After nearly a decade of e-Commerce booming, the most common question still flying around is “What is dropshipping?”
What is Dropshipping?
Before going too deep into any other details, we need to answer the question, “What is dropshipping?”
People also often wonder how you could actually dropship profitably because there are so many ways to dropship. And the truth is, some ways work and others don’t.
To start, let’s go over this diagram:
So as simple as possible, this is dropshipping in 4 steps.
Step 1 – You list the supplier’s product on your store for customers to buy.
Step 2 – The customer purchases something from your e-Commerce store.
Step 3 – You order that same exact item that the customer paid for from your supplier.
Step 4 – Your dropshipping supplier ships this item directly to your customer. So your customer receives the item that they’ve ordered, from you.
To explain a little further, it all starts with building your own e-Commerce store and listing products on your website. We recommend building this store on Shopify and customizing it to fit your target customer.
But whose products are you selling? Well, these are different suppliers’ and brands’ products. You may be thinking, “why don’t these companies sell their products directly?”. The thing is, there are companies that only focus on innovating products that rely on retailers to sell them.
That’s where you come in as a dropship retailer. You’ll be selling for these brands who don’t sell to the public. They look for people to sell their products, to make them money, and grow their business for them. You are one of these retailers.
You’ll want to focus on getting approved to sell for these different companies. After you’re approved, you’ll put their products on your Shopify store. Then you will advertise to bring people to your store.
Customers come to the store, and after they purchase, you contact your suppliers. Then they ship the items directly to the customer. You aren’t buying any inventory. All you’re doing is making an agreement with the dropship supplier to sell their products on your website.
You get their price lists and put their products for sale on your site. When someone buys, you place that order with the supplier. You only order the product after the customer has paid you. Then you’ll contact that supplier, and say “ship item XYZ to customer ABC”. Then, they ship it and charge you.
The difference between your retail price and what you pay your supplier is the net profit. From experts’ experience, when you dropship the right way, you’re looking at about 25 to 30% average net profit.
That means if you sell a $1,000 item, you make $250. That’s the average in the market. Sometimes it’s higher, sometimes it’s lower, but that’s a good goal to shoot for. It’s a realistic expectation.
e-Commerce Business Models
Before we go any further into how dropshipping works, let’s walk you through the different ways to make money online. That way, we can eventually get to how dropshipping is different and why it is believed to be the best way to make money online.
As far as online business models go, the most popular are eBay, Amazon, and building your own e-Commerce store.
eBay is an online auction site that allows you to sell as an individual or to set up a store, within their platform.
Almost 10 years ago, several experts in the field were using eBay and that got saturated very fast and became a pricing war. It just wasn’t worth it, so we recommend cutting that out.
Dropshipping on Amazon is risky. The window for selling products could shrink fast, and you could very likely get wiped out by an over-saturation of competition.
If you’re not aware of this, you can actually go on Amazon and list your own items for sale. You could build what’s called an Amazon store.
Amazon is a great business model. We’re not going to put it down at all, but we do think you’d prefer to have your own e-Commerce stores.
When you’re selling through someone else’s platform, whether that be eBay or Amazon or any other platform, they control the whole sales process, they own the customer and their database. They could sell other products to them and get them into their own sales model.
Shopify allows you to create your own independent storefront. With this platform, you’ll have much more control and better marketing advantages.
Again, you’d prefer to have your own e-Commerce stores. And again, it is recommended that you use Shopify to host them, and the reason is that you’d have much more control.
Those are the three main e-Commerce business models that most people are aware of and the way most people get started out. So out of all of these, which would be recommended most?
Hands down, Shopify. You’d like having your own e-Commerce store and you’d especially like how simple the platform is to use.
How To Find Products To Sell Online
Let’s say you know how to sell online. It could be eBay. It could be Amazon. Or if you follow the above advice, it could be your own e-Commerce store.
Your next step is finding products to sell. There are three main options and we want to break them down for you right now.
Working With A Manufacturer Or Wholesaler / Importing
The first option is to import your products. You can go to websites like Alibaba and you could find products to imports from, let’s just say China.
This is actually how many started in business. Before dropshipping ever became popular, most online sellers were importing products.
DIY Products Or Services / Arbitrage
The next option, which a handful of people recommend is what’s called arbitrage.
This is basically going to local estate sales, flea markets, or garage sales to find products or product-making materials that you could then sell online for profit.
It should be noted that this is something that’s not scalable at all.
Hiring a Dropshipper / Domestic Suppliers
In our opinion, the best option would be dropshipping.
Remember that image we reviewed in the beginning of this section? Basically, you’re finding companies that have products to sell and they’re looking for people to sell their products for them (retailers like you).
Becoming an Internet Retailer
When you go into a store, let’s say in a shopping mall like Terminal 21 in Bangkok, they sell tons of products, right? And of course they’re not selling self-branded Terminal 21 T-shirts or jeans. What they’re selling instead are products from dozens (if not hundreds) of suppliers and brands.
So in the world of retail, there are the companies that manufacture and build brand names, and then there are the companies that sell for them. They’re the retailers. So in order to do dropshipping in a way that’s effective and scalable, we’re becoming retailers.
But we’re not doing what Terminal 21 does in the sense that we’re holding the inventory. What we’re doing is providing a retail outlet to sell these products for brands that create great products, without keeping inventory on hand.
Dropshipping Success Checklist
Now we’ll go through what can be considered a successful dropshipping checklist. It’s a 7-step process compiled from what online sellers do every time they create a store. And it is highly recommended that you use it when starting a new e-Commerce store.
Breaking this down will help you get a good understanding of what dropshipping is, how dropshipping works, and what you should do when you’re ready to start.
Step 1: Choose A Niche
First, you need to figure out what you’re going to sell. For details on what meets good niche selection criteria and how to choose a niche that you could actually make profit with, check out this article:
Step 2: Research Competitors
The next thing you want to do is find your future competitors. So yes, you will have dropshipping competitors because there’s no niche out there that has zero competition. If you find one, it’s probably because it’s a bad niche and people don’t buy those products.
In this step, you’ll look for dropshipping sites that you’ll be competing with. Basically, you’ll try to find them before launching your dropshipping store, so that you know who your competition is before you even get started.
Step 3: Create Your Store
You read that right, the third step is to actually build an online store. Yes, prior to ever even contacting the supplier.
That’s because the good suppliers won’t approve you unless they see that you already have an e-Commerce store. So this is something that you’ll want to do even before making that first phone call or sending that first email to a potential dropship supplier.
Step 4: Get Approved With Suppliers
Once you have your store up, then you can start making phone calls and sending emails to potential dropshipping suppliers to get approved with them.
Step 5: Optimize Your Dropshipping Website For Conversions
After that, you will want to optimize your website for conversions. This is where you can make all the difference.
There are so many different things you could do once you have your dropship store up that can improve your conversion rate. Your conversion rate is how many people buy versus how many people visit your site.
Here’s the thing: You could have all the traffic in the world, but if they don’t buy from you, it doesn’t matter. You don’t need tons of traffic but you do need a buying audience. You need your website to turn those visitors into buyers. Or else, all the traffic in the world won’t solve your problem.
Step 6: Get Paid Traffic
The next thing to do is to get traffic. It’s one of the biggest and most frequently asked questions in addition to niche selection, “how do I get the traffic to my store?”
There are a ton of different ways to get traffic to your dropshipping site and you shouldn’t rely on just one. You want to have diversified sources of traffic. That way your business doesn’t turn off overnight if one of your traffic sources stops working.
Step 7: Outsource & Automate
After that, you’d want to outsource and automate.
So the beauty of dropshipping stores is that it’s very easy to automate them and outsource different tasks. You don’t want to do this at first. You’d want to build your business, you’d want to run it for a while. That way you know how every step of the process works.
After you do that, it’s very easy to start delegating tasks, outsourcing, and using apps that automate how your business works on a day-to-day basis.
The last thing to do in this cornerstone article is to give you some example of good ideal stores.
That way you can see what it looks like when you properly execute the steps. Also, you can see what an actual Shopify e-Commerce store looks like.
Example 1: Enlighten Chandeliers
The first example of a dropshipping store is one of the demo stores from the website DropshipLifestyle, Enlighten Chandeliers.
If you want to jump over to the site and check it out, feel free to. Again, this is just one of the demo stores.
This would be an example of a site that went through all 7 steps. It also uses a Shopify theme that is known to convert.
Definitely check it out, click on some of the product pages, and see what your dropshipping store could look like.
It only cost $29 per month to build and maintain this site at Shopify, that’s it. No customization, nothing special. It’s very simple and doesn’t require help from a web designer.
Example 2: Happy Paws
Yet another one of the demo dropshipping stores from DropshipLifestyle. It’s a store that sells pet supplies like kennels and crates.
Again, check it out, go to the product pages. In our opinion, this site looks amazing. This is one of the most used theme for most of the beginners’ stores, and it’s built on Shopify.
Shopify is a plug and play e-Commerce system. This theme costs less than $100. So for less than $100, you could have a gorgeous store that looks like this. That has all this functionality built in like:
- Social sharing
- Review system built in
- Floating menu bar
- Live chat
These examples should give you an idea of what an actual dropship business looks like.