What Is Dropshipping: A Tell-All Guide

Anyone who is planning to venture into eCommerce has probably heard about dropshipping. It’s a popular business model that provides digital nomads a simple route to starting an online store. 

Dropshipping can be a great way to generate a passive income, but only if you’re ready. 

Just like any other business, dropshipping also requires knowledge, hard work, and dedication. 

So if you’re willing to put in the effort and want to learn more then you’re at the right place. In this guide, we’ll discuss what dropshipping is, how it works, and everything else you need to know to start your business.

Let’s get right into it! 

What Is Dropshipping?

Dropshipping is a fulfillment method in which the store owner does not keep an inventory. 

Instead, all the orders are directly fulfilled by a third-party supplier – which is usually a manufacturer or a wholesaler. Basically, you’re working as a middleman. 

All the core operations of your business like product sourcing, packaging, and fulfillment are handled by the supplier. 

How Does Dropshipping Work?

The general idea behind dropshipping is to create an online storefront and then find a supplier for the listed products. 

You can either create your store on a marketplace like Amazon or use an online store builder like Shopify or WooCommerce. 

Once your store is ready and you start getting orders, you will forward the customer information to your supplier.

The supplier will then package, and fulfill the orders on your behalf. 

You can also use a dropshipping automation tool to streamline the process and minimize manual labor. 

What Is a Dropshipper?

A person or eCommerce business that uses the dropshipping fulfillment method is a dropshipper. All of their orders are sourced, packaged, and fulfilled by a third-party supplier. 

Benefits of Dropshipping 

Dropshipping is much easier and more accessible than traditional eCommerce businesses. 

If you’re wondering why it’s so popular, then here are a few reasons: 

1. Easy to Start 

One of the main reasons so many people are getting into dropshipping is because of how easy it is to start. 

If you know what to sell, then the only thing you need is to create a storefront and find a supplier. 

You don’t have to worry about stocking inventory, or investing a ridiculous amount of money. 

2. Low Startup Costs

Most new digital entrepreneurs often start their eCommerce journey from dropshipping. 

That’s because you do not need a huge upfront capital to start a dropshipping business. 

The only major cost you have to worry about is marketing. 

And that is also reduced if you’re creating your store on an online marketplace. 

3. Risk-Free Product Testing 

If you’re planning to test a new product, then dropshipping can make that much easier.

Just allocate a small portion of your marketing budget to it and see how the product performs.

If the audience gives a positive response then you can consider a hard launch. 

4. Low Overhead Costs

The overhead costs of running a dropshipping store are low because you don’t have to purchase hundreds of products.

You only need to pay for a product when a customer places an order. 

This only leaves you with the operational costs of your business which are mainly related to marketing. 

Other costs are usually the fee of the platform/marketplace you’re using. 

5. Highly Scalable 

The biggest advantage of running a dropshipping store is that your options are never limited.

You can easily introduce new products to your store without requiring a huge capital. 

It’s also easy to expand your market, and offer your services in a new country – as long as it’s fine with your supplier. 

6. Simple to Manage 

Running a traditional eCommerce store can sometimes be nerve-racking. 

There’s so much to do like purchasing inventory, packaging, managing logistics, and then offering customer support. 

In comparison, managing a dropshipping store is much easier. The only thing you have to worry about is customer service.

Everything else will be managed by your supplier. 

Challenges of Dropshipping

Before you invest your time and money into dropshipping, it’s important to learn what makes it difficult.

So let’s go over some of the most common challenges of dropshipping: 

1. Low Profit Margins

Sure, the overhead costs of dropshipping are low, but unfortunately, so are the profit margins. Since you’re investing a small amount, you’re also getting less money in return. 

The only way to earn a reasonable amount of money from dropshipping is to either get a high volume of orders or to sell high-ticket products.

Both of these things are easier said than done. On top of that, you also have to cover the marketing and operational expenses of your business which can further eat into your profits. 

2. Supplier Dependency 

No matter how big your dropshipping store gets, at the end of the day, you’ll always be dependent on your supplier.

If your supplier runs out of stock or stops responding then it can cause some serious problems for your business. 

That’s why you should never put all your eggs in one basket and always have a backup supplier to bail you out. 

3. Lack of Control

The biggest problem with dropshipping is that it doesn’t give you much control. Your business is only as good as your supplier.

At most, you can only order sample products but cannot individually inspect each product.

If the product quality declines in the future, then there’s no way for you to find out without receiving customer complaints. But by then, the damage would already be done. 

4. Potential Legal Issues

This doesn’t always happen, but not every supplier is as legit as they claim.

Some of them could be selling counterfeit products and you may not know until you’re filed a lawsuit.

That’s why you have to be extra careful while choosing a supplier. Otherwise, you could find yourself in hot water in no time. 

5. Customer Satisfaction

Customer satisfaction can be a major challenge if your supplier isn’t responsive or lives in the opposite time zone. 

Unless the supplier provides tracking, there’s practically no way for you to tell your customers why their order is late.

Saving face becomes even harder when the product delivered is damaged or not as described. 

6. Highly Competitive

We talked about how starting a dropshipping business is easy and unfortunately, that is also one of its drawbacks. 

The competition in the dropshipping market is growing fast, and around 27% of online retailers are now dropshipping.

So if you’re jumping into this unprepared then you’ll have a hard time competing against existing businesses. 

Is Dropshipping Worth It in 2022? 

Dropshipping is worth it in 2022 because it is easy to manage and can be started with a low investment.

However, running a successful dropshipping business is nothing short of a challenge. 

If you’re thinking of dropshipping as an easy money-making scheme, then you’re bound to fail.

The competition in the dropshipping market is fierce and the only way to make it worth your time is by putting in the effort. 

Why Do Customers Purchase from Dropshipping Stores? 

People often ask why customers purchase products from a dropshipping store when they can buy them at a cheaper price from other platforms. 

Well, aside from easy accessibility, the credit goes to marketing and creative branding which increases the perceived value of the product. 

Plus dropshipping stores also bring the attention of the customers towards that specific product. 

For example, AliExpress has thousands of cool products that most people don’t even know exist because the suppliers haven’t marketed them properly. 

So it’s about searching for those products and bringing them to the limelight to trigger the impulsive buying behavior of the customers. 

Is Dropshipping Right For You?

Whether dropshipping is right for you or not depends on a variety of factors. So here are some questions to ask yourself before entering this business: 

1) What Are You Trying to Achieve from Dropshipping? 

Before you get into dropshipping, you need to evaluate your goals. 

If you’re just trying to start a side hustle and don’t have any unrealistic profit expectations, then you’re good to go. 

However, if you think dropshipping is a get-rich-quick scheme or expect it would make you a millionaire then it isn’t for you. 

2) Do You Want to Micromanage Your Business?

The majority of your core business operations would be controlled by your supplier. 

For some people, this is also the appeal of dropshipping because you don’t have to worry about product sourcing or logistics. 

However, if you’re a perfectionist and love micromanaging then dropshipping isn’t the right business for you.

3) Do You Have a Plan to Deal with the Competition? 

Dropshipping has become a highly competitive business model. 

To give you some perspective, 90% of dropshipping stores fail within their first year of operation. 

This goes to prove that if you want to succeed in dropshipping then you’ll have to take it seriously.

So if you don’t have a solid strategy and can’t be bothered to put in the effort, then dropshipping may waste your time. 

So, Who’s Dropshipping For? 

Dropshipping is perfect for digital entrepreneurs trying to generate a passive income on a low budget. 

It’s also great for people new to eCommerce who are looking for a low-risk business model to learn more about the industry. 

And it’s ideal for established businesses to test new products and markets at a minimal cost.

How to Find Products for Dropshipping? 

There are several ways to find products for dropshipping, however, one of the most popular methods is to search online marketplaces like AliExpress. 

You can also extend your search on social media platforms and online forums, and by analyzing the current trends using sites like Google Trends. 

In addition, plenty of product hunting tools have also been recently introduced. You can use them to gain market insights and get quick access to a list of in-demand products. 

How to Find a Reliable Dropshipping Supplier? 

Your dropshipping business is only as good as your supplier. And unfortunately, finding a reliable dropshipping supplier can be tricky mainly due to the overwhelming number of choices.

To begin with, there are multiple ways to look for dropshipping suppliers. Some common methods include exploring online marketplaces, browsing supplier directories, or directly searching online. 

If you’re using a marketplace then start by creating a list of the highest-rated suppliers on the platform. Then narrow your options based on supplier responsiveness, reviews, shipping time, product quality, and prices. 

How Much Profit Can You Make from Dropshipping?

The amount of profit you can make from dropshipping depends on various factors such as your marketing strategy and business type.

It also depends on the profit margin you’re keeping on each sale. Selling a product for more than 20% of its sourcing price is generally considered to be a good profit margin.

The type of product you’re selling also plays a huge role in determining your profit margin. High ticket products can make you significant profit even if you aren’t getting too many sales.

Alternatives to Dropshipping

If dropshipping doesn’t suit your style, then don’t worry, there are plenty of other eCommerce business models you can explore. Let’s go over some of the most common alternatives to dropshipping: 

1) Brand Your Own Products

If you truly want to succeed as an eCommerce entrepreneur then sooner or later you would have to sell branded products. 

Branding a product is also referred to as private labeling, which basically means creating products with custom specifications and selling them under your brand name. 

The manufacturer cannot sell these products to other clients. You can either sell branded products as a traditional eCommerce retailer or do private label dropshipping. 

Either way, selling branded products is a step in the right direction for those who are serious about their eCommerce business. 

2) Amazon FBA

Another popular alternative to dropshipping is the FBA program. FBA stands for Fulfillment by Amazon and it’s similar to dropshipping because Amazon takes responsibility for fulfilling your orders from start to finish. 

The core difference between FBA and dropshipping is that in FBA, you’re required to purchase products and send them to the Amazon warehouse. 

In addition, you also have to follow the strict rules and regulations laid out by Amazon. Failing to comply can get your account suspended. 

However, the biggest strength of FBA is its high profit margin because most merchants on Amazon sell products at a high price. 

3) Affiliate Marketing 

Affiliate marketing is a well-known method of making passive income. 

The idea behind affiliate marketing is to promote someone else’s products on your website or social media account through a referral or an affiliate link. 

You get a commission each time a customer purchases the product using your referral link. Affiliate marketing is great for those who already have an established blog. 

The biggest problem with affiliate marketing is its unstable earnings and the inaccessibility to customer data. 

Although similar to dropshipping, the financial risk in affiliate marketing is minimal and there are many affiliate programs to choose from.  

4) Reselling Wholesale Products

Reselling wholesale products is pretty much the same as running a traditional retail store. It works by finding a wholesaler to purchase products in bulk and then sell them for profit in smaller units. 

In this business, you’d normally want to work directly with the manufacturer because not only would they be able to fulfill your product demand, but also offer you the best rates. 

The obvious drawback of this model is its high upfront costs and also the risk of being left with dead stock. But in return, unlike dropshipping, you do get more control over your business and product quality. 

5) Print on Demand  

Print on Demand shares plenty of similarities to dropshipping. One can even say that it’s more like a “niched-down” version of dropshipping. 

You’re basically following the same formula, but the difference is that you can only sell printed products. 

You don’t have to store inventory in a POD business because the items will only be produced once a customer places an order. That means you’re selling the products on a per-order basis so the risk is minimum. 

One of the biggest drawbacks of a POD business is that you can only sell limited items. Plus, production time may also be long because the products are prepared upon request. 

How Do I Start a Dropshipping Business? 

Starting a dropshipping business requires significant trial and error. 

There are a variety of factors to consider such as choosing the right niche, finding a supplier, studying the competition, and devising a solid marketing strategy. 

Another important step is to choose how you would like to sell your products. Whether you want to sell on an online marketplace or create a store from scratch makes a huge difference and depends on your long-term business goals.  

No matter what you decide, just make sure that you’re working with a reliable supplier. Otherwise, all your time and effort would be wasted regardless of your business’s potential.

How to Market a Dropshipping Business?

There are several ways to market a dropshipping store. You can use social media platforms to start a blog, run paid ad campaigns, and create an email list and so on. 

Ultimately, the marketing strategy you choose depends on your business goals, budget, and financial capability.

Although before you market any eCommerce business remember that the key rule is to know your target audience. 

Otherwise, you would be getting plenty of irrelevant traffic and little to no conversions. 

How Can I Maximize My Chances of Success?

Dropshipping is a highly competitive business, so you need to get an edge over your competitors. If you want to increase your chances of success then try to set yourself apart from the crowd.

What do we mean by that? Well, there are far too many copy-pasted dropshipping stores out there, and you don’t want to be one of them. 

Your top priority is building a unique brand identity and that can only be done by creating a presentable website. 

Always focus on selling quality products and stay in touch with your customers for feedback and improvements. This, in turn, would also help you build brand loyalty and contribute to the growth of your business. 

Dropshipping for Beginners: FAQ

Is Dropshipping Legal? 

Absolutely! Everything about dropshipping is legal and it’s not a scam. But that doesn’t mean you’re safe from legal liabilities. Even if you’re honest, you never know the intentions of the supplier you’re working with. 

They could be selling copyrighted products with forged resale certificates and making you a part of the chain without your knowledge. 

Similarly, your customers could sue you for cosmetic products for various side effects. That’s why it’s crucial to add business disclaimers and be careful before picking a supplier to work with. 

Can Dropshipping Suppliers Scam You? 

Yes, dropshipping suppliers can scam you but it can be avoided if you tread with caution. For starters, if you’re working with a supplier on a marketplace like AliExpress then never make any transactions outside the platform.

Doing so would nullify the buyers’ protection of the marketplace and it is a common tactic that scammers use to trick dropshippers. 

Some merchants also claim to be original equipment manufacturers (OEM) which is also normally a scam. 

They’re only making these claims to fool customers and potential dropshippers because luxury goods can be sold at a hefty price and have a high demand. 

How Much Does it Cost to Start Dropshipping?

There is no standard estimate to start a dropshipping store. It all depends on how you’re planning to sell the product and the initial amount you’re planning to invest in marketing.

With that said, even $100 is enough to get the ball rolling. This would cover the subscription fee of your eCommerce platform, the cost of the domain name and hosting along with some basic advertisements. 

In theory, it’s also possible to start a dropshipping business with no money using the Shopify trial period. 

But doing so would require a herculean effort because your store would barely be functional and it would be a nightmare to generate traffic without paid marketing campaigns. 

Is Dropshipping Allowed on Amazon?

Yes, Amazon does allow dropshipping but it isn’t lenient as other platforms. You need to follow their dropshipping policies otherwise your store will be suspended. 

In a nutshell, the rules say that the documentation on the product packaging must only show you as the seller and you should take full responsibility for processing customer complaints. 

It’s worth noting that dropshipping on Amazon isn’t recommended due to their tight rules.

Dropshipping also doesn’t give you much control over shipping times and consistently exceeding the delivery time allotted by Amazon can remove your listings and deactivate your account. 

Is Dropshipping Allowed on eBay? 

Yes, dropshipping on eBay is allowed but it isn’t the same as regular dropshipping. You can only dropship on eBay if you’re getting the products sourced from a reputable wholesale supplier. 

The problem with that is most wholesale suppliers have a minimum order quantity so you would have to purchase products in bulk – which defeats the whole purpose of dropshipping.

In addition, sellers are directed to deliver products within 30 days, which can sometimes be difficult since dropshippers do not manage the logistics. Lastly, reselling products from other marketplaces like AliExpress is also prohibited.

Final Thoughts

On the surface, dropshipping looks like a quick way to make money – but that is far from the truth. 

You might be thinking that you can easily act as an intermediary between your supplier and customers to keep a cut. 

However, when you factor in the challenges and effort it takes to build a dropshipping store, you’ll realize it’s not as easy as it sounds. 

While dropshipping is undeniably less complicated than other eCommerce business models, it’s also highly competitive. 

Hopefully, through this post, we were able to build a strong foundation for what dropshipping is and everything else you need to know about it.

So if you think you’re ready to turn over a new leaf then NicheDropshipping can help source the products. 

Just give us a call, communicate your requirements and our agents will happily guide you!