Looking to build a successful online business? This comprehensive guide covers everything
you need to know about running a dropshipping business.
When it comes to dropshipping, you can't underestimate the importance of choosing the right product in the right market. Your dropshipping business model may be perfectly planned and flawlessly structured, but without the right product to sell, you will not see success. Your product is the crucial linchpin upon which your entire online business hinges.
Let’s start from the ground up, by analyzing your potential customer base.
Many entrepreneurs disagree on the correct course of action to take when choosing an industry to enter. Should you find a product first, and then look for a market? Or is the wiser strategy to first find a hungry market, and then look for a product to satisfy their pre-existing demands?
Let’s look at the problem from another perspective. Which is more difficult — creating a market or finding a quality product? Clearly, creating a new market is beyond the scope of most online retailers, so we should start from the market and build from there.
With this in mind, markets saturated with the following customer types tend to be very profitable:
Desperate Buyers: Desperate buyers have three distinguishing characteristics. First, they feel a sense of urgency to solve a particular problem. Second, they are willing to spend money to solve these urgent problems. Three, they are impatient to solve these problems.
Products that satisfy the needs of desperate buyers will sell very well. But be careful. If you are dishonest with this customer type they will resent you and your reputation will plummet. This is why you need to be confident in your product and its performance.
Hobbyists: “Hobbyists tend to be very enthusiastic, passionate and willing to spend money on items related to their hobby”
This quote by career coach Nancy Collamer perfectly illustrates why you should sell to hobbyists.
Camping equipment, sporting goods, collectibles, antiques — all of these categories sell extremely well because people have a passion for them.
Repeat Buyers: This one is a no-brainer. When you find products that can be easily resold to an existing customer base, you have recurring revenue. And recurring revenue will be the goose that lays the golden egg for your online store.
So what products harness the power recurring revenue?
Disposable products: health supplements, food items, beauty products, contact lenses, medical products and hygiene products.
Products with maintenance contracts: printers, computers and industrial equipment (this product category is ideally suited for the customer type we will be discussing next — businesses).
Products that can be couple with training fees: this is particularly useful if you sell complicated products or ones that require a great deal of technical knowledge to operate at a higher level.
Businesses: Other established businesses sometimes make the best clients. They usually purchase greater quantities of your products and, once a relationship is formed, they are less likely to look elsewhere. The key point here is that you should do everything in your power to ensure that your big business customers are completely satisfied with your products and service.
Now that we have gone over the customer types that account for the most profitable markets, let's take a look at some of the characteristics of successful products.
Many people are surprised to find out how many big-brand products offer retailers razor-thin profit margins. Take Apple products, for example. We discussed this topic in a previous lesson, focusing on Apple iDevices and the tiny profit margin that Apple offers to retailers. So why do retailers bother selling these products?
Because smart retailers understand they can make huge profits by upselling these Apple iDevices. Most of the profits made off iPhones and iPads come from upselling accessories such as earphones, protective cases, cables and so on.
Here are some strategies that enable you to upsell from the initial purchase of your primary product:
Be sure you reveal accessories to the customer after they purchase your product.
Don't go overboard with this strategy because your customers may feel like they got a raw deal. A simple way to avoid this problem is to never include significant improvements in the premium product. For example, luxury finishing is a great way to upsell. No one could seriously argue that additional racing stripes on a RC toy car significantly improves performance, but people will buy it — sometimes for the sheer fact that it is a "luxury model"!
This is possibly the most recognizable form of upselling. The only downside is that you can only offer an extended service/warranty for expensive products. High-end electronics and appliances are ideal for this form of upselling.
Be sure that you are upselling products that enhance the customer's experience with the primary product. If you are upselling products that are not contextually linked to the original purchase, this strategy will backfire.
When it comes to dropshipping, small products are usually preferable to large and bulky ones. The reasoning is fairly straightforward: Big items are much more expensive to ship and more liable to break on the way to the customer. Small products on the other hand — even fragile electronics — can be safely delivered to the customer because they can be wrapped in inches upon inches of protective packaging.
Small products also have the advantage of coming in a wider variety of shapes and colors. Therefore, customers have the option to customize their orders to their satisfaction.
It is basic human nature to value that which is scarce. This is why limited editions of items and collectibles sell for such a high price on the market.
The takeaway is this: Try to sell products that are difficult to find both online and locally. This will take some time but finding a truly scarce product to sell on your online store is the online equivalent of discovering a diamond mine — the product will practically sell itself.
One caveat: Make sure the product in question is not scarce for the wrong reasons!
With all of this theory and information, now is the perfect time to start researching and putting what we've learned into action.
Here are some excellent tools for researching markets and products:
SaleHoo's Market Research Lab is one of the most powerful research tools available for online retailers. Not only does it help you identify hot trends that are just starting to take shape — you are also able to preview what your profit margins will be and, best of all, you are automatically connected to relevant distributors. Join SaleHoo to get access.
Browsing through the Amazon Best Sellers list is very useful for conducting product research. When you know what people are already buying, you can shift your online store’s focus toward those hot products. We don't recommend these products in particular, as they are quite competitive to sell, but you can get inspiration for what buyers want.
We also recommend that you check out the "Most Wished For" section for your niche.
The Keyword Planner tool found in Google AdWords should be in every online retailer’s toolbox. We have gone into some detail about Google AdWords previously, but for our purposes, just know the Keyword Planner tool will help you find the right keywords for your product.
This information is invaluable if you are planning to run an SEO or PPC campaign.
Believe it or not, the vast majority of online retailers fail to use this powerful tool when they are conducting product research. This is a shame, because Google Trends gives you a unique insight into your industry.
You can pore over Google search trends and refine the results based on four parameters:
With this tool you will be able to compare the popularity of different search terms and identify seasonal trends. For example, if we compare the terms "black jeans" and "blue jeans" we get the following graph:
Now we know that "blue jeans" is roughly twice as popular as the term "black jeans." This information would be very useful to an online retailer who sells these products.
Shari Thurow offers up a very clever way to research competitors in an Inc.com article: type link:www.[competitor's URL].com into Google and you can see how many other sites have linked to your competitor's website. She goes on to say, “It is a great way to see a competitor's link development and PR campaigns.”
We have given you a lot of information today. But I cannot stress enough how important it is to take your time with these new concepts and to experiment with each one. Conducting this level of product and market research now will pay off in the future.
So now we have some knowledge about product selection. You may think that the hard work is over.
But it has only just begun! Next up, things get serious — we're going to talk about finding the right supplier.