What is the importance of drop shipping
What is dropshipping? The Easiest Way to Start an Online Business!
Dropshipping is still an exciting topic for entrepreneurs and those who want to become one. But what exactly does the term dropshipping actually mean? How does it work, what are the advantages and disadvantages and what do you have to consider? We want to get to the bottom of these and other questions in this article.
But first a little background information:
Dropshipping is not really a new business model. The US company Zappos started dropshipping back in 1999. Amazon and Sears have also been running this model for some time. Today, an estimated 33% of the entire e-commerce industry uses dropshipping (sometimes referred to as drop shipping in Germany) as their primary business model.
Now let's take a look at what dropshipping actually is and why the model can be exciting for you if you are interested in starting your own business.
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Dropshipping Definition - What is Dropshipping
In principle, dropshipping means the following: The online retailer does not buy his inventory in advance and stores it himself. Many steps of classic e-commerce are omitted here. As soon as a dropshipper sells a product, he orders it from his supplier, who in turn delivers it directly to the relevant customer. The goods remain with your trading partner until they are dispatched to the end customer.
In the German-speaking area, so-called drop shipments are often discussed here - a model that has been around for a long time in the logistics sector (primarily at the B2B level). With the move into the digital world and the expansion to the B2C world, the term dropshipping was established. Okay, but how exactly does dropshipping work now?
How does dropshipping work?
Dropshipping is actually relatively easy. First, you research a product that you think is promising. You can then offer and advertise this via your own online shop or other sales channels (e.g. social media).
Through your marketing activities you can find customers, surf your website and order your product. You receive the order and you forward it (also works automatically) to your supplier. From there, the order will be processed and sent to your customer.
The customer pays you, you pay your trading partner and the margin stays with you as a profit. The dropshipping model differs from traditional retail (whether online or offline) in terms of inventory management. Because here, as a rule, large quantities of goods have to be purchased, stored and then dispatched to the customers on their own.
Below is the whole process as an infographic:
Sounds perfect at first, doesn't it? But, as always, there are advantages and disadvantages to dropshipping. And now we want to take a closer look at them.
Dropshipping: the advantages
A dropshipping business has some important advantages, especially for entrepreneurs who are just taking their first step in e-commerce:
Low start-up capital
As already mentioned, as a dropshipper you don't have to buy any products in advance. You only buy what has already been ordered from you. This advantage gives dropshippers far more flexibility than a classic e-commerce model. So you can easily test many different items to identify a few real winning products. You can then advertise them more intensively in order to achieve maximum sales. Without a great upfront investment, it's also the perfect model for people who want to try their hand at e-commerce and gain experience first.
No own inventory, no storage costs
Since the goods remain with your supplier and are shipped from there, you can do without your own warehouse. Premises, furnishings, staff and transport equipment - you don't need to worry about any of that. Instead, you can invest the saved budget in your website and marketing.
No risk of goods
This point is closely related to the final benefit. The goods risk describes the fact that some products simply do not sell well - they are the dreaded slow-moving goods. But since you don't have your own inventory, this risk is completely eliminated for dropshippers.
No order processing
As soon as you receive an order, you forward it to your dropshipping wholesaler. He then takes on the assembly, packaging and shipping. This order processing can be quite fragmented and time consuming. If you invest the time saved in activities like marketing, customer service, and scaling, you can accelerate your path to success.
By completely withdrawing from the supply chain, a dropshipping business can also be designed very well regardless of location. Whether you are sitting here in Germany or in the coworking space in Bali - the processes will hardly change. Therefore, dropshipping is also perfect for (budding) digital nomads or for people who want to build up an extra income.
Dropshipping: the cons
Where there is a lot of light, there is also shade. Admittedly, there aren't that many when it comes to dropshipping. Nevertheless, we also want to look at the disadvantages of the dropshipping model:
Less impact on customer satisfaction
No matter how good your online shop is, if your supplier sends the package too late, the shipment is on the way too long, the shipment is damaged or perhaps does not arrive at all, then you have a problem. In addition, you are always dependent on the cooperation with your partner when solving such problems. This means that certain things are simply beyond your control. Good and pragmatic customer service is therefore all the more important. Read our article Customer Service in E-Commerce - the ultimate guide.
Less impact on branding
If you are just starting to work with a supplier, you will have very few options for branding your product and packaging. We're also talking about branding here. Most of the time, the whole thing will be more generic and only your brand name will appear on the package as the sender. But if you cooperate with your partner for longer and bring him good sales, he will also offer you more branding options.
Low profit margins
The advantages discussed above attract many retailers, which is why there is a lot of competition for almost every product segment. Accordingly, the margins are often low, and the individual purchase of the products also contributes to this. However, the problem of low margins can be avoided with in-depth research, testing, and a focus on undiscovered niches. Even today, attractive sales can be achieved with the right products and the right marketing mix.
Dropshipping Instructions: How to Start Your Own Dropshipping Business
Okay, so now you know what dropshipping is, how it works, and the benefits of being a dropshipper. You probably want to know how to get started yourself by now. You can find a lot of information on the topic on our blog. Our article on typical dropshipping errors is also quite exciting and sheds light on the topic from a different perspective: Nevertheless, we would like to give you a brief overview:
Step 1: Working out your business idea
So you've decided on dropshipping. Perfect. But now you should think carefully about your actual business idea, your concept. For this you should ask yourself the following questions:
- What kind of products do I want to sell?
- How will I approach pricing?
- Which sales channels will I sell through?
- Which market and which target groups will I be addressing?
- What will my marketing strategy look like?
- What will set me apart from the competition?
- For which aspects will I possibly need a budget and how much?
Even if this means some effort and preparatory work, this will make it easier for you to get started and drastically increase your chance of success.
Step 2: Register a dropshipping business
Another advantage of dropshipping is that you can do the whole thing as a sideline for now. Nevertheless, even in this case, especially in bureaucratic Germany, you have to pay attention to some formalities.
To start with, you have to register a business, which you can do for a fee at your local city council. This automatically leads to a report to your tax office, so that you do not have to worry about any further steps.
Danger: This is just a very rough overview. We strongly recommend that you seek advice from a competent tax advisor right from the start or contact the local Chamber of Industry and Commerce.
Step 3: Find products and suppliers
If you want to run a successful dropshipping business, you need one thing above all: At least one attractive product that you can sell through your shop and / or other sales channels.
In the past, you often had to laboriously contact individual retailers and coordinate the formalities for dropshipping. Nowadays, everything is much easier and faster. If you have a Shopify shop, you can install the Oberlo app and use it to easily import products into your shop with one click.
You're ready to test, sell, and make money. In addition, you can quickly see which products are currently trending and are often offered by other retailers.
Dropshipping Tip: You should always order a sample before selling. So you can convince yourself of the shipping process and the quality of the product.
What exactly to consider when choosing a dropshipping supplier can be found in this article on the blog.
Step 4: competition research
When you've found a product that you think looks promising, you should research your competition. Are there already suppliers on the market who are selling the same product? If so, how are they positioning themselves, where are they selling, what is their marketing like and at what price are they selling. While this will take some time, this research will be extremely useful and will increase your chances of success.
Step 5: Marketing, Promotion and Customer Service
As we have already learned before, the dropshipping model can save a lot of time and money. You should invest these resources in your marketing activities and customer service to build your brand and differentiate yourself from the competition.
In the area of customer service, you should think about how you will deal with complaints, how you will handle returns and which channels you will use for customer communication. The aim of all these aspects should be to ensure the smoothest possible customer experience and to win real regular customers and recommendations.
When it comes to marketing and advertising, you are spoiled for choice. Social media marketing, Google Ads, influencer marketing or even guerrilla marketing - the possibilities seem endless. But make sure that you also act with your measures where your target group is. In addition, as with your product selection, it is advisable to test a lot and then expand your most effective measures. You can find initial ideas in our article on the topic of marketing mix.
Frequently asked questions about dropshipping
1. How to start a dropshipping business: is the model easy to implement?
Dropshipping is easier than ever today. With Shopify you can set up your own online shop in no time, completely in your design and with all the functionalities you need to sell. With the Oberlo app you can then research products and import them into your shop with just a few clicks.
2. Will my customers know that I'm dropshipping?
If you use the suppliers listed on Oberlo to source your products, your customers will not know that you are dropshipping.
Why? You don't have to worry about these suppliers including promotional materials or their own invoices in packages sent to your customers. Nevertheless, we recommend that you briefly inform the supplier that you are a dropshipper when you place your order. So you play it safe.
3. Why should someone buy in my shop instead of directly from the supplier?
Because you are just better.
It's a better marketing strategy that you used to reach the prospect first. It's your branding that convinces people to buy from you. It's the way your shop is built that people trust, even if it may be based entirely on your location. It is the value you add by providing additional services or content. It's the technology that makes it easier for your customers to shop.
Our tip: Don't get too involved in price competition. You shouldn't be trying to be the cheapest supplier for better or for worse. Rather, you should calculate a price at which you feel comfortable, cover your costs and record an attractive profit.
4. Dropshipping Germany: Shipping takes a long time, will customers wait?
Your job is to clearly define your shipping policy and then display it prominently on your shop's website. The aim here is to create clear customer expectations right from the start.
With the popular ePacket delivery option, it usually only takes 7-14 days for the parcels to reach your customers.
After all, many of the suppliers listed on Oberlo have a proven track record of delivering quickly. So you can inspire your customers not only with first-class products, but also with reliable and fast shipping.
5. What about quality risks and possible copyright infringements?
You have probably heard stories about the sometimes shockingly poor quality of Chinese products. Unfortunately, some of these stories are true. As is so often the case, this problem can be viewed from several angles.
In reality, regardless of their geographic location, you can run into bad suppliers.
Ultimately, you always have to be careful when it comes to choosing your dropshipping suppliers. But also in this regard, the suppliers listed on Oberlo have an extraordinary track record, which minimizes your risk from the start.
6. Do the suppliers speak English?
The English of the Chinese suppliers is not always perfect. However, you can get in touch with them in advance to get a feel for their language skills. Larger suppliers are usually very responsive. They have sales teams who can manage your orders and answer your questions via live chat or email.
7. How can established companies benefit from dropshipping?
In the case of dropshipping, the “learning by doing” concept has proven to be successful. Dropshipping is the ideal model for new and aspiring entrepreneurs. It is completely understandable that an incumbent company would not switch their fulfillment model to the dropshipping model. But even in these scenarios it can make sense to consider a dropshipping business as an alternative or supplement.
Simply put, dropshipping is a great model that you can use to quickly test out new product ideas.
In addition, you can add a new product category within a few days. If this turns out to be successful, you can buy the products yourself as usual and keep them in your warehouse. This way, you reduce the risk of buying inventory without knowing if it will sell well. Dropshipping can therefore effectively increase the flexibility of your company.
The dropshipping experiences of new and experienced entrepreneurs speak for themselves. So why shouldn't you be able to earn money with it successfully?
One thing is clear: getting to grips with the topic of dropshipping takes time, careful research and planning. Even so, there are many things in favor of dropshipping. It's the easiest way to start your own online business and is ideal for testing new product ideas. It also requires little start-up capital. This gives you the opportunity to venture into the world of e-commerce with only limited risk.
There are many helpful apps and services that can be used in conjunction with dropshipping, including Oberlo and Shopify. These can ease and automate the more complicated aspects of a dropshipping business and remove some of the pitfalls we addressed in this post. These tools allow you to devote your time to maximizing profits by developing the right marketing strategies and establishing your brand.
You don't have to worry about warehousing, which only makes starting a successful business faster. To find out more, check out the Oberlo app or browse our blog for information on the leading dropshipping apps and platforms.
Would you like to find out more?
Would you like to learn more about dropshipping or any of the aspects discussed here? Then let us know in the comments below.
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