what is dropshipping

In this age of technology, businesses like dropshipping are expanding rapidly. Because no infrastructure, staff or shipping is needed to run a dropshipping business. Internet, computers and smartphones are enough to run this business.

Therefore, it is necessary to have technical knowledge in the dropshipping business. Also skills in digital marketing will bring you success in the dropshipping business. Since this business is based on online platforms, so you have to promote your business through online. You have to use various mediums including social media to promote your products to customers which are described in detail in this article.

What is  Dropshipping?

Dropshipping is a type of business model where a trader can run business without holding any inventory. You just inform the distributor when a product is sold and they will deliver the product to the buyer. You do not have to worry about storing, packaging or shipping.

This business model is very popular for gen Zers and millennials. Because this generation is quite skilled in internet marketing. Those who are skilled in internet marketing will succeed in this business easily.

How Does the Dropshipping Business Model Work?

Dropshipping Business Model

In the definition of dropshipping I have mentioned that you do not have to stock any product in this business. Your job is to gather customers and inform the manufacturer of the product by accepting the purchase order. So how many parties are there? Three.

  1. Producer
  2. Retailer (you)
  3. Buyer

The responsibility of the manufacturer is to produce the product, warehousing, packaging and shipping the product to the buyer.

Your job is to showcase the manufacturer’s products on your website or online store under your own brand and encourage the buyer to purchase those products.

The buyer will order you to purchase the product. They will pay you for this. The buyer will deal with you regarding the pricing of the product and the shipping cost. You must set the price in such a way that you make a profit even after adding the shipping cost.

Dropshipping Statistics

Dropshipping usa market
Source
  • 22-33% of online retailers have adopted Dropshipping as their primary business model. (Salehoo)
  • The income from the dropshipping business is 18.33% higher than the traditional retail models.
  • In 2018, the market size of Dropshipping was $102.2 billion. It is expected that the market will continue to grow at a rate of 28.8 percent per annum until 2025.
  • In 2020, the number of Global Digital Buyers was 2.05 billion. (Oberlo)
  • The Asia Pacific e-commerce market has been growing rapidly for the past few years and will continue to do so until 2025.
dropshipping market
Source
  • In 2017, 23% of all online sales were in the dropshipping model, equivalent to $85 billion.
  • Dropshippers earn 50 percent more than those who have their own stock inventory.
  • Shipping options play a huge role in product sales. 66% online shoppers buy products from dropshippers who have multiple shipping options.
  • In 2014, the number of online shoppers was 1.32 billion. In 2021, it stood at 2.14 billion.

Number of online shoppers

  • The electronics segment occupies the largest market share in the dropshipping business. In second place are Toys, Hobby and DIY.
global dropshipping market
Source

 

How to Start a Dropshipping Business

  1. Idea generation and Market Analysis
  2. Select a niche
  3. Finding your suppliers
  4. Build a website / Online store
  5. Create a dropshipping business structure
  6. Market your dropshipping business

1. Idea generation and Market Analysis

Before starting any business, you need to get the best idea about that business and analyze the market trend of that business. You may think that starting a dropshipping business is not a difficult thing. You just choose some products, displayed them in the online store and sell them. If you think like this you will not be successful in this business. In-depth knowledge, research and passion are required to start a dropshipping business.

You need to analyze the market demand for the product you want to trade with. Do some research on whether you can make a profit by selling these products.

It is very necessary to figure out who your real competitors are. Do some research on their marketing strategy and how they are dealing with their customers. You should remember if want to survive in this market you have to provide better service than your competitors.

Google search is the best way to find out competitors. Google search result page will show you who is selling such products from which location.

If you don’t want to do anything, just transfer your burden to Semrush. Semrush is the most effective tool to find out the marketing techniques and tectics of the competitors. Semrush is a powerful SEO tool that will give you a complete idea about the promotion strategies of your competitors and various tips on how to increase your market share.

You should track your competitor’s activities on social media. BuzzSumo is a tool that lets you know about your competitors’ social media activities. You will get a complete idea about their social media engagements.

Related Article: How to start an E-Commerce business (Step-by-Step Guide)

2. Select a niche

Choosing the right niche is very important for the dropshipping business. Dropshipping is a great business idea. But this awesome business idea will only succeed if you choose a niche that you are very interested in. You need to have proper knowledge and experience about this product range. You should have a very good idea about the price, usage rules and source of these products.

Here are some things to consider when choosing a niche:

You should choose products that appeals to consumers and have market demand. Doing business with low demand products is not profitable. You can do some research on Google’s Keyword Planner and Google Trends. If you see that people rarely search for your selected niche then you should change your niche.

You should choose a niche in which you can make a reasonable profit. In this case, it is better to choose expensive products. Because the amount of profit is higher in these products.

Pay attention to shipping costs. If you find that the shipping cost is too high then choose another supplier. This is because the extra shipping cost will hinder the sale of the product.

3. Finding your suppliers

Choosing the right supplier is very critical step for the dropshipping business. Choose a supplier you can trust. Because most suppliers in dropshipping business are located overseas. Which is why faith is so important here. So before choosing a supplier, you need to know the history of that supplier. You must know about the supplier’s location, factory capacity, supplier’s past transactions, ratings, etc.

There are some platforms from which you can get information about different suppliers. Such as Alibaba and Oberlo.

Alibaba is one of the largest marketplaces where traders from different parts of the world sell their products. Here you will find all kinds of information about the potential manufacturers and suppliers. You can select the right supplier by verifying these information.

Oberlo is a popular dropshipping marketplace from which you can easily find a good supplier. If you select a supplier you can see that supplier’s reviews, ratings and transaction history. Then communicate with the supplier who is suitable for you and ask different question about their production capabilities and other qualifications. Then if everything goes well, make a agreement with this supplier.

4. Build a website / Online store

Building a website or online store is required for the dropshipping business. All your products will be displayed on this website. Buyers will select products from your website and place purchase orders.

Shopify is the most popular ecommerce platform where you can easily create an online store. Shopify’s awesome themes, features, tools and apps will greatly help you create online stores. Using the Shopify platform you can sell products through online and offline. They allow multiple currencies. You do not need any technical knowledge to create Shopify online store. Shopify’s design tools will help you to do this.

5. Create a dropshipping business structure

If you want to be a serious businessman then you have to think about business entity. That means build a legal structure.

If your business is sole proprietorship then you don’t need to fill much requirements. You will take all liabilities alone. Whatever the business gain or loss you will enjoy alone. Since this type business requires very few documents so you can start a sole proprietorship business only after preparing some documents.

If you want to start a partnership business with two or more people, you have to follow some formalities prescribed by the government. Dividends will be distributed in proportion to the capital if the business earns profit.

And if you want to form a company, then you have to follow all the legal process of forming a company.

6. Market your dropshipping business

To increase the sale of products promotion works as fuel. You have to execute all promotion strategy to introduce your store towards customers.

Social media is a very effective way to promote a business. Because through social media you will get in touch of all kinds of people. Especially you should give more importance to Facebook. Because Facebook is the world’s largest social media with over 2 billion users. Running ad campaigns through Facebook is less expensive than other mediums. With just $10 ads, you can reach out thousands of people. You can also promote your online store at no cost through Facebook pages and groups.

Email marketing plays a very important role in promoting any product. Email marketing is a very effective way to communicate regularly with customers at low cost and to get feedback about the service.

Content marketing helps you to build a long-term stream of traffic for your store . Content marketing can be done in many ways. Such as blogging, starting YouTube channels, creating infographics, etc. This guide will give you a complete idea about content marketing. Content marketing is great marketing strategy that indirectly present various information about the product in front of the customers. This encourages the customer to purchase the product. If you want to create successful content that drive huge traffic to your store, then you can use great tool Semrush. Semrush will help you create seo-friendly content based on your customer’s demand.  Plan, Write and Analyze Content in One Place

Dropshipping FAQ


1. How Profitable is Dropshipping?

Dropshipping is one of the most profitable online business ideas. You already know that you don’t need any inventory for the Dropshipping business; you just inform the buyer’s purchase order to the supplier. The supplier will handle all the responsibilities from product packaging to delivery. Since the supplier will fulfill all the responsibilities, you will have chances to earn more profit. You can set the price of the products in such a way that the amount of your profit is higher. However, you should be aware that the price of products does not exceed the price set by the competitors.

2. How do I find the best products for dropshipping?

This question comes to the mind of almost everyone who are going to start a dropshipping business. In this case, I would say that you should work with a niche in which you have experience and sound knowledge. You should not start a business with a product that you have little idea about. As a result, you will not be able to determine the exact price and it will be difficult to determine who your target customer is. However, you should start a dropshipping business with products that people are very interested in and have high search volume.

3. What are the disadvantages of Dropshipping business?

  • Dropshipping is a highly competitive business. Since it has very little entry barrier so it is very tough to survive in this business. Specially for small investors who want to flourish their business career in this free market. Because giant traders already occupy a large part of this market. So it is not a easy task to compete them. They can control market by reducing products price or any other means. Moreover, it is very difficult for small businesses to find high profile suppliers.
  • You will have no control over the supply chain. If for any reason the delivery of the product is delayed or the quality of the product is poor, you have to be accountable to the buyer. Since most of the suppliers in this business are located outside your country, you cannot take too much action against them.
  • If the supplier cheats for any reason and runs another’s brand in his own name, there is a risk of legal problems.
  • Sudden shortage of stock is another common problem. Suppliers do not always inform dropshippers about this. Due to this, the reputation of dropshippers is tarnished which has a negative impact on business.

4. What are the advantages of Dropshipping business?

  • The biggest advantage of dropshipping business is that one can start this business with very little capital. Which is not possible in any other business. If we want to run other business then we have to build infrastructure, recruit human resources and run a office. So that we need huge capital. But in the dropshipping business you don’t have to spend a penny for these. An online store is enough to start this business.
  • No hassle of inventory management, packaging and shipping. The supplier will fulfill these responsibilities.
  • Freedom to choose supplier. If a supplier does not provide the service as per the contract, there is an opportunity to select another supplier.

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