When to use dropshipping?How to manage dropshipping?Advices from experts and case studies examples.
The extremely popular subject in the last couple of years is – Dropshipping! People all over the world who figured out how this business model works, made millions so far.
Dropshipping, in general, means that a seller has his own online webshop, he doesn’t have a warehouse nor he stocks his items or ever gets in contact with it, their main job is actually digital marketing. When a customer places an order on his webshop, he places a purchase order to his supplier. The supplier sends the items directly to the customer, in the name of the dropshipper.
Let’s go through the steps quickly:
• You have your own webshop where you sell various items, or even just one item, for example – jewelry.
• You are not the manufacturer, you don’t have a warehouse or a room or a container where you stock this jewelry. You never even touch or see in person the precious rings, bracelets and necklaces.
• Your job is strictly marketing – convincing people to check out your website, optimize conversion, promote your website on social media: Facebook, Instagram, Twitter.
• The jewelry is actually stocked/produced somewhere else (most probably in China, but it can be in your own country as well). The manufacturer/reseller is getting an X amount of orders from you on daily basis, and he packs and sends the items to people who ordered it from you. Note that on the packed sales order the name of the displayed company is yours, not the manufacturers. The customer will actually never know that he didn’t get an order directly from you.
This is not affiliate marketing, it’s far better than that. You get to develop your own brand.
And, of course, this is not an ‘easy way to get the money’, even though it seems that way. For the dropshipping business you need to recognize the demand of the market, social trends and psychology of people.
I know that this seems like a ‘reselling’, but it’s not. This is more sophisticated and, as I already mentioned, it gives you an opportunity to develop your own global brand, the thing that was not even close to possible up until recently.
The first, and the most important step, is that you find a group of people who are passionate about something. Whether they are vegans, or ‘save the oceans, save the trees’ people or make-up/fitness/yoga gurus – do your research, target the people, explore their passion and spam their social media with the items they will find interesting and ‘up their alley’.
The dropshippers usually use Shopify or WooCommerce (ERPAG integrates with both, just throwing that out there) platforms as their Web Shop. It’s not pricey and it covers their needs – display the item, price and shipping. Now when we mentioned shipping, you can either put a cheap price and a small shipping fee, or just pump the price up and give a free shipping, or – the most popular way of trading these days – give away the product for free, while the customer just needs to pay for the shipping (which is actually not that low at all, since it covers your purchase price and your profit).
You can order one item, or a few, in order to check for yourself what are you selling, and make some high-quality pictures of the product. These pictures can attract a lot of buyers over social media such as Instagram or Pinterest.
ERPAG, as an inventory management software, can be used as a fulfillment channel, to download the sales orders from the webshop, and help you create and email purchase orders for committed quantity toward your suppliers.
The question we often get asked, is: “My finished product is based on BOM (Bill Of Materials). I get my parts from my suppliers. Each of my components has a different supplier, and a third party is actually assembling all that for me, into my finished product. Can ERPAG manage that?” In short, the answer to this question is – Y (as in Yes, just shorter).
Simply download your sales orders from your webshop, the quantity will be either available, partial quantity or no quantity. If you have available quantity, you are in luck, just let your 3rd party (contractor) send the items for you. If you have partial or no quantity at all, then you will have to produce it. Which is actually done quite easy, since you are not the one who is manufacturing it.
You are just placing the orders for the parts to your suppliers, and the separate work order for the finished product to your contractor. Your suppliers ship the parts directly to your contractor, he manufactures your product, and sends it out to your customers.
You are just doing the ‘easier’ part – clicking and ordering and making sure everything goes smoothly and that your end users build up confidence in your brand and website. They will surely recommend your product to their friends and family, and there is no better marketing than a living word passed from one to another. In our experience, that is the best-selling dropship business – product design. You are selling your idea, you are the mastermind, while the other companies do the ‘hard, physical work’ for you.
This seems like an ‘easy money’, but, sadly, there are a few downsides. One of them is the fact that everyone wants to get rich fast, so the dropshipping business is highly competitive. The bigger the company the lower their markups are, so they can offer the lowest prices and still gain a reasonable profit. While the newcomers with a smaller budget can even deal with loss. That brings us to the second downside – low-profit margins for a lot of work – you will have to shuffle between managing your webshop, marketing, sales orders, inventory, and your real job.
In conclusion – dropshipping is worth a try if you have a backup plan. If you have a steady job, and a bit of money aside for investment, you can give it a go, but only if, in case you deal with a loss, that doesn’t harm your home budget and savings in a long-run. Like any other business start-up, dropshipping requires time, devotion, research, passion, knowledge and most of all – guts.
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