What Is Dropshipping?
Dropshipping is a digital business model based on the supplier – retailer – customer trinomial. It consists of selling without stock online. That is, the shipment and delivery of products is done through an external provider in charge of storing and managing logistics.
The retailer or seller is in charge of managing the customer database and billing the orders through their e-commerce, hosted on a web page. The customer buys the product directly through the virtual store, so at no time does he know who the supplier is.
Within this digital sales model there are two management systems :
- Dropshipper with a single provider. In this case, the retailer or seller contacts the supplier to sell their products in the virtual store. The wholesaler provides a CSV or XML file for the retailer to integrate the product catalog into e-commerce in exchange for paying a minimum monthly fee.
- Dropshipping purchase centers. This management system means expanding both the quantity and the variety of the product assortment. We work with different providers who usually provide data synchronization services related to products and their sale, in such a way that they automate and facilitate this process for retailers.
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How Does Dropshipping Work?
In order to understand how dropshipping works, we will tell you below how to set up a dropshipping store from scratch:
1. Choose The Market Niche And Analyze The Competition
If you already have a business idea and you think it can fit into dropshipping, great. In the event that this is not the case, do not worry because there are multiple web pages where you can consult the most salable products. You can also consult tools with which to find out the most wanted products. With this, you will also get to know the degree of competition that your business may have if it opts for the sale of these products.
2. Choose A Reputable Provider
Unlike a “pure” e-commerce, with dropshipping your added value resides both in the customer service you offer and in the promotion you do on your products and virtual store.
Neither the manufacture, distribution nor preparation of the order will be your task. So it is very important that you choose your providers well. You will have to select between four or five and negotiate the minimum order quantities, as well as the shipping times and prices. Test them and see if they meet the expected delivery times, the quality of the products and the type of packaging. Remember that every detail adds up to differentiate yourself from the rest of the businesses that use dropshipping.
3. Create Your E-Commerce
Although it is obvious, this step is important to do with certain guarantees. Choose a domain name and a platform to manage your flexible and modular e-commerce. This will allow you to gradually integrate tools and functionalities that favor critical processes in the shopping experience such as the payment gateway, abandoned carts, etc.
At the beginning, your website does not have to look professional, but what is certain is that the more competition, the more level of attention you should pay to those details that make your brand stand out from your more direct competitors.
Once you have your website operational, you will be able to integrate the catalogs negotiated with the suppliers. Remember to set prices that allow you to obtain a certain profit margin, considering both the shipping costs and the currencies in which you will operate.
4. Promote Your E-Commerce With Little Investment
Faced with so much competition, if you want your dropshipping to prosper, you must create a marketing plan with which you can promote your ecommerce while making the most of your limited budget. Believe it or not, there are many free or low-cost ways that, with effort and work, can position and make your e-commerce visible:
Advantages And Disadvantages Of The Dropshipping Method
Setting up a dropshipping business does not have to involve a large investment, as it did years ago for retailers. Many see it as an affordable, cost-effective, and relatively easy to implement model. And, although it is partly true, in addition to its advantages it also has its disadvantages. Next, we show you the pros and cons of this new way of selling on the internet.
Advantages Of Dropshipping
- It does not require a large investment. To start your e-commerce you do not need to buy the products in advance. You should only do it once the customer has bought it and you have received the payment. Thus, the initial investment is negligible, since the cost of inventory is eliminated.
- Offers low fixed costs. This model does not need to have a warehouse, nor to acquire stock, nor does it manage the handling of the product.
- Outsourced order logistics. One of the great headaches, such as logistics, remains in the hands of the suppliers in the dropshipping mode. The retailer is unconcerned about this process.
- It can be one of the most profitable business models because the retailer is not responsible for manufacturing costs and shipping costs.
- Many of the processes are automated by the platforms on which the e-commerce is hosted.
- It is a scalable model, so it offers exponential growth. It can be easily scaled by working on key issues into a full-time business.
- It does not involve a great cost of personnel . It is easy to manage, so it is usually the founders themselves who are in charge of its operation.
- The high dependence on dropshipping providers makes it crucial to choose them well from the start. As a retailer, you will be in charge of customer service and, in many cases, the problems that arise are the result of failures in logistics or manufacturing.
- High level of competition . Although it is a booming model, there are already many companies that have turned to this business model. It is increasingly difficult to differentiate yourself from other competitors.
- It is increasingly difficult to position the brand. You must bet on worked SEO and SEM strategies. Google penalizes duplicate content, so investing in quality content is essential to be able to differentiate yourself, and not just because of the price.
- Low margins. With this model, the margins are usually lower than usual. Therefore, you will always need to get more sales to obtain the same profits as with a traditional online store.
- Difficult to control inventory. If you collaborate with many suppliers, inventory control may be difficult. To avoid this, it is important to integrate tools that allow you to synchronize your databases with your platform.