This is my first article of many in this new series based on dropshipping so it seems only right to start them off by first explaining what dropshipping actually is, what it involves and the pros and cons of dropshipping. For those of you who are wondering, I once ran a large scale dropshipping business which I ran for 4 years before going back to my roots and now running a gardening and landscaping business, although I still dropship on the side but on a much smaller scale. You can see my full story here.
How dropshipping works
The whole business model is so easy that it’s crazy to think that this is still relatively new to the ecommerce world and that not more people know about it. The amazing thing about dropshipping is that you can have thousands of products at your finger tips which you can sell across platforms such as your very own ecommerce store, eBay, Amazon or anywhere else for that matter without ever seeing the product. In fact, if you purchase items online then there is a good chance that you have already purchased products from a dropship business without ever thinking twice about it. I mean, how could you possibly know right?
Dropshipping is when a wholesaler offers you a full list of their available products at a discounted price with the promise that if you sell any of their items, that they will ship them directly to your customer.
In many cases, you will have live product feeds available so that you can keep on top of stock levels reducing the chances of you selling something that is no longer available for sale. The pictures and descriptions are all available for you to use so all you need to do is sit down with a computer and just list all of these items across multiple selling platforms such as your website, eBay or Amazon. Depending on your chosen dropship supplier, you could have 1000 to 20,000 or more products available at your fingertips.
When listing these items for sale, it’s important to know that you are going to have selling fees to pay especially when selling on eBay and Amazon so make sure you work these into your selling prices. Depending on the category of your listed items will often depend on the percentage of seller fees so be sure to do proper research to make sure that your sale price makes a profit after these fees. There are simple calculators available online if needed.
Once a customer places an order on one of your selling platforms you will ofcourse receive their address information showing where to send the item(s) to. This is where the magic happens!
All you need to do is move over to your dropship supplier’s website, find the product that’s been ordered and purchase the item. Since you will be paying for the item, you will need to put your personal or business information under ‘invoice address’ and use your customer’s information under ‘delivery address’ and it’s as simple as that! The wholesaler will now ship the sold item directly to your customer and don’t worry – They will never put an invoice or any other indication in or on the box that the package was sent from anyone else but you.
One important note to make is that dropshipping doesn’t always start at the wholesaler – there are manufacturers that offer a dropshipping service too. You just need to phone around to find our which ones do. The wholesalers that heavily advertise this service will likely have more re-sellers on their books, which isn’t a good thing as you will all be competing against eachother. Most of my suppliers are now manufacturers or wholesalers that don’t necessarily offer this service, but saw no problem with agreeing to send items out individually with no company details inside the box.
In short, the whole dropshipping business model looks like this;
- The wholesaler offers you a list of products at a discounted price.
- You list these items on selling platforms such as eBay, Amazon or your website.
- When you sell an item, you place the order on the wholesaler’s website with your customer’s delivery address.
- The wholesaler sends the item directly to your customer in a plain box, with no indication that the item was ever sent from anyone other than you. Some dropship suppliers even put your logo on the box.
- You pay the wholesaler and get paid with profit by the customer (through your chosen selling platform).
The pros and cons of dropshipping
As with any business model there will be pros and cons with dropshipping being no exception. Below I’ve written a full list of the advantages and disadvantages to running a dropshipping business that I’ve experienced over the years.
The advantages of dropshipping
- Freedom – With no stock to hold you will save time receiving large quantities of items and then having to re-package them when shipping them out. In fact, you could very easily work from home. Go to sleep when you want. Wake up when you want. Work (list and fulfill orders) when you want. If you don’t want customer’s knowing your personal (business) address then you can always get a PO box. Having so much freedom was always my biggest highlight to running a dropshipping business.
- Low start up costs – With no office, warehouse, staff, phone line, business rates or any other business expenses to pay out for, this puts you at a financial advantage compared to other start up business ideas with a ‘anyone can do it’ attitude. I’m not saying that no money is needed upfront as gone are the days of instant PayPal payments allowing you to be paid before purchasing the item from the dropship supplier, but in comparison to other business models, this puts you in a good position. You just need to invest enough money to purchase the items needed to cover your sales, keeping in mind that most selling platforms can take 3-5 working days to pay you.
The disadvantages of dropshipping
- Keep an eye on cashflow – If you’ve read my previous article titled ‘dropshipping – My story‘ then you will know that the reason why I had to close my large scale dropshopping company was due to cash flow. Remember, most selling platforms pay in arrears of 3-5 working days. This means that after you’ve paid your dropship supplier (wholesaler) you will need to wait 3-5 days to receive the money with profit from your sale. Keep overheads and other financial commitments to a minimum especially if your just starting out. If you have started your dropshipping business with £1000 and you’ve sold enough items that you’ve spent all of your money on getting the items sent out to your customers then set your ecommerce stores on hold until you receive your payment with profits. The last thing you are going to want to do is continue to sell items with no money to purchase them from the dropship supplier. Be patient and grow your business slowly. Everytime you receive a payment with profit it will allow you to sell that little bit more next time as you continue to grow.
- Poor profit margins – Remember that you are purchasing from a wholesaler that like you, needs to make a profit to survive. Everytime a product changes hands, the price will increase. This is why it’s always best to go straight to the manufacturer or the wholesaler that is purchasing direct from the manufacturer at the very least to keep costs down. The wholesaler will offer you reduced prices compared to high Street prices but the truth of the matter is that there will be other wholesalers, purchasing from the same manufacturers, competing with you across the same selling platforms at a price you simply can not compete with. I’ve even had dropship suppliers themselves compete with me but there’s nothing you can do about it. The way I see it is that the lower profit margins simply account for the money being saved on business expenses that we are saving on, but they have to pay. My advice is to not worry about other prices. Work out how much profit you want to make and stick to it. Use keywords to make your sales and not prices. If for example you have a Mother’s day cup for sale and a competitor has listed the item as ‘Mother’s day cup’ then you need to list it as ‘Mother’s day Mum cup mug gift present souvenir’. This way if someone searches ‘mum gift cup’ then you will show on search results and not your competitor with their lower price since their iten doesn’t include the same keywords that the customer had searched for.
- Low control over product inventory – There are many dropshopping suppliers out there that simply don’t offer live stock feeds making it nearly impossible to keep track of stock levels. I can not tell you how many times I’ve sold an item that I’ve only found out was out of stock when I’ve gone to purchase it. It’s hard enough even when you do get a live stock feed. The best wholesalers are the ones that send you an instant email to let you know when an item has gone out of stock so that you can update your inventory almost immediately but if I’m being brutally honest, these suppliers are very far and in-between. At my height, I had over 15,000 items listed for sale across 3 selling platforms – That’s 45,000 listed items. Trying to keep on top of stock levels was very hard work and at least once or twice per week I’d have to send an apology message with an explanation for the refund although I’d always send a free gift to keep a good level of positive feedback!
- Complicated business accounts – Here is a disadvantage to dropshipping that you won’t find elsewhere online but can only come from someone with experience. Accounts! The absolute worst part of running a dropshipping business, especially if your selling lots of items per day, is the accounts. You see as a landscape gardener, I could have 1 job that lasts 2 weeks. I send 1 invoice for that job. If I’m doing lots of smaller jobs then I might send 10 invoices in a month. When it comes to doing my accounts I just need to show the invoices for the jobs I had finished with the receipts for materials that I needed to complete those jobs. Nice and easy. With dropshipping I could easily sell a minimum of 20 items per day and that’s being nice. On a 30 day month, that’s 600 invoices for the individual sales I had made. Not forgetting the 600 invoices for the number of purchases I made from the dropship suppliers. eBay fees. PayPal fees. Amazon fees. It all needs to be shown. My biggest advice, especially as you grow, is to keep on top of it as once your behind it can be very hard to get back on track!
- Other than the above, just be careful who you work with – I think out of probably 50 tried and tested suppliers there were only 3 or 4 bad companies that had a short term adverse affect on my dropshipping business. One of those companies would often send out the wrong item whilst another would regularly change their prices without telling me. Another supplier liquidated after I paid for £500 worth of orders with another one suddenly refusing to accept returns due to being “business to business transactions”. That’s right, the distance selling regulations don’t (or atleast didnt) apply for business to business transactions which hardly seemed fair since us as the dropshipper would be the ones following the regulations since we were selling to the public, but this particular supplier thought they were clever by using this to their advantage and saying it’s our job to lose money on lost, damaged or returned items since we were buying from another business. Just do your research first, look for reviews and if your still in doubt, give a potential dropship supplier a call to ask any questions you may have. Remember, most suppliers are fine but it’s better to be safe than sorry.
My thoughts on running a dropshipping business
It’s not a get rich quick scheme. In fact depending on how much time you have on your hands and how much capital you have to start up with, it could take months to see a decent income. So can you make money dropshipping? Yes. Can you earn enough to make a full time living? With time, absolutely!
Like any other business, it’s not all fun and games. The soul draining listing of items for hours on end, you will have parcels not arrive on time or at all, unhappy customers to deal with, returns and refunds to arrange, products breaking within their warranty period and the list goes on. But with the right supplier(s) they will help resolve any problems that you have.
If your thinking about dropshipping and have any questions then please do comment below. I’ve lived that life and still do. There is so much false information out there it just makes me want to scream and shout. For real, genuine answers from someone with experience, please ask away!