It seems so easy and you could get very rich doing it: dropshipping. You start a webshop and make arrangements with a manufacturer or wholesaler. This delivers the orders directly to your customers. In short: no stock, no worries about distribution and delivery, but do cash. But is it really that easy? And should we want this, as Ecommerce sector or consumer? Dropshipping has its risks, but also great advantages. It can be a great business model if you have the right key success factors up front. We give five of them.
Dropshipping is one of the most accessible ways to enter the dynamic world of E-commerce. After all, because you don't keep any stock and don't have to manage any logistical processes, you can quickly get into business with a modest starting capital. You don't buy any products yourself. You are a link in the chain, an online retailer. conduiteven if it sounds a little less charming. You can make your product range as large and broad as you want, because you don't have to invest in it and you don't need storage space for it.
For customers, only one criterion counts: the right article at the right price, in the agreed delivery time.
In other words, there are only advantages. The consumer hardly cares where his order comes from. The consumer has only one demand: that the correct article is delivered within the agreed term and meets his expectations. The manufacturer or wholesaler is happy to have an extra B2C sales channel and will be happy to make agreements about aspects such as neutral packaging, shipping methods and costs and any customs formalities. You run the webshop, place orders and manage the payment procedures. Your profit is the difference between the price the wholesaler charges you as dropshipper and the price the end customer charges. This is your margin or commission.
That's quick money, you think. Especially if everything goes like clockwork. But the challenging thing about doing business is that the road to success is littered with pitfalls. Firstly, orders can arrive late at the customer's premises, which can damage your reputation. Secondly, products can be damaged in transit. That also hurts you. Moreover, disagreements can arise over returns and refunds. And that's where you come in as a dropshipper/online retailer. Because no matter how you look at it, you are the first and only point of contact for the customer.
There is a limit to the margins and getting rich quick with dropshipping is an illusion.
A second challenge lies in the margins. As mentioned, your earnings are determined by the difference between the price you pay and the price the end customer pays. Not to mention the shipping costs. You can't pump up that difference with impunity. After all, manufacturers and wholesalers do business with more platforms and webshops and price competition is fierce. Online consumers are very price conscious and critical. Although ease of ordering and short delivery times are essential, the product price has been in the spotlight for years. Top 3 decisive factors for the online consumer. If you are above average price, without tangible added value to deliver, that sings quickly on social media around. In short: there is a limit to the margins and getting rich quick with dropshipping is an illusion.
However, this is no reason to abandon plans for a webshop based on dropshipping. As a dropshipper you will not get rich overnight, but it is a realistic business model and many E-commerce-entrepreneurs are successful with it. Either through their own webshop, or through a marketplace. If you opt for the latter, it is important that you carefully consider which products are allowed and which are not, what the exact rules are, and what it means for your already tight margins. The advantage of having your own web shop is that you can determine the range and conditions yourself. In short: with a webshop you pull the strings yourself.
5 success factors for dropshipping
The ease of access and the low level of investment capital required argue in favour of drop-shopping initiatives. Moreover, there are more and more international manufacturers and wholesalers (the dropshop suppliers) who are actively looking for exclusive or complementary online retail channels. If you don't run away from entrepreneurial responsibilities, opportunities do exist. With as main success factors:
- Belief in the product to be sold and the market potential
- Critical selection of cooperation partners (manufacturers/wholesalers/platforms) and unambiguous agreements
- Realistic margins
- Invest in marketing and brand building and the intention to offer an optimal Customer Journey, including the service that goes with it
- The choice of a suitable E-commerce solution (webshop software)
Look, compare, choose and earn money
Especially the latter factor is of great importance. As said, competition is fierce and the only 'economic value' that the drop-shopping model offers, lies in the role of online (re) sales channel. So the look of your brand and webshop will largely determine how you attract and retain customers. Other crucial success factors are speed, mobile performance, scalability and reliability of payment and return systems.
If you use more webshops as online outlets for various manufacturers/wholesalers, consider a headless E-commerce solution that offers maximum freedom and flexibility at the front end and stability and continuity at the back end. Ask yourself what really suits your needs: a standard open source solution, or a cloud-related SaaS solution that offers more customization. Invest time and effort in the study and compare E-commerce software. Because if you do step into the dynamic world of E-commerce, do it in a way that scares the competition and offers the online consumer speed, convenience and brand experience.