Looking to build a successful online business? This comprehensive guide covers everything
you need to know about running a dropshipping business.
The business world has transformed so dramatically over the past 20 years.
One such area of change that is very relevant to online retailers is the meteoric rise of the dropshipping phenomenon. The Internet has significantly lowered the barriers to entry for small and medium-sized retailers. No matter what industry you are in or how limited your funds are, your online store can take advantage of dropshipping.
In this first article in our five-part series, we will explain everything you need to know about dropshipping as a business model.
Entrepreneur.com defines dropshipping as follows:
"An arrangement between a business and the manufacturer or distributor of a product the business wishes to sell in which the manufacturer or distributor — and not the business — ships the product to the business's customers'"
This is dropshipping in a nutshell. Let's use a hypothetical example:
Anne is surfing the web one night when she comes across your store. You sell a collection of trendy accessories such as necklaces and bracelets. Anne finds one particular necklace that she falls in love with.
She immediately purchases the necklace from your online store.
Now let's see how the dropshipping process works behind the scenes.
Once you have received Anne's payment, you place an order on the dropshipper's system. The supplier then receives the order and sends the necklace to Anne's specified shipping address.
It's as simple as that. At no point does your online store deal with inventory, shipping, storage or the administrative costs involved in running a warehouse.
With the basics taken care of, we can now delve deeper into the inner workings of the dropshipping process.
How Much Money Can I Make?
How long is a piece of string? In other words, there is no limit to how much money you can make with dropshipping. Some online retailers are happy with a three-figure monthly income. Others, through hard work and a long-term outlook, have created dropshipping businesses that bring in healthy six-figure annual profits.
What Kind of Profit Margins Can I Expect?
Again, this will depend on the type of products that you sell. For example, Apple products are notorious for having razor-thin profit margins. But the accessories for these products often have margins of more than 100 percent! This just underscores the importance of choosing the right product, a topic that we will return to later on in this series.
Is a Wholesaler the Same as a Dropshipper?
Not necessarily. For a variety of reasons, some wholesalers do not offer dropshipping services. Furthermore, you will find wholesalers that offer dropshipping only for a selected category of products.
Are Importers the Same as Dropshippers?
Again, it depends on the specific importer in question. Some importers do offer dropshipping services for vendors, but many only deal with the warehousing aspect of retail business.
Many Dropship Directory Sites Are Rip-Offs. How Do I Know a Directory is Legitimate?
This should be a real concern for online retailers. There are many fly-by-night dropshippers that will take your money and disappear. This is why you should never use Google to find dropshipping directories: You have no way to verify the legitimacy of the companies that you find.
When you find a directory, put it through the following evaluation process:
Pay particular attention to the number of categories. A directory that has 1,000,000 products is of no use to you if those products are all lumped in one category that is completely unrelated to your industry.
Why is this important? Because, as an online retailer, unique products are much more valuable than mass-produced ones. Why would someone buy an item from your online store when they could pick up the same item at the local shopping mall?
Some directories have unique features that provide great value to their members. One example is SaleHoo's Market Research Lab.
With this tool you can find profitable niches and qualified dropshippers. Features such as these separate the good directories from the great ones.
All of this information is valuable, but knowledge without action is a recipe for stagnation and frustration. So let's analyze an online retailer that has used dropshipping to grow their business exponentially by taking a look at Kitchen Cabinet Kings.
You can follow along with our analysis by listening to this interview with Anthony Saladino from Kitchen Cabinet Kings here.
Anthony emphasizes the importance of knowing your products like the back of your hand. You need to know how the products work, what they do, and what they don't. When you have detailed knowledge of your products, you can organize the selling process intelligently so that your customers will make the right buying decision.
He goes on to say that you should try to leverage any pre-existing knowledge you have in an industry. If you have no particular expertise in any industry, he recommends that you start off by selling simple products.
Too many online retailers fail because they try to do everything by themselves. Anthony and his brother complemented each other both of them brought unique skills to the business.
Furthermore, you should outsource as many of your daily tasks as you can. This will give you more time and energy to focus on the big picture.
This is an excellent quote from Anthony, one that highlights the incredible power of dropshipping. Listen to the interview from 7:40 onward to hear Anthony discuss the advantages of dropshipping in greater detail.
How did Kitchen Cabinet Kings drive traffic to their online store? By creating a lot of quality content, optimized to particular search terms. The content on the blog ranges from how-to guides to design-focused articles and trend forecasting.
Be patient and keep your morale up. Also, have a PPC campaign ready to go in the early stages to complement your organic SEO campaign.
A significant amount of traffic to the Kitchen Cabinet Kings site comes from social media. Find the platforms where your user base is active, create an account and produce regular content.
Having a strong brand works wonders for your business. It allows you to easily build your presence on social media, it creates a sense of comfort and familiarity with existing customers and it helps new customers feel comfortable enough to spend money on your store.
Here are two AMAs (ask me anything) posts on reddit. They are very informative and should be essential reading for new dropshippers:
But having a theoretical understanding of dropshipping is only the beginning. The truth is, nothing will help you if you select the wrong type of product.
Want to know more about product selection? Click on through to the next lesson!