Dropship is a business arrangement. The manufacturer/wholesaler lets you to buy products individually and ships them to the customer on your behalf. Consumer never suspects that someone else fulfills the order. Chances are you bought something that was dropshipped before and you did know it.
Proliferation of e-commerce solutions such as BigCommerce, Shopify has contributed greatly to the popularity of the concept. Amazon and EBay also helped. Anyone can open a store now.
Why dropship? The reasons are simple. No capital needed. When I set up dogcratesnow.com all I needed was $9 for the domain, $9 for secure socket layer (SSL) certificate, and $25/month for the basic store on the BigCommerce.com. Granted I would need to spend about $1,000 to build the store. Or I could have done it myself and saved some money.
Most of the credit card processors charge fees only when there’s a purchase. PayPal does not have a setup fee either. So, that is it. No other capital needed. You are ready to go. Compare that to the expenses of opening a conventional store. Lease expense for a brick and mortar store alone will cost you couple thousand dollars.
Note: Some manufacturers/wholesalers might charge a nominal fee to setup the account ($10-$50) but that varies from niche to niche.
Another reason to go dropship is no inventory. Let me repeat this again; NO INVENTORY. This simplifies running business immensely. It means you don’t need to rent warehouse. No need to pay for one.
In some industries, retailers need to borrow funds to carry inventory. Not you. No stock means no need for capital.
Because you don’t handle product yourself, you don’t worry about hiring more people should the demand pick up. The business is scalable.
Also, lack of inventory implies your product selection can be unlimited (though, most of the dropship stores offer limited selection).
Finally, here is the biggest reason to do drophsip. You can be anywhere in the world to run the business. As long as you have internet connection you are in business. All you do (once a store has been set up) is forward customer orders to the manufacturer. Maybe answer customer email once in a while. All of which could be outsourced as well by the way.
I have seen owners of dropship businesses posting on marketing forums online. The first post is from Thailand. The second is from Laos. The third is from China. They work 3-4 hours/week, traveling from one country to another. They might earn less than a doctor in the US, but they are more financially independent than all the medical professionals combined.
What are the disadvantages of dropship? Well, you don’t make your own products and the the products you are selling are available at other websites. Anyone can compare prices. Your ability to command higher prices will be limited. Lack of unique products translates into a weak pricing power.
Dropshippers are specializing in niches, so you won’t be selling large quantities. Small volumes => small quantity discounts => small profit margins.
American customer expects free shipping and liberal return policies. Manufacturers will charge you shipping and restocking fees. These expenses will reduce your margins. In some cases, obliterate them completely.
Finally, you won’t be able to bid $3/$4 dollar per keyword on Google AdWords to compete with Walmart or Overstock on pay-per-click advertising. Your financial resources are limited and minuscule in comparison to the marketing budgets of retail giants of internet.
In fact, your best chance for success is organic search engine optimization (SEO). To rank on top of few niche keywords and hope and pray that the next Google search redesign won’t throw your website to the outskirts of Internets (which is 2nd and higher pages on google search).
That’s is until you have enough repeat buyers or buyers coming from other than Google sources.
So keyword research and SEO are EXTREMELY important for dropship. If you don’t have skills in either (or a big budget for SEO), your website has a very high chance of failing. Have no illusions about this. To use economics lingo: low barriers to entry = high chance of failure.
I went through several steps when I set up my store. I will outline them below. Each of the steps deserve its own post. I will expand on some of steps later. The purpose of this post is to provide an overview, so I will keep this brief.
- The niche selection. This is one of the most important steps is the process. It will come up again and again across many ways to earn passive income. It is basically keyword research. The key here is to select a niche that has enough traffic but does not have a lot of competition. Competition is measured (usually) by Google PageRank score, number of backlinks, age of the domain, etc.Side note: Google assigns a score to every page on internet. The higher the score the more likely the site will show up on the first page of google search page.
There are several software products that allow you to do keyword research. I use Market Samurai. You list a keyword and the software will show associated words and the number of daily searches for them. You then select a particular keyword and assess competition. If the competition is weak, you have your niche.
- Identifying suppliers. Once you identify your niche, say “large outdoor dog houses” you can search for products and suppliers. For that you have to turn into Sherlock Holmes. Type the niche into google search and examine all products that showed up in searches. Specifically track the manufacturer names. Then search for manufacturer websites. Once you have identified a manufacturer website, contact them and ask to speak to someone in retailer/dropship department. Most of them will have a department that supports retailers.Tell the company you are an owner of the website (or represent the company that owns a website) and you would like to carry their product.There’s usually some paperwork. You will have access to the product catalog, product images, shipping rates, and 2 set of prices. The ones they suggest and they ones they will charge. You will also get an email to forward the orders to in case someone purchased the product. Also instructions on how to handle product returns.
- Identifying products. Having access to the prices will allow you to estimate your profit margins and identify products you would like to carry. Some dropshippers training programs suggest setting minimum profit margin and reject products that do not meet that margin. Make sure you account for shipping when estimating profit margins.
- Store setup. Once you have list of products to carry you can proceed with the store set up. Get a domain name, preferable related to the niche (i.e. LargeDogHouses4Sale.com). Get an account at BigCommerce or Shopify and set up a store. BigCommerce offers a basic account for $25/month. Both platform offer detailed tutorials on how to build your store. You can also hire someone to build your store. There are companies that offer store buidouts. Alternatively, you can hire someone on Enlace or UpWork. You also would need to decide on payment alternatives and shipping options.
- SEO. Once your store is ready, time for SEO campaign. SEO description can take pages and pages. The (VERY) short summary is this. The more (related) websites with high PageRank have links to your website, the higher your website will show up in searches.Also set up pages on social media sites and maintain a blog with fresh content. This should help with SEO.
As a part of SEO process you need to register your store with Google Webmaster Tools and Google Analytics (they are free). These services will allow you to track traffic, backlinks, and search placements. If your SEO campaign executed properly, you should see your site’s ranking increasing over time.Once your store reaches the coveted first page of the Google search you should start getting orders. That is assuming the products are competitively priced. When this happens, accept my congratulations. You are a proud owner of a functioning and (hopefully) profitable dropship store.
While there are couple other considerations I did not discuss (setting up legal entity for example), the steps outlined here summarize the bulk of the process. My next post will be about monetizing traffic with AdSense. Stay tuned.