Table of contents
- What is Dropshipping?
- The Do’s
- The Don’ts
- In conclusion
What is Dropshipping?
Dropshipping is an order fulfillment method that does not require a business or entrepreneur to hold inventory or keep products in stock at a warehouse. Instead, they can set up a store with all the products that they’re selling, and each time an order is placed, it will directly be shipped to the customer by the third-party supplier.
Although that sounds simple and easy, it’s a little more complicated to navigate. You can’t blindly pick out a supplier and trust that they’ll fulfill all your orders. And because startup costs are so low in dropshipping, a lot of people opt for it, creating smaller profit margins. So how can you observe better practices in dropshipping to make sure your business takes off? We’ll go over the dos and don’ts in this article.
1. Research your product niche
The success of your dropshipping business depends on the products you choose to sell. It has an effect on your market size, profit margins, and shipping costs. It’s a crucial decision that you want to get right. The best strategy is to select a focused product niche that you know has a demand, but isn’t being sold by every second seller. Once you’ve thought of a few products, research their:
- Demand: are there enough customers looking for this product? Is this product something they’d want to buy online? Is it hard for them to find it at local brick-and-mortar stores?
- Shipping costs: shipping costs affect your profit margins, so consider these closely. The size, material, and storage life of your products all affect shipping costs. The higher your shipping costs, the smaller your profit margins.
- Price points: Because there will be other businesses selling either the saem, or highly similar products to you (this is very common in dropshipping) you’ll have to closely examine your pricing points. What are your competitors charging? Are your suppliers overcharging you? Does the price point you’ve set work well for eCommerce? Will you have to provide any pre-sales support before converting a customer? Important questions that need to be answered.
- Marketing potential: you also need to think about how you will reach your customers online. Which social media platforms will you use? How much your traffic can be generated organically, and what ads will you have to use?
2. Vet your suppliers
In dropshipping, your suppliers are of utmost importance to the success of your business. You’re putting up the products for the public front, but it’s your suppliers who are creating, packing, and shipping them. They’re handling most of the work so you can earn a passive income. If their work is subpar, it will reflect on your brand, and tarnish your business.
Vetting your suppliers helps to ensure that you’re working with professionals who understand business ethics, and will be able to deliver timely to you and your customers. If you’re using plugins like AliExpress, you’ll have access to tons of suppliers and you can pick any. It’s your responsibility to contact whichever one you pick, and find out all their business information. Do their policies align with yours? Will they be able to deliver to your customers on time? Will their products be of good quality? All these questions need to be answered before you get into business with any supplier.
3. Pick a broader domain name
You must pick a broader domain name for your dropshipping business. If you choose a very specific product niche and a domain name reflecting that specificity, you’re limiting your business reach and future growth. It means you’ll only be able to sell that specific product, and nothing more. This can be crucial if, say, your store fails in selling that product. So what now? With such a specific domain name, you’re stuck. You’re unable to grow into selling more profitable products and recovering your business.
On the other hand, a broader domain name allows you to grow in case something doesn’t work. You can work with other suppliers selling different products that might prove to be more profitable for you.
4. Provide excellent customer service
When you implement dropshipping, you don’t have any physical interaction with your customers. The products are being shipped by the supplier, further canceling out any means of interaction with them. Therefore, it’s very important to use technology to your benefit and provide an outclass customer service that becomes part of your brand.
Be it through live chat, call support, or email, it’s crucial that you provide your customers with the assistance they need. They might encounter problems with the product, or delayed shipping. These need to be addressed immediately with the customer kept in the loop. This way, your customers will have something good to associate with your brand, and despite issues with their orders, they might come back for future purchases if dealt with in a friendly and helpful manner.
5. Cash in on seasonal merchandise
Brick and mortar stores, and other retailers not using the dropshipping model often carry low stock on seasonal items due to limited storage. This is because if they end up having too much out-of-season merchandise, it results in a warehouse full of stock that can’t be sold, and inventory becomes obsolete. Therefore, they only order small amounts of seasonal items.
As a dropshipper, you can cash in on this advantage by keeping higher varieties and stocks of seasonal items. This will drive up traffic to your website, and increase conversions.
6. Focus on online marketing
Solely having a website isn’t enough for your brand. You have to market it properly. It should be consistently and effectively marketed on social media platforms like Twitter and Facebook. It’s the only way to raise awareness about your brand, and expose your company to the public.
Creating a Facebook page for your brand allows you to run sponsored ads. It lets you target specific potential customers based on locations, demographics, and interests. Facebook content and active pages will drive people to your website, bringing your brand into the public light, giving you new customers and conversions.
For a lot of companies, especially a dropshipping business, Twitter can be used to promote special offers, flash sales, and other deals. It can also be used to stay in contact with customers and answer queries. It’s a faster way to respond to customers to keep them happy and satisfied. You can also hold short conversations with them under tweets, and post regular company updates.
A boosted Instagram post is basically a normal post that you post yourself on your Instagram account, and then later boost it to reach your targeted audience. You can also have Story ads. The difference is that it will appear when users are swiping through stories.
Here is a good guide on advertising for your dropshipping business.
1. Don’t compete on price alone
One of the most common mistakes made by beginners in dropshipping (and well, all of retailing), is competing based solely on price. If you’re only differentiating yourself from your competition on your prices, you will lose your sales and business the second someone undercuts you, and you find yourself on the losing end of a price war.
While it can be tempting to beat every competitor’s price at all times, it can also be dangerous. If you’re constantly lowering prices, you’re going to find that you’ve started to cut into your profit margins unnecessarily.
We’re not saying price doesn’t matter. However, is it the only thing that matters? Nope!
So instead of offering a lower price and cutting down your profit margins, aim for something else that makes your business unique. Look for ways to offer more and justify a higher price. There are plenty of ways to command a higher price while still getting the sale: product knowledge and expertise, service, packaged deals, or free shipping.
2. Don’t overlook financial processes
Dropshipping does make fulfillment easier but at the same time, it complicates your finances and accounting a little. How do you keep track of purchase orders? Are you sure your supplier received it? Did the supplier ship the right goods, and the right quantity? And did they charge you the right amount? It can all become extremely tricky and complicated.
Dropshipping requires an accounting concept called the “three-way match.” It requires you to (1) reconcile your purchase order to your dropshipping supplier with (2) the shipping information provided by the supplier and (3) the invoice that your vendor sends you for payment. Those three artifacts represent the full lifecycle of sourcing and shipping a product.
If you just rely on email and phone calls to stay in contact with your suppliers and track your orders, you’ll end up with an inbox full of customer queries and concerns on delayed orders. If you don’t reconcile the three-way match correctly, you might pay too much or too early for your inventory. Your customers will also be unsatisfied as they’ll experience prolonged deliveries and uncertainty.
3. Don’t sell the same thing as everyone else
We know it can be tempting to sell the hottest products in the market, but that might be the biggest mistake you make in your dropshipping business. Selling a product that a lot of other businesses are selling is a sure-shot way to sign yourself up for failure, and extremely small profit margins.
When a large number of businesses and sellers try to sell the same product, competition drives prices down — often to the point where the only businesses making a profit are those brands that receive large discounts for buying in bulk, like big-box retailers. And even then, the profit margins are very slim.
Picking a niche to sell in is a much more sustainable strategy, as is developing product knowledge and expertise in your niche.
4. Don’t overlook long-term goals
Successful businesses take time and effort to build. It doesn’t happen overnight. It’s important to have your short-term goals in mind as they help navigate through your daily operations, but don’t overlook your long-term goals. Initially, you need to build trust anf awareness around your brand. In the long-term, you can reap the benefits of this; be it in the form of higher prices, loyal customers, etc.
How you handle your short-term goals will have a lasting impact on your business, and will become the basis of your long-term business strategy.
5. Don’t get caught in small details
Dropshipping is a fast-paced business model, so you can’t get mired down by little details. It’s important to determine which areas are important and have the biggest impact on your operations and focus on fixing those. You need to know which functions are value-adding so you can spend time on those.
Dropshipping isn’t a “get rich quick” scheme. It can take months before you actually start making a profit. However, it is easy to set up a business that requires little start-up cost, and lesser risk. Because it’s a low-risk business model, it’s still a safer option that will land you profits as compared to other business models.