these wholesalers to see if they dropship and inquire about setting up an account. Since most wholesalers carry products from a variety of manufacturers, this strategy will allow you to quickly source a selection of products within the niche you’re exploring. After making a couple of calls to the leading manufacturers in a niche, you’ll quickly be able to identify the leading wholesalers in that market.
Search Using Google
Using Google to find high-quality suppliers may seem obvious, but there are a few rules to keep in mind:
- YOU HAVE TO SEARCH EXTENSIVELY – Wholesalers are terrible at marketing and promotion, and they’re definitely not going to top the search results for “wholesale suppliers for product X.” This means you’ll likely have to dig through LOTS of search results – possibly hundreds – to find the wholesaler’s website listed way down at #65.
- DON’T JUDGE BY THE WEBSITE – Wholesalers are also notorious for having poorly designed ’90s-style websites. So while a quality site may indicate a good supplier in some cases, many legitimate wholesalers have cringe-worthy homepages. Don’t let the poor design scare you off.
- USE LOTS OF MODIFIERS – Wholesalers aren’t doing extensive SEO to ensure you find their websites, so you might need to try various search queries. Don’t stop at just “[product] wholesaler.” Try using modifiers such as “distributor,” “reseller,” “bulk,” “warehouse” and “supplier.”
Order From the Competition
If you’re having a hard time locating a supplier, you can always use the old order-from-the-competition trick. Here’s how it works: Find a competitor you think is dropshipping and place a small order with that company. When you receive the package, Google the return address to find out who the original shipper was. In some cases, it will be a supplier you can contact. This is a tactic we’ve heard discussed by others but haven’t used ourselves. And if you haven’t been able to find a supplier using the other techniques discussed above, there might be a good reason (i.e., the market is too small, there’s not enough demand to justify a supplier, etc.). So keep this technique in mind, but don’t rely too heavily on it.
Attend a Trade Show
A trade show allows you to connect with all the major manufacturers and wholesalers in a niche. It’s a great way to make contacts and research your products and suppliers all in one spot. This only works if you’ve already selected your niche and/or product, and it isn’t feasible for everyone. But if you have the time and money to attend, it’s a great way to get to know the manufactures and suppliers in a market.
One of the most common questions aspiring ecommerce entrepreneurs ask is: Should I pay for a supplier directory? A supplier directory is a database of suppliers and organised by manufacturers or niche managers. Many directories employ some sort of screening process to ensure the suppliers listed are genuine wholesalers. Most are run by for-profit companies. They charge a fee for access to their directory.
While membership directories can be helpful, especially for brainstorming ideas, they are by no means necessary. If you already know the product or niche you want to sell, you should be able to find the major suppliers in your market with a bit of digging and the techniques discussed above. Plus, once you start your business you likely won’t need to revisit the directory unless you need to find suppliers for other products.
That said, supplier directories are a convenient way to quickly search for and/or browse a large number of suppliers in one place and are great for brainstorming ideas for products to sell or niches to enter. If you’re short on time and are willing to spend the money, they can be a helpful tool.
There are a number of different supplier directories, and a comprehensive review of all of them is beyond the scope of this guide. Instead, we’ve highlighted some of the most well-known supplier directories online. Please note we are not endorsing any of these directories, we’re simply providing you with some options.
Before You Contact Suppliers
UNDERSTAND HOW YOU APPEAR – If you’re launching a new business, be aware that many suppliers aren’t going to go out of their way to help you get started.
Most will be happy to set you up with a dropshipping account if they offer it. But don’t ask for discount pricing or spend hours tying up their sales representatives on the phone before you’ve made a single sale. It will quickly earn you a bad reputation and hurt your relationship with the supplier.
If you do need to make special requests (say, trying to convince a supplier to dropship when it normally doesn’t), you need to build credibility. Be definitive about your business plans (“We ARE launching this site on January 20) instead of using flaky rhetoric (“I’m thinking about maybe launching a business sometime soon”). And be sure to communicate any professional successes you’ve had in the past – especially with sales and marketing – that will help you with your new venture.
You need to convince suppliers that the inconvenience of accommodating your special request(s) will pay off down the road when you become successful and start bringing them a ton of business.
DON’T BE AFRAID OF THE PHONE – One of the biggest fears people have when it comes to suppliers is simply picking up the phone and making the call. For many, this is a paralyzing prospect. You might be able to send emails for some issues, but more often than not you’ll need to pick up the phone to get the information you need.
The good news is that it’s not as scary as you might think. You’re likely to get someone who’s friendly and more than happy to answer your questions. Here’s a tip that will help you, simply write out your questions ahead of time. It’s amazing how much easier it is to make the call when you’ve got a list of pre-written questions to ask.
How to Find Good Suppliers – Like most things in life, suppliers are not all created equally. In the world of dropshipping – where the supplier is such a critical part of your fulfillment process – it’s even more important to make sure you’re working with top-notch players.
Looking at the pros and cons of dropshipping is a way of assessing your level of interest as well as understanding the whole process. You will need to understand the whole process and source of reliable suppliers. The quality of goods supply also makes for a happy customer. It is wise to invest in a reliable computer and wifi system if you are going to embark on this journey to make money drop shipping.
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