What is Dropshipping?
Golden opportunity according to some, utopia for the others, dropshipping is a real phenomenon linked to the explosion of cross-border e-commerce in recent years. Let’s take a closer look at this online sales method which is increasingly popular amongst all those interested in international sales.
Definition, history and evolution of dropshipping
The first validation of dropshipping as an effective online sales method dates back to 2006, thanks to the emergence of Chinese companies specialized in the field, which made it possible to greatly expand the catalog of products available in dropshipping, while also offering competitive prices. Nowadays, it has become a very lucrative business model within the e-commerce industry, with nearly 33% of the world’s online stores using it, and it is used by some big names of e-commerce such as Wayfair, Gilt or Zappos.
From a theoretical point of view, dropshipping is an online order processing model for which the e-merchant no longer stocks the products sold himself, but instead buys them directly from a third-party supplier. The latest then takes charge of shipping the items directly to the end customers.
Wikipedia gives dropshipping the following definition, which is quite explicit: “dropshipping is a tripartite system where the customer (the consumer) places an order on the website of the distributor (the merchant), which transmits it to the supplier (the wholesaler), who ensures the delivery and manages the stocks ”.”.
We therefore understand that the big marketplaces such as Amazon, Ebay or Rueducommerce.com have in fact been using the dropshipping method for many years. Indeed, if we take the example of Amazon, which is a reference in the field, if you buy a product from a third-party seller listed on the platform, it is the latter who will take care of shipping your order. Amazon therefore acts as an intermediary, by offering its sellers the possibility to resale their products on its platform, in exchange for a commission : this is also a way of doing dropshipping !
This being said, and even if the giants mentioned above are using it, is dropshipping actually an opportunity or a utopia? In order to bring an answer to this question, let’s take a look at the pros and cons of dropshipping.
Advantages of Dropshipping
- Minimal set up cost
The biggest advantage of dropshipping is surely the financial aspect. Indeed, thanks to this online sales system you do not have to invest in the research and development of a new product, nor in its production, and you can sell products from your online store without having to pay the financial risk associated with the stock. The only real set up cost lies in the creation and hosting of your online store, which is a negligible investment compared to setting up a physical store.
- Quick and easy set up
With an e-commerce dropshipping platform, there is no need to directly manage physical products, which greatly simplifies your task:
– No need to invest in a warehouse for your stock, nor to supervise it;
– No need to order products regularly to ensure sufficient stock;
– No need to manage the preparation or shipping of orders;
– No need to oversee customs management or return procedures.
Thus, it is possible to set up an online store in three simple steps:
– Identify the products you are going to sell;
– Conclude a partnership with one or more quality third-party suppliers;
– Create your online store and list the products of your suppliers that you want to offer to your customers.
- Low risk
Because there is no need to bear its cost nor to manage your inventory, there is no pressure to sell goods in order to ensure operation. Indeed, it doesn’t matter whether you sell your products or not, there is basically very little to risk (except maybe the risk of not making a profit) !
You don’t have to worry about reselling any old fashioned unsold products either, since having no stock you can always offer the latest trending products for sale to your customers. Another significant advantage to dropshipping, this model allows you to test new markets, catchment areas, suppliers and products with almost zero financial risk.
- Simplified management, from anywhere
Finally, since the operational work (preparation and shipping of orders, management of returns and stock, etc.) is carried out directly by the suppliers, the e-merchant can focus on the development and growth of his online store (communication, research of the latest product trends, management and improvement of customer service, etc…). Managing your online store on the internet also provides great flexibility : operations are handled from anywhere, on the sole condition of having an internet connection !
After reading these different points, dropshipping may seem to be a solution that only has advantages for getting into the e-commerce activity, but this model also has drawbacks…
Drawbacks of dropshipping
- Fierce competition, very limited customization and low profit margins
Considering the recent boom in the number of e-commerce dropshipping stores, the competition between them is more and more intense. This is all the more problematic as dropshippers often source their catalog from the same suppliers, and therefore offer the same products for sale. In addition, logistics are standardized and product customization is often not possible or very limited. Therefore, price is the only remaining differentiation factor with your competition, and you will have no choice but to offer your products at a low price ; and while your overhead costs will be lower, so will your margins.
- Insufficient quality control…
Since it is the supplier who takes care of the production and shipping of the goods, the seller has no control : nor over the quality of the products (do they comply with the descriptions of the product sheets, and will they meet customer requirements ?), nor on the quality of the shipping and delivery services (are the products correctly packaged ? Are the delivery deadlines respected ? etc, … ). These two points can thus be the source of returned goods, which can negatively impact the business and profits.
…for which the e-merchant bears the responsibility!
Have you ever been blamed for a mistake you didn’t commit, but for which you had to accept responsibility anyway ? Well, this is one of the major setbacks of dropshipping.
Indeed, in the event of a failure from your supplier (product quality problem, late delivery, etc…), buyers turn to the e-merchant, who must assume the consequences.
You therefore have to prepare yourself for it, since even the best suppliers make mistakes, for example when preparing orders, and it is always up to the seller to take responsibility for those mistakes and answer to their customer.
Dependence and lack of control
Dropshipping is by definition very dependent on suppliers. Indeed, the latter have total control over production and the prices they charge. They can thus decide unilaterally, without consulting anyone, to stop the production of a given product or even of an entire category, on which the survival of your online store maybe depends. Same thing for the prices, which can change at any time according to the supplier’s strategic changes.
Outsourcing inventory to a third party requires having blind faith in the latter, and powerful tools to monitor inventory status in real time.
Setting up your dropshipping online store
As explained above, dropshipping is a process fairly easy to understand and set up. Follow our guide to setting up a dropshipping platform efficiently!
- Choose your “niche” and product categories
The first essential step towards the success of your dropshipping project is the selection of a precise and relevant market niche on which you will focus your product offering. In order to select the products with the greatest potential once your niche has been identified, or even to guide you in choosing this niche, you may use tools such as Google Trends or Product Mafia. Transiteo’s tools can also guide you in your choice, thanks to our detailed country sheets providing you with information on consumption trends and habits, according to your target countries. Take advantage of our 14 day free trial by creating an account on app.transiteo.com
- Choose a relevant domain name for your online store
You will then have to choose a domain name for your online store, which has to resonate with your niche and products, so that consumers can find you online easily ! Do not neglect this step, as it is strategic to attract visitors and build your brand image.
- Select the CMS platform most suited to your needs
Essential step towards the success of your dropshipping endeavour : the selection of the best e-commerce platform to create your store. The two leaders in the field, although there are many more, are Shopify and WooCommerce. The advantage of Shopify is that it is a completely automated platform, which simplifies your task when creating and operating your store, but the associated cost is relatively high : around 100 euros per month for setting up a basic store. Woocommerce on the other hand is a completely free WordPress plugin. You will therefore only have to pay for your domain name and for hosting your website.
- Select the best suppliers
Last but not least, pay a special attention to the selection of your suppliers. There are many sites, both free and paid, that can help you with listing the sites of wholesale dropshipping. Another method is to find and contact the producers of the products you wish to sell directly and find out if they are dropshipping. Even if this is not the case, you can still pitch them your project and offer them a mutually profitable partnership for both parties. Once you’ve made your choice, consider researching your potential supplier on Google to see what their reputation is according to their current and past customers.
Another effective method is to use the plugins dedicated to dropshipping offered by your e-commerce platform. These plugins are simple to integrate and use, and they can quickly connect you to efficient and reliable dropshippers like AliExpress. Among the most famous plugins you will find Oberlo, AliDropship, WooDropship, Dropfied or Spocket Dropshipping. These automate the process of importing products from your suppliers to your site and therefore allow you to quickly launch your business.
For your information, you will find below a non-exhaustive list of the most reputable dropshipping suppliers according to the product categories they offer:
- Brands Distribution and Griffati for clothing and fashion accessories
- Aliexpress for general products
- Nova Engel for cosmetics
- Emuca Online for furnitures and hardware
- Zentrada.network for wholesale
- Gatito.pl for licensed brands
Our advices for a successful e-commerce strategy based on dropshipping
- Conduct thorough research before jumping in
There is no point in rushing into launching your dropshipping offer. As often, it is much better to take the time to learn more about consuming trends, future consumers expectations, capabilities and reputation of your suppliers, and about which e-commerce platform is the best suited for your future activity.
- Write your own product sheets
It is well known nowadays that search engines don’t like duplicated content. In order to achieve proper SEO on Google, for example, avoid at all costs copying and pasting product sheets from your suppliers, or worse, from those of your competitors. The more unique and original your content, the more value it will bring to Internet users, and the better its ranking on search engines. It is therefore strongly recommended to write personalized product sheets yourself. You can also base them on your own experience and opinion, since it is very easy to get free samples from your dropshipping suppliers to test your future products and get an idea of their quality.
- Diversify your suppliers
- As a dropshipper you are totally dependent on your suppliers. We can therefore only recommend you to diversify them as much as possible and not to limit yourself to a single one. Indeed, if the latter decides overnight to end production of your flagship product, to change its prices, or if the quality of the products or shipping services deteriorates, your entire activity will be endangered.
- What about duties and taxes?
- As experts in customs duties and taxes at transiteo, it is our duty to inform you on the custom issues you may face with your e-commerce store. When importing cross-border orders, your products may be subject to the payment of custom duties and taxes, depending on their market value and the customs rules of the importing country. Even if this cost is borne by your customers upon receipt of their goods, it is strongly recommended that you inform them in advance about this additional “hidden” cost. Indeed, the majority of them are not experts in international trade, and it is only upon receiving their package that they have the unpleasant surprise of having to pay additional costs. At best your customers will be dissatisfied with this lack of transparency, and at worst they will refuse or simply return their package.
Fortunately, there are tools that exist to overcome this problem ! Thanks to our plugins, easily integrable on your e-commerce platform, you will be able to inform your customers in real time about the amount of duties and taxes at destination: either directly on the product sheet, or at the time of checkout, regardless of their country of residence, and without any complexity for you ! You can thus guarantee total transparency to your customers, an optimal shopping experience, and therefore top notch satisfaction !
By taking the time to choose the right niche market, choosing the right suppliers and working precisely on your offer, dropshipping can be a very profitable business. Though, it is important to keep in mind that it is also a very competitive business, with limited differentiation factors. You should therefore use all the tools at your disposal to offer the most pleasant shopping experience to your customers (e-commerce platforms and associated dropshipping plugins, tools for calculating and displaying duties and taxes due at destination, consumption trends in your target markets, etc). Take advantage of our experience and become a dropshipping expert !