Dropshipping is an exciting business model, something that entrepreneurs have dreamed about for years. But do you know the fundamentals behind dropshipping? If not, you're in the right place to find out!
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Drop shipping is a business model where you send your customers’ orders to a manufacturer or wholesaler, and they send the products directly to your customer. You never see or touch the products.
If you’re into videos, here’s a quick 7-minute explainer video from Shopify explaining what drop shipping is and how to start a drop shipping business:
Here’s a visual representation to help you understand:
Drop shipping is a great business model because of its many benefits:
Of course, like anything, drop shipping isn’t perfect. It has some cons as well:
With all the different terms thrown around in the world of online selling, it can be confusing what means what. Often the terms are used interchangeably, but they don’t mean the same thing.
A manufacturer is the actual creator of the product. Sometimes they have a drop shipping program, which is ideal for you as the buyer. Because there is no middle man, they can give you the best prices on the products so you can make the most money.
A drop ship wholesaler is a third party dealer who buys items at the lowest prices from the manufacturers, then drop ships them for a buyer like you.
A third kind of supplier is a drop ship aggregator. A drop ship aggregator is a wholesaler who buys from tons of different manufacturers to offer you the widest possible range of products from one place. This cuts out your risk of shipping complications I mentioned above, but it also lowers your potential profits as they typically take a higher cut.
Drop shipping margins typically average around 20%-40% on average, however some niches like jewelry, clothing, and electronic accessories can be as high as 100%
However, as I said above, that can vary greatly depending on which suppliers you work with. Buying direct from manufacturers can give you much better margins.
So, how much money can you make? Well, let's look at a few success stories:
Drop shipping is an awesome business model for:
Of course, this business model isn’t for everyone. Drop shipping isn’t for:
You may have heard that drop shipping is a dead business model. I’m here to tell you that’s absolutely not the case. You can still create a very healthy drop shipping business.
That said, the market has become very saturated and it’s more necessary now than even to find a great niche to compete in to avoid competition. In addition to being highly focused in your product offerings, you should also try to work directly with manufacturers whenever possible, as opposed to working with drop ship aggregators.
Also, customers are now demanding a greater brand experience, which can be difficult to provide. if your supplier isn’t willing to go the extra mile for you by using your custom packaging or adding your freebies to your packages, you may have a harder time competing.
Yes! You can drop ship while selling on any of these platforms.
Here is Amazon’s drop shipping policy:
“Drop shipping, or allowing a third party to fulfill orders to customers on your behalf, is generally acceptable. If you intend to fulfill orders using a drop shipper, you must always:
Examples of drop shipping that is not permitted:
Failure to comply with these requirements may result in the suspension or removal of your selling privileges.”
Here is eBay’s drop shipping policy:
“Selling using a product sourcing service is allowed on eBay as long as the seller can guarantee that the item will be delivered to the buyer within 30 days of the end of the listing. Sellers who choose to sell using this method are responsible for the item and their buyer's satisfaction just like any other eBay seller. If there is a problem, it's the seller's responsibility to work it out with the buyer.”
AliExpress is a place where you can purchase products from overseas, mainly from China. They do have suppliers who are willing to drop ship (and at a great price, too!)
Pros of AliExpress:
Cons of AliExpress:
The most important part of having a successful drop shipping business is finding a great supplier to be your partner as you launch and grow your business. Not your legal business partner, but the person or company you rely on to get your products to your customers on time and in one piece.
The second most important piece of the drop shipping puzzle is marketing your business. Simply putting your products on Amazon, eBay, or your own website isn’t going to drive sales.
SaleHoo has tons of marketing tools to help you succeed, such as coupons, an email marketing system, analytics software, and more. I also recommend you bookmark this marketing calendar to keep as a reminder of upcoming holidays you should run sales for.
Finally, don’t forget to leverage social media marketing tactics; Especially Instagram, since 93% of buying decisions are made based on visual appearance.
Now you have a firm understanding of what drop shipping is and how to use it to make money for your business!
The next step in creating a successful drop shipping business is to find something to sell.
Head to the next section to learn the do’s and don’ts of finding, vetting, and selecting a great product.
Here are two AMAs (ask me anything) posts on Reddit. They are very informative and should be essential reading for new drop shippers:
But having a theoretical understanding of drop shipping 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!