Dropshipping Guide Introduction
Welcome to our Comprehensive Dropshipping Guide about starting an ecommerce dropship business. Drawing from resources available from some of the ecommerce giants who are consistently on top of their game in this space, we aim to write to you from multiple perspectives, giving you a deeper understanding of the dropshipping model.
Some of the statements and examples presented here may be from people who are already running successful dropshipper reliant businesses, dropshipping suppliers themselves, agency members who design websites for new online entrepreneurs, agency members who are responsible for effectively marketing ecommerce stores as well as retail operators who have been running brick and mortar and online retail businesses for many years and can bring a wealth of knowledge on the subject to the table.
What is the Comprehensive Dropshipping Guide About?
In this dropshipping guide we will explore some facts and misconceptions about the dropship concept and wherever possible we will aim to back things up with real examples of dropshipping working, or perhaps for some, not working.
Dropshipping has been around since the early beginnings of the internet and its use by everyday consumers. As the first ever online stores began to pop up online, dropshipping was born and some may argue that it is in fact drop shipping that is responsible for the exponential growth in online retailing.
This of course does make sense as it allowed people with very little capital to start online businesses, forming new online stores with an ever expanding catalog of goods and categories.
There were times where dropshipping was new and it presented real opportunities to people wanting to start an online business, and there were also times where the concept has been exploited by some and given somewhat of a bad rap.
Nonetheless, one thing is for certain, as the retail landscape continues to evolve and now in 2017 online retailing in as common as brick and mortar retailing, dropshipping continues to be the major driving force of change and innovation within the online retailing space.
Today, dropshipping is more popular than ever and is used by the the sole mum and dad operators with a thin budget, as well as large scale global retail giants. The attraction of course being the level playing field, where all involved can compete against each other.
Let’s continue to the next section of the dropshipping guide and explore in detail what dropshipping really is.
Traditional Supply Chain Model
When we talk about the supply chain model, we are really referring to the journey a finished product makes to get from the factory where it is produced, to the checkout where a consumer had just purchased this item.
This cycle is a micro-economy of its own as it involves many processes which form this supply chain. There are resources and materials necessary to manufacture the goods, as well as the services that are required to transport, store and distribute, the goods.
The process of manufacturing and distributing products on a global scale is big business, and it often means that a lot careful planning needs to take place to ensure the most economical way of producing those goods and getting them to the consumers.
Some of these processes might seem a bit trivial to the outsider looking in on the model if the grand scale of the operation is not fully understood.
Did you know for example, that a steel dumbbell that you might purchase at your local sports shop might have been around the world before you purchased it?
We all know that China is the manufacturing powerhouse of the world, however a lot of the resources that are used in the production of goods actually come from another part of the world.
So, let’s say you are in a sport store in LA, consider this. The steel to make that dumbbell most likely got mined in Western Australia, then was transported to China to be made into the finished product, then again transported to the United States to be distributed and sold throughout local fitness stores.
Whats even more mind blowing is if you imagine being in Perth, Western Australia buying this dumbbell. This would mean that the steel to make this dumbbell has been mined literally “down the road”, then exported to China to be manufactured, then sent back to Western Australia to be resold as a dumbbell.
Sounds crazy right? Well it is making perfect economic sense, and it’s that savings cost of few cents on the cheaper labour costs in China, that are making this whole production and distribution cycle more profitable than any other means.
Elements of the Supply Chain
The supply chain is made up of these key elements:
Manufactures are responsible for transforming the raw materials into finished goods.
This involves gathering the necessary resources such as the materials needed to manufacture the goods, organize any moulds necessary, organize the human workforce necessary to operate the machinery throughout the manufacturing processes and so on.
The inner operations of each manufacturing plant differ from industry to industry.
For example any manufactures that produce food items that are consumed regularly would operate around the clock.
On the other hand manufacturers who let’s say produce furniture would have the plant sitting idle until an order has been received, then production begins and the plant shuts again until next order is received.
Buying your goods directly from the manufacturer is hands down the best way to get your goods at the best possible price, however this is not always an option.
Manufacturers are not always the product owners.
It would be the perfect scenario to be able to approach a manufacturer and ask to purchase some products from them so you can resell those goods online. However, manufacturers are in most cases just performing a service and fulfilling an manufacturing) order that a brand or company might have placed with them to produce an x amount of products.
There really isn’t any spares just lying around that you might be able to purchase. There are no spares because as we mentioned before how steel is shipped across the world to make those small savings, the operation is so tight that only the right amount of resources is assigned to produce the exact number of items required. Anything more or leftover, actually counts as wastage and therefore an inefficiency on the cycle.
Some manufacturers do their own thing.
Each manufacturing plan is a business of its own, and if there are no production orders booked, some manufacturers can continue operations really just to keep the workforce busy. A lot of OEM Manufacturers will come up with their own designs and produce some items which can then be advertised as “ Available Products” – products that can be ordered.
Manufacturers as Dropshippers
There are some manufacturers that offer dropshipping services.
Manufacturing businesses like any other business, face challenges of competition, and this is why over the past few years we have noticed quite a few manufacturers start to provide drop shipping services.
Some manufacturers produce excess items to be able to fulfill smaller orders and split orders that may be received. Usually when a large order is received, the factory goes into full production swing. However since the GFC of 2008 things have changed a little. Wholesalers and Retailers have begun to demand smaller orders to cope with the increasing pressures of diminished consumer demand driven by sluggish economic activity worldwide.
The result is manufacturers started to allow multi item orders where the buyer is able to order several different items to pack into one container, rather than have strict limits of larger Minimum Order Quantities (MOQ) which would usually fill a full container with the one type of item.
Since then, the consumer demands have recovered as figures show, retail spending continues to climb driven by strong consumer demand for new products.
However now, there are more retailers offering more products than ever, and this is because manufacturers are still allowing “multi item per container” orders.
Manufacturers have evolved over the past decade and now make excess products to have on hand and in some cases allow retailers to draw on their stock levels by providing drop shipping services and shipping the good directly from the manufacturer’s production floor and warehouse, to the retailer’s customer/consumer.
Wholesalers basically purchase large quantities of goods from manufacturers and then resell those goods to retailers.
Wholesalers occupy specialised segments
In most cases, wholesalers will specialise in a particular segment or a group of related segments and categories.
It is not common for a wholesaler to be specialising in unrelated items such as let’s say car parts and multivitamins. It’s not unheard of, but not common. It is more likely that the wholesaler will specialise in car parts, tyres, lubricants, tools etc, giving the retailer a one stop point to obtain their related products.
Wholesalers tend to be most densely concentrated in cities where there are direct access routes to international freight ports. This is a convenient location as cargo usually makes its way via the ocean. Once the freight arrives it is usually stored in large warehouses from where it can be distributed easily across the country.
Wholesalers as Dropshippers
The most common dropship service providers are wholesalers/importers.
These are the companies or individuals who have access to manufacturer direct pricing for the goods and usually already have large inventories of the products available for dispatch.
Wholesaling Dropshippers will almost always provide a better pricing structure for actual bulk wholesale orders over the individual drop shipped item, but this is something that is just common sense.
The more you buy the cheaper it is, the old rule of thumb that exists in supermarkets, also exists throughout the entire supply chain.
Wholesalers are usually set up in warehouses where all of the goods distribution takes place.
It is really easy for wholesalers to incorporate a dropshipping operation into their main business. It gives the wholesaler a vertical which is profitable and does not require too much in terms of new systems being implemented as it is already using a lot of the infrastructure that has been put in place to operate as wholesale business.
It takes no real effort to pick a product off the shelf, pack it and ship it. And any effort that it might take, is compensated for by slightly increased pricing.
More and more wholesalers are engaging in dropshipping practices as again, it just keeps their business ticking over. Days or weeks where larger orders are not received, can be somewhat compensated for by dispatching smaller orders by the means of dropshipping.
Choosing the Right Products for Your Dropshipping Venture
If you are new to the worlds of e-commerce and dropshipping, you may have already noticed that choosing your intended audiences and the products that you will sell to them is not as easy as you initially thought. As an entrepreneur, you should expect to come to various points when you will have to make educated decisions, and this is one of them.
While your lifestyle, personal interests and knowledge of certain products may come in handy as you conduct market research about the various niche opportunities available to your business, there will come a time when you will have to decide between your personal and business interests. This is how it should work: first you conduct market research, then you evaluate your options in terms of economic feasibility. If your personal interests are still represented, congratulations! You will likely enjoy your dropshipping journey more than others. If you think that business success will be elusive if you include your individual passions, you will have to make a serious decision. The idea is to not let your personal interests obfuscate your business life.
With the above in mind, here are some e-commerce business basics that you should become acquainted with first:
Manufacturing and Exclusive Selling
When you are the sole source of specific item as a manufacturer or exclusive distributor, you are in a good position of control that will likely bring you success, but you will not be a dropshipper. In the world of e-commerce, exclusive distribution arrangements are very high on the food chain, and thus you may want to consider them later in your career.
You do not necessarily have to become a manufacturer to reach the higher levels of e-commerce. As you become an experienced dropshipper, there is a chance that you will learn to spot certain opportunities to move away from the competition and cater to a niche market; when this happens, you might be in a good position to establish a more traditional e-commerce position and propose an exclusive pricing or distribution arrangement with a supplier. In fact, if you are an ambitious entrepreneur with long-term goals on your horizon, you may wish to add this one to your bucket list.
The Lowest Price Strategy
If you are the type of entrepreneur who likes to hit the ground running, this strategy will probably suit your personality; at the same time, however, it may lead you to an early exit from the business. The lowest price strategy is only sustainable when executed by the likes of Walmart in the United States or Aldi in Germany. As a dropshipper who is just starting out, you may find an easy niche that you would like to dominate through bargain pricing, but it won’t be long before competitors pounce and drive you right off the market. This is generally not a strategy you want to follow.
Adding Value to your Drop Shipped Products
This is exactly what you want to be doing at all times; whether you are strictly dropshipping or heading into a more traditional e-commerce direction, adding value should always be your top business priority. Adding value is easy to discuss but difficult to accomplish efficiently. To get started, you must think about your audiences in terms of prospects, buyers and customers. Your goal will always be to convert prospects into buyers and buyers into customers; to reach this goal, you have to provide them with value propositions beyond good prices.
There are many ways to add value in e-commerce, and one of the best methods is by offering information that not only complements the products you sell but also sets you apart as a dropshipper. You have to provide information that can clear questions, solve problems and entertain prospects. Keep this in mind when you select your niche market because you will have to become an expert within this niche; to this effect, if you decide to enter a niche that is very profitable but difficult to understand, you will either have to learn quickly or work with associates who can help you. One example in this regard would be a dropshipper who chooses to sell chemistry kits for students; the prospects attracted to these products will expect to see a substantial amount of educational content before they make a purchase, and they may want to see even more content as they become customers.
Ways to Add Value
The internet has become a very visual place, and thus you should start adding value by using only the best quality images you can get.
If the products you sell require guides for buyers, make sure that they are comprehensive and easy to read. You may want to invest in content creation for your product descriptions, listings, and manuals.
Entrepreneurs who choose to sell products that may require components and installation can achieve business success if they know how to treat their customers. A seller who offers smart home automation products, for example, has a good chance to add value by offering various devices. A buyer who starts off with a smart home automation hub will soon become interested in smart bulbs, locks and home theater systems; it is up to sellers to offer them not only these devices but also installation guides and instructional videos.
Selling products that allow for customization and upgrades is another dropshipping activity that can become profitable for entrepreneurs who add value. Dropshippers who started off as e-commerce sellers of digital content such as video games or eBooks are probably familiar with this strategy. Let’s say you start off selling downloads of the controversial yet addicting video game Hotline Miami; you know that there was a lot of expectation and clamor for a sequel, and thus you should seize this opportunity and do everything possible to connect with the game’s developers or distributors. You want to keep customers informed about how Hotline Miami 2 is coming along and what they can expect from the upcoming sequel; in the meantime, you can also steer your customers towards similar games such as Midnight Animal.
With cosmetic sales, the sky is the limit in terms of adding value. Dropshippers who choose this niche have many opportunities to sell related products by creating beauty and makeup guides, particularly digital videos that have been formatted for smartphones. The opportunity to cross-sell is very lucrative for the right dropshipper who can become a cosmetics expert.
Evaluating Customer Demographics Within Niche Markets
Catering to the right audiences will be go a long way towards the success of your e-commerce ventures; to this effect, you should focus on the following three demographic groups:
As you become a more experienced dropshipper, you may want to use a customer relationship management (CRM) solution to identify those buyers who are giving you business with greater frequency. It is easier to amass repeat buyers when the products you sell are disposable; these customers need to be treated like royalty, and thus you should target them with coupons, discounts and freebies as often as possible.
If you choose to sell products offered on the business-to-business (B2B) marketplace, you will have a greater opportunity to increase your bottom line by cultivating relationships with your clients. B2B buyers tend to acquire items in large quantities and with greater frequency. When dealing with B2B clients, you should keep in mind that they tend to be very conscious about pricing and they may also demand fast delivery.
People who purchase items to support their life passions and interests are some of the best customers you could hope for. For dropshippers, catering to people who are active in certain hobbies means being able to offer equipment, tools, supplies, replacement parts, accessories and new products. Hobbyists can be very prolific buyers; to this effect, think about street racers who spend fortunes swapping out parts for their cars.
Selecting Products for Dropshipping
When choosing the products that will move more efficiently within your niche market, you will have to consider certain characteristics pertaining to pricing, availability, shipping, and marketing.
If you choose to offer high-priced items, you will have to provide a support platform that can reassure buyers before they place their orders. Anything over $200 will prompt prospective buyers to contact you with questions about the products you offer; if this is the case, you will have to adjust your operations accordingly to account for the effort of providing a support platform.
When you come across items that are sold with an expectation of minimum advertised pricing, you should view this as an opportunity to set e-commerce store apart from the competition. For the most part, your competitors are going to offer products on the higher end or the manufacturer’s established range; this is your chance to dropship these products at the lower range while focusing on marketing and customer service operations that your competitors are not engaged in.
Have you noticed that many dropshippers choose to sell accessories for mobile phones? The reason for this trend is that accessories are part of a market that offers higher profit margins. In general, you want to offer a few high-priced items complemented with lots of accessories. Keep in mind that accessories tend to have high rates of turnover, which means that they will keep you on your toes in terms of updating the settings and listings of your online store.
If you are not sure about how to implement the best marketing strategy for the products you will be dropshipping, you should take as much time as you need to formulate a plan. All products will have marketing potential; it will be up to you to realize this potential. If you blindly select products without a reasonable marketing strategy in place, chances are that you will not be acquiring many customers and will find it difficult to break even.
As you research your niche markets, you may want to look for products that you know are not easy to acquire in certain regions. One idea in this regard is to offer products that brick-and-mortar stores do not regularly offer; once you have established low regional availability, your next step should be to formulate a search engine optimization (SEO) strategy since you know that your prospective buyers are going to look online for the products they cannot find at their local stores.
In general, shipping smaller products is better for entrepreneurs who are new to the worlds of e-commerce and dropshipping. Larger items will always prove more difficult and expensive to ship, and this may impact your profit potential.
After making niche market considerations, your next step should be to gauge demand potential. Since your products are more than likely going to be discovered by means of internet searches, you can use SEO tactics to research the demand and interest in certain products. To this effect, you can use a couple of tools provide by search engine giant Google to get an idea of how certain products will be received by online audiences:
Google Keyword Tool and Google Trends
One method you can use to gauge interest in products is to evaluate reports generated by Google Keyword Tool. There are two main aspects of keyword performance reports to consider:
Geographic Search Location
When looking at the search location data provided by Google Keyword Tool, you should not pay attention to global queries; instead, you should focus on the data provided within the country you choose to ship and market your products in.
If you are getting started in e-commerce, you may not want to evaluate broad keyword match reports; stick to the reports provided on the exact keywords describing your products.
Google Keyword Tool will only give you some long-tail keyword matches for your products; it is up to you to provide more options. Let’s say the products you choose for your niche market include retro athletic shoes; you will want to evaluate long tail search queries for each of your products such as “chuck taylor Converse,” “vintage Puma,” “retro Adidas,” and others. As you start marketing your products with SEO, you will want to focus more on long tail search queries as they are generally more beneficial to your bottom line.
Getting Demand Insights from Google Trends
If the niche market you choose to operate in features novelty and trendy products, you will really want to evaluate Google Trends from time to time; nonetheless, this tool is also useful for entrepreneurs who would like to see past performance for their products.
Google Trends can help you decide your niche market based on the popularity of products. By evaluating the top and rising terms section of the reports generated by Google Trends, you can get ideas about goods and services that people are searching for; moreover, this section also provides you with related keywords.
Another important section of Google Trends deals with search volume over time, which can tell you if the niche products you are planning to offer are drawing interest over time. You will also want to look at the geographical concentration of the search queries; this will come in handy when you decide to choose dropshipping partners such as suppliers and fulfillment centers. Finally, Google Trends also provides seasonality information so that you know if the products you offer have sales cycles; this will further give you the opportunity to design an editorial calendar for content marketing.
Evaluating Your Competitors
As a dropshipper, you will find that your most powerful competitors are those that have been able to grow their online brand organically, which means that they are listed on the first Search Engine Results Page (SERP). Reaching this SEO marketing level is not easy, but it is worth every effort you can make.
When it comes to SEO marketing, you will have the option of doing it yourself or contracting a specialized firm to handle this crucial aspect of your business. Keep in mind that SEO is an intricate field that requires considerable learning; with this in mind, here are a few metrics for you to consider:
The Google search algorithm gives substantial rank to websites that have a high number of quality inbound links. The links that you want pointing to your e-commerce website should come from other sites that are considered to be of high authority; for example, if you decide to dropship scuba diving equipment, accessories and supplies, a link from Sport Diver magazine will be considered to be of very high quality. Ideally, your online marketing efforts should focus on getting dozens of these links.
Quality, Speed and Reputation
The layout and presentation of your website, along with its loading times and positive online reviews, will also play a major factor in how you will rank on the SERP. If you choose a cloud-hosted e-commerce platform known for its reliability, Google will reward your smart choice, particularly if your online store has responsive design elements that adjust to mobile devices.
Building a positive online reputation for your e-commerce venture may take time, but it will work wonders in terms of SEO. One way to start building your reputation as a dropshipper is to sell your products on the eBay and Amazon marketplaces since those platforms encourage buyers to leave comments and reviews.