Shipping and fulfillment are arguably the most labor-intensive parts of running an e-commerce business. The man-hours required to pack boxes, buy insurance, contact couriers, and track shipments are incredibly time consuming, even for a small business. And as time goes on, the challenge of scaling your logistics can become a critical barrier to growth. This is where dropshipping comes in.
Although dropshipping has been around for years, it’s only now beginning to break into the mainstream. Large retailers like Home Depot and Macy’s are starting to integrate with dropshipping to expand their online offering. Shoe Carnival and Pier 1 Imports have announced plans to start doing the same. E-commerce giants are taking note of this new strategy because it has now been refined and proven effective by countless online start-ups.
Dropshipping works by partnering with your manufacturer or supplier. Instead of buying your merchandise in bulk and warehousing it, once an order has been placed you instruct the wholesaler to ship the goods directly from their warehouse to your customer. In addition to outsourcing all your shipping and fulfillment needs in one fell swoop, dropshipping can benefit your business and your customers.
Advantages of dropshipping
Here are just a few of the benefits that dropshipping has to offer:
- Less labor, lower overhead costs: With dropshipping there’s no need to keep a stock of inventory, process shipping information, or pack boxes. That saves significant man-hours and overhead costs.
- Mitigated risk: Because you don’t need to maintain an inventory, you don’t face the risk of buying in bulk and getting stuck with products that don’t sell or are replaced by newer models.
- Wide selection: Now that you’re no longer limited to the amount of stock you can fit in your warehouse, you can offer an infinite shelf of products for your customers.
On top of these advantages, you also enjoy flexible product testing, fewer shipping challenges, greater scalability, lower initial investment, and more.
Even with all these advantages, there are still some downsides to dropshipping. The cost of the service itself is typically expensive, especially for small businesses with slim margins to begin with. As your sales grow and profit margins increase, this becomes less of an issue, but the expense can be a barrier to new businesses.
There are also risks and challenges associated with outsourcing your shipping and fulfillment, since you have no direct control over shipping and handling, and have no opportunity for face-to-face customer service.
5 dropshipping tips to help you succeed
To ensure a successful dropshipping strategy in today’s market, here are five tips you need to consider:
Find your niche
Because Dropshipping allows you to offer something for everyone, the temptation of an infinite shelf is hard to resist, but be careful about falling into this trap. While this may seem like a good idea, it’s not necessarily what customers want. One-stop-shops, while convenient, are also impersonal. Offer your customers what they’re really looking for: something custom tailored for them.
The bottom line is: Specialize!
Have multiple fulfillment options
When you’re first building your business, it might seem easiest to just partner with one wholesaler, but that opens you up to exactly the type of risk you’re trying to avoid. It should be part of your plan to store at least some stock in-house (such as your best-selling items) and consider working with multiple suppliers. This way you can still offer an inventory that is unique to your store while avoiding potential troubles associated with relying on a single supplier. You can also save some of the dropshipping costs by fulfilling a portion of your orders in-house.
Myth-busting time: Most people will tell you to hide the fact that you’re outsourcing your warehouse and delivery. Don’t.
You should be upfront with your customers about your fulfillment partner. Today’s consumers have become so comfortable with major marketplaces that dropshipping is not seen as a negative; the most important thing for most online shoppers is that their retailers are open and honest.
Use low-cost marketing and be easy to reach
Profit margins are slim enough for new retailers and dropshipping can make them even slimmer. Dropshipping can also limit your visibility and direct interaction with customers post-sale since you don’t have as much room for packaging customization.
Focus your marketing efforts on effective, low-cost strategies such as SEO and social media engagement.
Make customer service a top priority, as well as having open channels of communication. Often in e-commerce, the merchant who responds the quickest to customer inquiries is the one who makes the sale.
Have a complete e-commerce plan
Dropshipping is effective but it’s not a magic solution to every e-commerce need. Too many failed dropshippers have taken an “if you build it, they will come” approach to this business model, assuming that they can passively earn a living income by simply building an online store and waiting for sales to roll in.
Dropshipping can help you launch or expand your business, but it’s just one tool among many, and the most important tool is your own hard work and commitment. Don’t expect a living wage in your first year of business and don’t expect dropshipping to fix all your problems. But if you work hard, curate your inventory well and diversify your revenue streams, it can be one of the cornerstones of a profitable and sustainable enterprise.
Bonus tip: Offer your customers multiple payment options
Once you have set up your online store, you’ll need to provide simple and secure payment options. You’ll want a highly secure payment processor that is easy to integrate onto your website and supports a wide range of payment options, such as credit card, Bitcoin, and e-money transfers.
A Payza account makes it easy to accept online payments and there are lots of added bonuses, like free recurring billing, built-in fraud protection, and no hidden fees. With Payza’s Guest Checkout options, such as credit card and Bitcoin payments, you’ll make it easy for your customers to pay you instantly.