Is it possible to start an online shop with minimal capital and no inventory? Dropshipping says yes.
Dropshipping isn’t a new model. It began to create a buzz among young entrepreneurs two to three years ago. But it becomes increasingly popular as more people look for additional income amid the pandemic. So how does it work? And how can you adopt this model to start your first retail or niche shop online?
It is a three-step business model
Dropshipping involves selling products on your Shopify site or Instagram shop without inventory. As a retailer, all you need to do is keep a product catalog and market the products. Every time a customer places an order, you will forward it to your supplier. The supplier will then pack and ship the product directly to the buyer (some suppliers even offer to put your shop logo or label on the packaging).
How will you gain profit from this process? By partnering with a supplier, you get wholesale prices.
- The customer orders a $100 item (product price).
- You forward the order to the supplier and pay them $50 for the item (wholesale price).
- The supplier ships the item to the customer, and you get to keep $50 (profit amount).
It has minimal risks
You don’t need a high capital to try your hand at dropshipping. For one, you don’t need an office, so overhead costs won’t be a problem at all. Also, you don’t have to pay for shipping or storage space.
All you have to pay for is your shop’s domain name and platform and supplier fees. You can also invest in automation apps to make the buying process more convenient and online ads to market more efficiently.
Finding the right supplier is crucial
While the model of dropshipping seems simple, it’s crucial to partner with the right supplier. Just like how you asked questions and talked to different lenders when you were looking for the best home loan rates, don’t rush finding the right supplier for your dropshipping business. Conduct due diligence.
Many dropshipping suppliers are located overseas, so choose one that can respond promptly and ship products without any delays. You can start your search on AliExpress or reach out to manufacturers.
Also, don’t hesitate to ask about suppliers’ fees. Here are some fee structures suppliers often offer:
Per item fee
Suppliers may charge $2 to $5 per item to cover packaging and shipping. Still, these fees are lower than what you will normally spend if you handle the packaging and shipping on your own. But make sure to ask if the fee per item is higher for products that are bigger, heavier, or harder to process.
Some manufacturers don’t ask for additional fees because they’ve already included shipping fees into the product cost itself. If the wholesale price of each product still seems attractive, this no-fee option is viable.
Many suppliers charge a monthly fee for their partner-retailers. This fee structure is ideal since it allows you to plan your budget butter. But you may not want to go this route until you make sales consistently.
The drop shipping makes it easy for you to get started. But keep in mind that it also makes it easy for your potential competitors to run their shops. Be sure to pick a good niche, partner with the right supplier, and maximize the low-capital requirements through clever marketing to beat your competition online.