Dropshipping: What it is, how it works, and keys to success for your business

Dropshipping is a business model based on retail sales directly over the Internet, without keeping those products in stock. To do this, the retailer reaches agreements with online platforms, manufacturers, and/or wholesalers, who ultimately ship the order to the final customer.

In other words, in dropshipping, you sell a wholesaler’s products from your website in exchange for a percentage of sales, with the wholesaler itself being in charge of keeping the stock, preparing the order, and delivering it to your customers (for the final customer, this process is seamless).

It is a business model that allows you to create an online store without investing in any type of stock and requires very little investment.

How does Dropshipping work?

In case you didn’t know, dropshipping is a variant of ecommerce in which your store doesn’t keep the products it sells in stock, but rather you buy the goods from a third party and they are then shipped directly to the customer.

Thanks to this, it is not necessary to invest too much money to start venturing into this type of sales.

However, obviously you won’t become a millionaire overnight, but if you have patience, perseverance, and do enough research, you can have an extra source of income to meet your daily expenses.

Facts and statistics about Dropshipping

Some ecommerce statistics and business figures from WWO are very enlightening:

• 40% of the world’s population (over a billion people) has bought online, and the trend is growing. China, the United States, the United Kingdom, Japan and Germany top the list for online shopping revenue.
• Monday is the day people shop the most, followed by Tuesday and Wednesday. The best-selling products online are books, followed by electronics and computers.
• The average online order value in the USA is $108.73, and in the United Kingdom 30% of sales are made online.
• Millennials are the group that takes part the most in this type of sales, with an average spend of approximately $2,000 per user per year. However, they are also the group most likely to abandon their shopping cart; they are impatient and not very loyal, and if they run into any inconvenience in the buying process, they leave it unfinished. The average Chinese internet user is 25 years old.
• As for companies’ efforts toward acquiring customers: 44% of companies focus more on acquisition, 16% focus more on retention, and the remaining 40% focus on both equally.
• The favorite device for online shopping is the mobile phone (accounting for half of the traffic), although the computer leads the list, mainly for reasons of transaction security. Online purchases are distributed as follows: 72% PC, 13% tablets and 15% smartphones.

Advantages of dropshipping

Compared to creating a conventional online store, where we would have to keep stock and handle logistics, the advantages found by stores doing dropshipping are very diverse; among these advantages are:

• They require little initial investment. In a way, it is the cheapest way to set up an online store to sell physical products. There is no need to stock products, have premises for them, or take on their distribution.
• Logistics disappears. You won’t have to deal with one of the aspects that can cause the most problems when managing an online store, because you don’t have to control the logistics of distributing the items you sell.
• Easily scalable. As an online store, you can add as many products as you want and manage your site’s information however you like.
• Low fixed costs. Normally, only one person is responsible for managing a dropshipping store, which means you don’t need a warehouse (there is no stock of goods) or staff to manage it.

Disadvantages of dropshipping

As expected, dropshipping carries an implicit series of disadvantages that anyone considering setting up a dropshipping store should know:

• High competition. Just like you, there will be many other stores that also do dropshipping and sell exactly the same products. So you’ll have to compete with all of them, and your SEO needs to be the best to bring traffic to your store (something that isn’t easy to achieve).
• Be careful with your supplier. When the wholesaler provides you with the online store (sales platform), you won’t be able to edit the product pages, which means saying goodbye to SEO. If that happens, working on your SEO ranking will be very, very complicated.
• Very small sales margin. Profits come from small sales commissions, so you have to sell a great deal to earn a meaningful income.
• You don’t control the quality of the products or their shipping. It’s your store, so if the quality of the products isn’t what was expected or their delivery is delayed, you are the one held responsible in the customer’s eyes.
• Stock problems. When you are the one in charge of storing the items, you can get to know the products and their stock directly. Since this is delegated to another company, they don’t always provide you with up-to-date inventory, and this can cause problems with delivery times.

Buying and selling with Dropshipping

Dropshipping isn’t just about striking a deal with a third party for transactions and switching on the cash register without doing anything.

Although it is a very valid option to diversify the product catalog in an ecommerce site or a specialized blog on a specific topic, it has its pros and cons that are important to clarify. The main difficulty of the model is choosing the right market to focus on—which requires an exhaustive preliminary study—in order to achieve your sales goals.

Additionally, depending on the area you choose, it will also be more difficult to find the right supplier since, in many cases, differentiation leads to a shortage in the number of product suppliers.

► Analyze and understand the market well

Therefore, it is a key aspect in a Dropshipping sales initiative.

Keep in mind that on the Internet, there are many options to make money, but there is also fierce competition among sellers from all over the world.

Furthermore, in Dropshipping, profit margins are quite tight, and the ideal is to select a profitable niche with high demand and low competition. Use parameters related to profitability, saturation, web traffic, and search trends.

In this first phase of market analysis and product sales, it would be good to take a look at your competition and see how they work, how they have structured their online store, what types of products they offer, which supplier they operate with, and what their sales margins are like.

Once this field work and preliminary analysis are done, the search and selection phase among different dropshippers to market your products begins.

The precautions in this step have been mentioned previously, but what it’s really about is negotiating favorable agreements with the highest benefits and finding a serious and reliable supplier that helps build customer loyalty.

In addition to numbers and dates, carefully define the delivery structure and protocols that each supplier uses. It is advisable to have more than one so that products reach the final consumer as soon as possible.

► Once all these aspects are formalized, you can create the online store with Dropshipping

In WordPress, WooCommerce, or PrestaShop, for example. If you want to try something simpler, there are providers that allow you to set up a website online on their platform with monthly fees and quite acceptable visibility.

From there, all you need to do is export the product catalog you want to sell and start selling; remember to optimize your product descriptions and categories so they rank at the top of organic search results.

Once all agreements are closed, the sales process is as follows: the customer requests a product, the supplier provides and ships the merchandise within the agreed timeframe, and the retailer manages the payment and after-sales service, including incidents.

In this commercial cycle, take into account all aspects related to the consumer experience and apply aspects that facilitate good service, repeat purchases, and loyalty.

When the machinery is running smoothly, you can make decisions regarding introducing new collections or creating new business lines.

With the data in hand, it is important to assess strategic aspects derived from online advertising, with paid campaigns, using social media, email marketing campaigns with discounts and promotions, or resorting to digital marketing.

The good thing about the internet is that you can carry out small, short-term actions aimed at specific audiences.

9 tips to increase your dropshipping sales

Increasing sales in Dropshipping has never been an easy task, but there are several tools and best practices that can help you in this effort.

Because of this, we compiled several tips to increase sales in dropshipping. Use the ones you consider necessary and start seeing changes in your earnings.

► Design a pleasant store

Even though the investment in the dropshipping model is very low, you need an online store that really catches the eye.

As in any type of business, potential customers buy with their eyes.

For this reason, you need an online store on Shopify that is attractive and intuitive for making purchases. While you can do Dropshipping on other platforms, Shopify helps you do it in a simple way.

In addition, the look of Shopify stores makes people want to learn more about the products you offer and conveys trust.

Of course, you must accompany them with clear copy and precise information about every detail regarding them. And since these types of online stores have a responsive design, anyone will be able to view a clean site regardless of whether they are connecting via a tablet, smartphone, or desktop computer.

► Use a good customizable checkout

By using a customizable checkout, you’ll be able to simplify the buying process and much more.

But even though there are many on the market, not all of them are good enough to help you increase your dropshipping sales. For this reason, we introduce Shopipay, a perfect tool for your online store.

Shopipay is a Shopify app that gives you the chance to improve the checkout process with a customizable page.

As if that weren’t enough, you can include upsells after every purchase.

This way, your customers will have the chance to buy other products from you without entering their payment information again.

With ShopiPay, you will create the perfect shopping experience for your store.

And best of all, you can use it without paying a single cent. Unlike other customizable checkouts, ShopiPay has a completely free plan in which you are only charged a small commission per sale.

Without a doubt, it is the best option for anyone looking to level up in the Dropshipping world without having to invest money.

Note that Shopify doesn’t let you make these changes, but with this app you can.

As you could surely see, it is a good tool to increase sales for your virtual store.

Advantages of Shopify:

1. 1-click post-purchase upsells.
2. It has a plan you can use without investing a cent.
3. 20% increase in the average cart.

► Use SEO strategies

Since the Internet is filled with millions of websites all over the world, standing out from the competition can become a headache.

That’s why getting good Google rankings is key to winning new customers and to letting those who know you easily find your products or services.

It is proven that users rarely go to the second page of Google.

Because of this, it is indispensable to achieve good organic positioning to increase Dropshipping sales.

Undoubtedly, keywords are necessary to ensure that the products you offer reach the right consumers.

► Look for a specialization

In dropshipping, every online store needs to specialize in a niche.

That is, focus on a particular product.

Although many believe that focusing on something specific limits sales, with Dropshipping, the opposite happens.

Why? Because communication becomes more effective and lets you stand out from your competitors.

Don’t worry, when starting out in the Dropshipping business, you may not know which sector you will specialize in.

But once you’ve explored the terrain well, it’s up to you to identify your customers’ needs and focus on meeting them.

Where would you buy if you were looking for a gaming mouse to get lost in your favorite games? Any tech store or one that specializes in gaming gear?

You will probably choose the second option.

► Offer quality service

Treating customers excellently will always be key to earning a good reputation among consumers.

And in the Dropshipping business, it is all due to the Internet and the ease of sharing opinions on any topic.

Don’t mind losing a bit of money if you run into problems with a shipment or with suppliers, as long as your customer is happy.

This way, it will make them trust you, increasing the chances that in the future they will recommend your online store to their circle of friends.

► Set convenient prices

It is impossible to do dropshipping with such a minimal profit margin that it barely leaves you enough cash flow to operate. It’s recommended that you aim for profit margins of 60 or 70% so you can make the most of this type of sales model.

► Don’t participate in a price war

By entering a price war, customers might stay with you for the sole reason that you sell cheaper. However, this strategy has a limit, which is that you cannot lower the price to the point of affecting your profit margin.

If you want to avoid this happening, then provide added value that goes beyond the price.

We are talking about the service, customer support, or the information you provide, for example. The ideal is to aim for people to be happy with your brand and not just with the products you sell.

► Analyze each of your products

Just because dropshipping allows you to work without upfront stock doesn’t mean you can add any product you want to your store.

Obviously, this is possible, but it could harm you much more than you imagine.

On the other hand, by adding poor-quality products or products with negative reviews, you could end up with dissatisfied customers and unnecessary product returns.

In addition to returns incurring costs, they create a negative image of your brand. So avoid them as much as possible!

► Carefully analyze the suppliers you work with

You must be clear that not all suppliers offer the same possibilities and conditions regarding prices.

For this reason, it is indispensable to know your dropshipper well.

There will be some that have good prices and others not so much; there will also be those that impose a set of conditions and others that do not. Take your time to discover who your perfect supplier could be, and you’re set.

As you have surely seen, it is very convenient to analyze your supplier, their way of working, and their conditions.

This way, you will work only with the best of the best, reaching an acceptable sales level without having to deal with returns or unsatisfied customers.

Examples of Dropshipping businesses

Fashion, beauty accessories, fashion accessories, watches, technology, home goods, decor, pets, hobbies and sports are some of the sectors most widely exploited by the dropshipping universe.

Below we detail some examples of online distributors worldwide, and also in Spain.

AliExpress is a clear example of dropshipping.

The Asian giant markets practically all types of wholesale products for online stores spread across all five continents.

Sales giants from the United States such as Amazon, Sears, eBay or Zappos do it too.

Jack Ma, founder of Alibaba, and Jeff Bezos, CEO of Amazon, top the billionaire rankings thanks to the profits made from ecommerce.

Besides AliExpress, China has platforms such as Chinavision, Dealextreme or MinilintheBox.

The latter, available in 24 different languages, sells products such as watches, jewelry, phones, automotive and smartphone accessories.

Also related items such as men’s fashion, gadgets, home, kitchen, pets, and lighting. They work directly with the manufacturer and guarantee fast deliveries (with warehouses in Europe and the United States) and secure transactions.

A European-level dropshipping wholesaler is Big Buy, a B2B online store available in 24 languages with a multichannel integration platform that supports different marketplaces (PrestaShop, eBay or Amazon).

It has online and offline channels and offers two pricing rates: for wholesalers and 360.

Its corporate blog includes ecommerce sales tips, corporate information and sales tools for campaigns such as Valentine’s Day or Black Friday, for example.

Other similar dropshipping businesses where you can find all kinds of products are RedPointshop, Shopify or Plasticosur.

The latter is based in Seville and offers a wide range of products for leisure, toys, in addition to ticket management and purchase.

Fashion and footwear are represented on platforms like Grupocoas, Mabisy, Lenceriasecret, ModaCreativa, Chollomoda, Secret, Brandsdistribution, or Garatti, the latter specialized in manufacturing Spanish footwear and distributing it in physical shoe stores.

Home and decoration products are found at AquimasBarato, Cristalymenajeonline, Mabisy, Nedis, and Red Point Source.

Cleaning, clothing care, breakfast, childcare, home, kitchenware, audio, telephony, and health and beauty are the categories of this last dropshipper, based in Madrid.

When it comes to gastronomy dropshippers, suppliers like Ecopasion, Delicatplural, Frappemania, Productosecologicos, Productosnavarioja stand out, as well as delicatessen suppliers like Proveedores.com specializing in catering.

For the sale of computers and accessories, consoles, and video games. Dedicated to computing, suppliers like Oberlo, Printful, Infortisa, Ociovisual, or Megasur also stand out.

Conclusion

We have mentioned that the main objective of developing a Dropshipping initiative is to obtain economic profitability, but you can also use this sales strategy to increase your website traffic or define a branding initiative with valuable information about the products you market in your store. Content marketing is the ideal alternative in this regard.

Monetizing a website or an e-commerce platform with a Dropshipping sales system is relatively simple and viable with a small budget and without extensive technological knowledge.

Having said that, despite its viability, it is important to develop a broader structure involving other web mediums such as a blog, emailing, and social media. The latter are very necessary if you want people to know your product, know about you, see what you do, and what solutions you offer so that, ultimately, they end up buying your products.

Oh! One last thing: don’t forget to read the fine print of the agreements you close with dropshippers to avoid unpleasant surprises with your customers and to maintain the quality standards your business needs to thrive.

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