Can a person run a dropshipping business?
025 How to use dropshipping to build a profitable and scalable online business with little risk and capital
What is dropshipping?
This business model is about offering a product that you don't even own and only placing your orders with the dealer / supplier when a customer is found. Your margin then results from the price difference between the purchase price and the sales price. You act as a middleman, but do not send or have the goods sent to your own delivery address, but to the end customer. So you have no inventory risk and no goods that tie up a lot of capital.
The process of dropshipping from the customer's order to the successful delivery of the goods only involves a few steps. First, a customer buys your product in your own shop (such as Shopify), which he was made aware of, for example via paid Facebook advertising. When the customer has confirmed his interest in the product by making a payment, the product is sent directly from the manufacturer in Asia (e.g. Aliexpress) to the end customer.
The delivery time can take a few weeks and, in my opinion, this should definitely be communicated so that the customer can prepare for the long delivery time. This not only makes the customer happier, but also avoids frequent email inquiries due to the long delivery time.
How much start-up capital do I need if I want to do dropshipping?
In itself, dropshipping is a business model for which you don't need a lot of start-up capital because you still “buy” goods from the retailer in Asia after a customer has already made his payment. Nevertheless, it makes sense to listen to Reto Stuber, who is an absolute expert in the field of dropshipping. He recommends having a few hundred euros and maybe even a four-digit amount on hand. This is because not every product is a best seller and it leaves you with options to test.
You also need to keep in mind that the “What is dropshipping?” Section describes the optimal process. Therefore, it makes sense to prepare for the fact that not everything always goes according to plan, so that potential failures do not harm you financially.
In addition to the product costs, you also bear the costs for a Shopify shop (from 29 euros per month) and possibly some other apps and tools, so you can expect fixed costs of 50-100 euros.
The benefits of dropshipping
- little start-up capital
- very low risk
- can be started part-time
- valuable skills for other entrepreneurial projects are developed (e.g. placing Facebook ads)
Finding new and profitable products for dropshipping - best practices
As already indicated: Not every product becomes a bestseller. Therefore, as in every company, tests must be carried out. The same applies here: the market is right. Even if you've "fallen in love" with a product idea, your primary goal should still be that the customer needs to buy.
This may require some market research. For example, you can enter the search term “just pay shipping” in the Facebook search bar and let yourself be inspired by the competition (especially in the American market). This can be a good indication that a similar target group in Germany is also interested in the product. Reto particularly recommends looking at social engagement in the form of likes, comments and shares that were written under the post.
Experience has shown that caution is required with clothing and textiles, because sizes can vary in Asia and the European market and many returns can occur, which is not advisable with the dropshipping business model, where you do not have your own warehouse.
You should also be careful with food because there is a risk that it will spoil within a few weeks' delivery time.
In Germany you need some licenses for the sale of electronics, which can be tedious and expensive to purchase. Furthermore, electronics are very susceptible to damage and, as a result, high returns, which is anything but ideal for dropshipping.
Price and margin?
A common mistake, as experience shows, is that the margin is lost from sight. You must not forget that with the delivery costs, the fixed costs for software and the sales tax there are additional costs that should also be included in your margin calculation.
The price depends on the margin and cannot be determined across the board. I know: this is an answer we hate to hear. However, if you were to tie me to a chair, I would say that 15-30 euros is optimal and a price below 10 should be avoided.
To use a rule of thumb, you could aim for a margin of 5-6 euros per product sold. However, the customer lifetime value, for which I have already made a video, is sometimes significantly higher, so that smaller margins can also make sense.
Find the best dropshipping wholesaler
It is advisable to take your time when looking for a manufacturer and to carry out a detailed check, as you will work with this dealer more often in the future. Aliexpress is the forerunner in the market and has an incredible range of potential manufacturers.
Finding the right manufacturer for your product from this mass is not that easy. In addition to the purchase price, you should also focus on other criteria. For example, the so-called social proof should be mentioned at this point. That means: How did other customers rate this retailer and how many transactions have already run through it? Furthermore, the delivery time is an important criterion that you can also check in the comments and feedback from other customers.
Basically, the same criteria apply as when selecting a manufacturer for the "Private Labeling" business model, for which I have already made a video:
How do we make sure customers buy? (Conversion optimization)
The top priority is good market research. That means: Is there a need in the market and am I addressing the right target group. If this is guaranteed and your customers love the product, spontaneous purchases via Facebookads are only a matter of form.
The buy button on Shopify should be visible without scrolling and other sales psychological tactics (REFERENCE such as shortage can be used. Shopify gives us retailers with various tools and plugins, such as
Wheelio Pop-up and Sales Pop-up Shopify also give customers the opportunity to make the purchase as easy as possible and to show them that other customers have also liked this product.
ATTENTION: It should still be clearly communicated that the delivery time can be a few weeks.
Does dropshipping mean a lot of time and money?
In contrast to the t-shirt formula, dropshipping is a lot more work. A big advantage of Shopify and the dopshipping model, however, is that you build up your own customer base that you can market to again and again and thus use the customer life-time value.
Liability and legal
When it comes to liability, it should be noted that you yourself act as a contractual partner for the customer because you imported the goods. In addition, as with any company, there are some legal things that have to be clarified, such as the right of withdrawal on the website, the imprint, the establishment process and the insurance of the goods. Choosing the correct legal form for online retailers is definitely an important step, especially at the beginning you should at least think about establishing a UG.
Since Shopify is a Canadian company, some key data needs to be adjusted so that it is legally compliant. You can find an overview of the adjustments here.
No fear! It all comes with time. Your top priority is the implementation and the first product sales. The fact is that you can certainly scale your dropshipping business until it makes 6-digit sales (open to the top), since you can also sell internationally at some point. As always, the motto is: The more work you put into the business model, the more sales you will generate.
Reto's legendary and proven e-com formula
If you want to be accompanied step by step by an absolute master in his field from importing through your first "passive" euros on the Internet to the successful scaling of your successful business, and want to save expensive money and a lot of time and nerves, I can give you The Ecom formula I warmly recommend it. The templates for various legal texts are also given here, as well as access to its community. There you can not only "read" tips & tricks from others, but also ask your open questions and get answers from like-minded people.
The ecom formula
Automation from Aliexpress to Shopify
Automate customer support with reamaze
Sales pop-up Shopify
Checklist for a legally compliant Shopify shop
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