Dropshipping is a business model in which the e-commerce store owner doesn’t buy the products from the manufacturer beforehand but instead only acts as sort of intermediary that delivers the order made through his store to the manufacturer and the manufacturer then ships the product directly to the customers.
However, if you are planning to do dropshipping, you can’t just list any products from any manufacturer to your store and then expect them to the ship the products to the customers. Instead you will have to before hand establish a business relationship with the manufacturer and get an OK from them for listing the products on your store. As you might imagine establishing these relationships could be quite time consuming and also quite difficult.
Luckily though these days there is a very easy way to setup these relationships. You can do it extremely quickly by, for example, opening an account at an ecommerce platform called Shopify and then connecting your Shopify account to a service called Oberlo. Oberlo is a service which has established a relationship with lot of different manufacturers and as soon as you open your account at Oberlo, you can start listing products from these manufacturers to your online store (as mentioned, assuming that it was built using Shopify).
So, you might be wondering how you make profit when you are operating using the dropshipping-model. It is really quite simple: when you open Oberlo you can see the prices for every product, but instead of having to list the products using these prices to your own store, you can choose any price you want.
So let’s say that some necklace costs $3 on Oberlo, but you decide to list it for the price of $9.90 in your store, in this case would make $6.9 when you sell the product ($9.90 – $3 = $6.90). However, it is important to note that in addition to the actual prices listed on Oberlo, the manufacturers also charge shipping costs on every product that they ship to a customer. The good thing is, that you can easily see these shipping costs from your Oberlo account – and then you just have to make sure that you cover the shipping cost someway in your store (either through a higher price on the product or having a listed shipping cost in your own store).
The cheapest Oberlo plan is free and the two paid plans cost $29.90 and $79.90. In the case of Shopify, the cheapest regular monthly plan (when running a store, dropshipping or not) is $29, however it is possible to get a discount if you are willing to commit to Shopify for at least a year. Especially with the discount Shopify becomes a really cheap ecommerce platform when compared to its quality.
As hinted earlier, at the moment Oberlo really only works with Shopify, so if you want to use Oberlo you pretty much have to use Shopify. But luckily Shopify is likely the best platform for dropshipping.
So now that we have covered the basics of dropshipping and how to get started in doing it, let’s look into the pros and cons of doing dropshipping, when compared to the traditional model of doing e-commerce – buying the products to yourself beforehand, only then selling them and taking care of shipping etc.
Pros of dropshipping:
1: Very cheap to get started
As explained above, you can start doing droshipping for just $29 (/month), compared to the traditional mode of doing e-commerce, this is extremely cheap. If you were to buy products beforehand for your store, the initial investment could very easily run into the thousands or even tens of thousands of dollars.
2: Extremely quick to get started
In addition to dropshipping being a very cheap way of starting to do e-commerce, is also very quick way to start doing it. In my personal experience, you can easily start selling dropshipped products through your store the same night that you start creating your store with Shopify.
3: Very easy to test different product ideas
Because you don’t have to store any of the products that you have listed in your store, you can very easily and quickly test all kinds of products and also chase trends (i.e. if you see some silly toy, like fidget spinner, being trendy you can start selling it very quickly and without a major financial risk) . Of course, for the sake of this, it is a good idea to a pick a domain name for your store that is not too specific to any single product or product category.
4: You don’t need space for storing the products
Depending on the products you decide to sell, storing them can be quite expensive and it can also require lot of unnecessary work.
5: You don’t have to worry about shipping the products
Shipping the products yourself can be surprisingly time consuming and any time spent on that would be away from actually making your e-commerce business grow.
6: It is very easy and cheap to shutdown the business, if need be
This is obviously kind of a negative pro, but nevertheless it is something to keep in mind, when choosing between doing dropshipping or using the traditional method of doing e-commerce. If you are a traditional e-commerce store, shutting it down quickly can cause significant financial losses, as you will likely have to get rid of the products with a significant discount. Naturally with dropshipping you don’t have to worry about this, as you can simply remove the products from your store and be done with it.
Cons of dropshipping:
1: Quality control can be difficult
Because you can’t see the products before they are shipped to the customer, there is an increased risk that they don’t match what the customer though he or she was getting. However, one way to reduce this risk is to do a test runs and occasionally order products to yourself, to see that they are what they should be.
The issue with quality control can be especially crucial these days, as people are eager to share their bad experiences on social media.
2: Shipping times can be very long
Is it not at all uncommon that delivering the product from the manufacturer to the customer can take up to 3 weeks, and during the Chinese New Year (vast majority of the products are shipped from China) the shipping times can be even longer than usual. The fact of a matter is, that many people are not willing to wait this long, when they can get almost the same product from Amazon much quicker.
3: The risk of an endless price war
Because IT IS so cheap and easy to get started with dropshipping, there is also the risk of the profit margins becoming very low because of the intense price wars between the sellers. One way to escape the price wars is to try to sell products that other sellers are not selling.
4: It can difficult to offer high quality customer service
Let’s say, for example, that the product that was shipped to the customer had broken during the shipping process and the customer asks for a new product in order to replace the broken one, in this situation it would be nice to just send the new product to the customer quickly and ensure that he or she remains relatively satisfied, but because you are operating using the dropshipping model, getting the new product to the customer can take several weeks – and this obviously is not something that will make the customer very happy.
5: Can’t sell products from major brands
At least in the case of Oberlo, it is not currently possible to sell any products from the likes of Nike and Apple, so if you want to operate in an industry, where people are looking to buy “brand products”, dropshipping is unlikely to be the best option for your e-commerce store.
Still interested in doing dropshipping?
Now that you have seen the pros and cons of dropshipping, you probably have a decent idea, if it is right fit for you. If it is, open your Shopify account now.