While the name sounds like something that you hope never happens to a fragile package, dropshipping is actually a key component of the e-commerce fulfillment process. Dropshipping is a business model that allows entrepreneurs to start their own online business and sell products without ever having to stock the items themselves. Instead, when a dropshipping store sells a product, it purchases the item from a third party and has it directly shipped to its customer.
This offers a lower-risk approach for independent businesses to test out new products, ideas, and potential product line offerings, without having to spend money on production and inventory upfront. This model allows for more people to participate in the e-commerce business landscape in a highly accessible way. All the products are available on-demand without requiring a stockpile of inventory in a warehouse or distribution center.
It’s a popular distribution/fulfillment model, and yet, it still proves to be a confusing concept when you’re starting out. That’s why we’re offering a detailed guide to dropshipping below, so you can evaluate if it’s right for you.
IN THIS ARTICLE:
How Does It Work?
Regardless of the platform that you’re using (your own website, a marketplace, a shop platform), the fundamentals are relatively the same. You just need to find a supplier for your dropshipping store. For example, with Shopify you can find your own supplier in your local market via a supplier database such as Dropship Direct or Alibaba, or utilize Shopify’s partner app Oberlo, to connect you to thousands of suppliers. With the Oberlo example, this is a marketplace that was developed with Shopify that allows you to browse AliExpress and import products via Oberlo to your Shopify store. It’s all automated, and as an order is placed, it’s drop shipped directly from the AliExpress supplier to the customer.
The overall process is the same with Shoppee and Lazada, utilizing AliDropship and Dropify, primarily in the Philippines. Here as well, it’s all done automatically, with minimal risk on either side and a very pleased end user.
That said, there are also unique cases and locations (such as the Philippines) where you might have a preferred local fulfillment partner, such as LOCAD, and a preferred dropshipping supplier and you’d like to integrate the two. Or a dropshipper has facilitated a relationship with a company that offers localized fulfillment, and we do the rest. In either case, this means that an order is placed and processed by your e-commerce store, dropshipped from China (as an example) to our local fulfillment center, and then delivered by us to the customer.
The Benefits of Dropshipping
As mentioned above, this is a great business model when you’re starting out, because it’s accessible. The dropshipping model allows you to test out different ideas with a limited downside, and helps you to choose and market products that may be in-demand, or not worth pursuing long-term. Once you get a strong sense of what sells and what doesn’t, you can decide if you’ll be pursuing your own production and fulfillment, or stick with what’s been working thus far. Other benefits include:
1. Less Capital is Needed
The biggest advantage is that you can start your e-commerce business without having to invest thousands of dollars into inventory upfront. Traditional retailers generally have large amounts of capital tied up in purchasing and storing inventory.
With this model, you don’t need to purchase a product until the sale has been made, and you’ve been paid by the customer. This allows you to begin to start to source products and start your dropshipping business relatively quickly and affordably. Also, you’re not committing to any sell-through of inventory purchased up-front, thus there’s less risk involved in going with this route.
2. Easy to Get Started
Once you start with the dropshipping model, you’ll find that running your e-commerce business is much easier when you’re not dealing with physical products. With this format, you don’t need to worry about:
- Managing or paying for a warehouse
- Packing and shipping your orders
- Tracking your inventory for accounting purposes
- Handling returns and inbound shipments
- Continuously ordering products and managing stock levels.
3. Very Low Overhead
Given that you’re not dealing with the purchasing of inventory or managing a warehouse, let alone sourcing out a fulfillment solution, your overhead expenses are quite low. In fact, it’s not uncommon to find out that a successful dropshipping store is run out of someone’s home. Requiring nothing more than a laptop and an internet connection, it’s an incredibly lean and sustainable business model.
4. Flexible in Location
Your dropshipping business can be run from anywhere in the world, as long as you have access to the internet. If you can keep the lines of communication open between you and your suppliers and customers, you can run your business from anywhere in the world.
5. Wide Selection of Products For Sale
If a supplier stocks an item, then it’s something you’ll have access to. As you’re not pre-purchasing any of the items you want to sell, you can offer a variety of products and trends come and go, for no additional cost.
6. Easier to Test And Learn
Dropshipping is the ideal fulfillment solution for both launching a new store, and for e-commerce stores to test out their customer’s appetite for new items and categories, risk-free. You’re able to sell products, before actually committing to selling them long term.
In the traditional retail model, if you get 3x the amount of orders, you’ll need to do 3x the amount of work to fulfill them. With drop shipping, you’re leveraging their workforce to process and distribute those additional orders, allowing you to scale up your startup with fewer growing pains. Growth will always bring more work regardless of your model, but your utilization of dropshipping can scale particularly well with your increased customer base.
How to Start Your Dropshipping Business
With the dropshipping model, there’s still a fair amount of work on your part, don’t get us wrong. You are responsible for creating your website and your own brand, as well as choosing and marketing the products you’re looking to sell. You’re also responsible for shipping costs and setting prices that result in a good profit margin for your e-commerce business.
Step 1: Commit to Your Dropshipping Business
As with any other business, this will take a lot of work and a significant commitment of time and money. Having realistic expectations and a long-term view will go a long way. This might start off as your side-gig, and it’s important to understand your business’ operation inside and out, know your potential customers, and have some understanding of a 12-18 month business plan. Then, you need to get it up and running and market the heck out of it. This is where the financial investment comes in. You’ll need to pay hosting fees, web design, marketing costs, etc…)
Step 2: Choose Your Dropshipping Idea
Ideally, this step is done in tandem with step 1. You need to understand the market, to get a grasp on what customers want and what’s selling well. Whether you’re jumping on a trendy product, or want to market to a niche audience, you need to do the research. Shopify offers a list of trending products based on top-selling categories on their site, as does Lazada.
Step 3: Research Your Competitors
Now that you have an e-commerce store set up and you know what you want to sell, you want to understand what your competitors are up to and how they work. They hold clues to success and can help you build a stronger marketing plan for your dropshipping business. Obviously, your competition is going to include Amazon, but you can also find out who’s in the market with you via running a Google search, browsing their social media, and subscribing to their email lists.
You can also turn to online competitor tools such as SimilarWeb or Alexa. These can offer you competitive information such as their social media profiles, top traffic sources, numbers of visitors, and who their competitors are.
Learn everything you can about them (prices, marketing methods, products, reputation, etc…), and go out and do it better.
Step 4: Build Your E-commerce Store
Your e-commerce store needs a home. Whether it’s on your own website, or on a shop platform or marketplace, there has to be a place where you send traffic, sell your products, and process payments. Most of these platforms such as Shopify, Shopee, or Lazada make it easy to build and launch your site, sell across multi-channel, offer multiple currencies, manage your products, and process payments. They can also help you with the design and branding of your store if needed.
Then, start selling your products. But keep in mind – there are a lot of keys to a successful e-commerce store, and you need to make sure that you’re on top of all. You can’t miss a step.
Step 5: Choose a Dropshipping Supplier
This is a critical step towards finding success. You need to find a dropshipping supplier that can give you the highest quality service that you’ll need to grow and find success. Many e-commerce platforms offer plug-and-play style options for finding potential suppliers, as we mentioned above. On the other hand, you could also do your own research and find your own dropshipping fulfillment partners, such as LOCAD, and partner with a dropshipper that utilized our fulfillment network and infrastructure.
Step 6: Analyze And Improve Your Products
After you’ve been marketing and managing your dropshipping store for some time, it’s time to start looking at the metrics and KPIs around your hard work. Depending on your platform, dropshipping, and/or fulfillment partner, you can find detailed analytics including:
- Sales: What are your best-performing channels? Are your ad dollars in the right places? What are your best-selling products? Who are your most loyal customers?
- Shopper Behaviour: Are people buying on mobile or desktop? Is there seasonality and peak times where you get more traffic?
- Profit Margins: What products are the most profitable? Which products aren’t moving? What are your month-over-month sales and gross profits?
You can also turn to the internal metrics of your Google Analytics and social platforms to check if your strategy is working or not. Once you have all the information, you can make an intelligent decision about your strategy moving forward.
Drop LOCAD a Line
At LOCAD, we’re built for startups and entrepreneurs who are just starting out or looking to grow their business from a staff of one to something larger. When it comes to finding a partner to spearhead your fulfillment, LOCAD’s dynamic and scalable technology solution is a supply-chain-as-a-service platform that will work organically with a dropshipping model and facilitate a best-in-class fulfillment experience.
Our solution offers access to a globally distributed fulfillment network to help you localize your fulfillment strategy via a customized supply chain design that can integrate with your dropshipping supplier. As you scale up, and if you choose to move beyond drop shipping, we can help you broaden your reach with a hyperlocal distribution warehousing network and order and inventory management, to help you stock, store, and ship your own products. We also offer:
- Efficient integration With your Sales Channels (website, marketplaces, shop platforms).
- Seamless integration with your dropshipping supplier.
- Demand/Supply Planning.
- Back Office Workflow Automation.
- Order, Inventory & Sales Analytics to track inventory days on hand, flag non-moving stock, and measure your KPIs.
- A custom dashboard that gives you full visibility into our smart supply chain network, in real-time.
- Flexible terms and variable fulfillment pricing with no lock-in commitments.
As a major shipper, LOCAD has contracted rates with many courier companies that can lead to significant cost savings vs the rates you pay in the branch or online directly with the courier. Savings on shipping costs can be a major factor to consider a fulfillment partner, as this isn’t something that your dropshipping supplier will be responsible for. With LOCAD’s network, you can further cut down shipping costs when selling internationally if you opt for localized fulfillment. Opting for in-country fulfillment of your best-selling items can lead to a significant reduction in shipping cost and lead time.
Contact us to learn more about how we can offer backend fulfillment and support, expand your dropshipping model’s reach, while you turn your passion project into a reality.
Experience fulfillment by LOCAD
Grow your business through LOCAD’s simplified and automated fulfillment solution
- Unlimited and scaleable warehousing
- Pay only for what you store
- No hidden fees or lock-in periods
- Zero inbound costs
- Wide integration with marketplaces
- Automated logistics and delivery
With extensive experience in e-commerce and logistics, Constantin Robertz is the Chief Executive Officer and Co-founder of LOCAD — an end-to-end fulfillment solution empowering online businesses through warehousing, picking and packing, sales analytics, and last-mile logistics integrations. Prior to LOCAD, Constantin was the Chief Executive Officer and President of technology-driven logistics solutions provider Entrego and the Managing Director of Zalora, Asia’s leading online fashion destination. With a background in Business and Management from Universität St. Gallen combined with his expertise in e-commerce, Constantin leads the business strategy and development operations of LOCAD to ensure success.