What Is Drop Shipping | How It Works | Is Dropshipping Legal | 2020

DROPSHIPPING - Anyone who has ever researched online business has probably come across this term. However, few people know what dropshipping means and how it works.

In this article, you will learn everything about dropshipping! For someone who is new to the world of online business and wants to enter the e-commerce business, the dropshipping process can seem a little intimidating, as it is challenging to find the information that matters about this topic.

Your problems are over! You have found the definitive guide to dropshipping! It covers everything from the meaning, how this business model works, whether dropshipping is really for you, how to find the right products and suppliers to have a successful dropshipping eCommerce. Come on!

WHAT IS DROPSHIPPING?

Dropshipping is an online business model that allows a company to operate without needing stock, without needing a deposit to store its products, or even having to send its products to customers. The supplier does the packaging and shipping process directly to the end customer.

WHAT DOES DROPSHIPPING MEAN?

As previously mentioned, dropshipping is a logistics chain management technique in which the dealer does not keep products in stock; he sells products that are in the supplier's stock. The supplier does the packaging and shipping process directly to the end customer.

HOW DOES DROPSHIPPING WORK?

Dropshipping works as follows:

The retailer (who makes the sale to the end customer) associates with a dropship supplier who manufactures and/or stores the products, wraps the products, and sends them directly to the retailer's customer, all in the name of the retailer (Who makes a sale to the end customer).

This is how dropshipping works in practice:

1. The end customer buys a product at an online retailer store.

2. The retailer manually or automatically forwards the customer's order details to the dropshipping supplier.

3. The dropshipping supplier wraps and sends the order directly to the customer on behalf of the retailer.

4. The end customer receives the merchandise he has purchased from the retailer, without the retailer even touching the merchandise.

Interesting, isn't it?

The dropshipping business model is very attractive, as it eliminates the need for the store owner to have a physical location or space, such as an office space or warehouse - instead, all the retailer needs is a laptop and an internet connection. 

ADVANTAGES OF DROPSHIPPING

As an online business model, dropshipping has several positive aspects, such as:

It is Easy to Start a Dropshipping Ecommerce

You don't have to be a computer genius to set up a dropshipping eCommerce, as it involves just three steps: finding the supplier, setting up your website and starting selling the goods! For someone new to the eCommerce industry, dropshipping is comparatively easy to understand and implement.

The Costs To Start Dropshipping Are Low

The cost of setting up your online business using the dropshipping model is low. In traditional business models, most costs are related to the configuration and execution of online retail operations, that is, the purchase of inventory.

As dropshipping eliminates this step and therefore the cost of inventory, all of your investment will be associated with the creation of your eCommerce website (hosting, theme, applications, etc.).

No need to worry about large overhead

As mentioned earlier, the dropshipping eCommerce owner is not required to buy inventory, so the cost of renting or buying office/office space and the other lower costs are also virtually zero.

The fixed costs of managing the website are all that a business owner needs to worry about if they opt for dropshipping eCommerce.

Dropshipping is a Low-Risk Business Model

The risk of drop shipping as a business model is significantly less than that of a physical store. If the company does not sell products, it still does not lose anything, as it has no stock or physical space. Therefore, there is little or no pressure on the entrepreneur to sell all of his stock to recover part of his investment.

A Dropshipping Ecommerce can be played from Anywhere in the World

Your dropshipping business can run anywhere in the world, so the business owner is independent to travel or live anywhere: no office, no deposit, no employees and no hassles.

Little or no commitment to a physical space means that you could be sitting on a beach while still profiting from your online store.

All you need is your laptop, a website, and the internet.

You can sell any product all over the world as you can receive payments via PayPal.

There are Many Products to Sell Using the Dropshipping Model

There is a lot of variety when it comes to the products you can sell.

There are dropshipping suppliers for almost everything you want to sell! You can sell a few products or sell several in your online store. It's all in your hands. Find your favorite niche and the likelihood of suppliers serving your niche is high.

You have more resources and time to scale your business

With drop shipping, you will have more time and resources to scale your business. In traditional retail business models, if you want more profits, you need to work harder and invest a lot more of your resources.

With dropshipping, all you have to do is send more orders to your dropshipping providers and then let them take care of everything else while you earn a good profit and still have more time to think about ways to scale. your business even more in the future.

Reducing Damage to Damaged Goods Before Shipping to Customer

As products go directly from the supplier to the customer, there are fewer shipping steps involved, which dramatically reduces the risk of damaging your products with constant movement from one physical space to the next.

DISADVANTAGES OF DROPSHIPPING

Like everything in life, some disadvantages come along with the many advantages of the dropshipping business model. Here are some disadvantages of dropshipping : 

Dropshipping Profit Margins May Be Slightly Smaller

Slightly lower profit margins compared to buying products from a wholesaler or manufacturer. Depending on your niche, delivery location or specific requirements, dropshipping providers will charge you higher prices for products and shipping, which consequently consume your profit margins from each sale.

Greater Customer Responsibility

Full responsibility when something goes wrong, even when it's the supplier's fault. As the customer is buying the product on the retailer's website, if the supplier messes up something, it is still the retailer's fault, as the brand is the beginning of the retail process. This is one of the reasons why it is extremely important to choose the right dropshipping provider.

Dropshipping gives lower brand control level

The brand has a significantly lower level of control in dropshipping. Customer satisfaction is often linked to the details - personalized packaging and branding of the products sent, gifts and notes that accompany the order - it is almost always those small details that count.

Unfortunately, the dropshipping model not often provides retailers with the opportunity to control how their brand is presented during the goods delivery process since the supplier is the one who sends the products. However, some suppliers may be willing to customize the deliveries of the products that your store sells.

Problems May Arise Depending on the Complexity of Dropshipping Freight

Some problems may arise due to complexities with transportation.

Selling many different products may seem like a good way to increase sales and generate a higher profit, but this can be counterintuitive if the retailer has several different suppliers for these products.

Different suppliers will charge different shipping costs depending on factors such as location, type of products, etc.

If a customer orders multiple products that are shipped from different suppliers, the retailer will have to work and pay shipping costs separately for each product.

Transferring these varying shipping costs to the customer can negatively affect conversion rates, which in turn affects your eCommerce profit margins.

Competition for Some Dropshipping Niches May Be High

The level of competition is relatively high for some dropshipping niches. The attractiveness and popularity of the dropshipping business model mean more and more retailers in all segments and niches. Unless a retailer is serving an extremely specific segment or niche, competition can be high. To fight high competition, check out all the tips from the Marketing Mafia!

Communication Problems Between Retailer And Supplier May Occur Keeping track of the supplier's inventory is next to impossible. The lack of communication can cause problems, such as order cancellations. This aspect can, of course, be managed with software these days, but these also come at a price and can increase the overall and fixed costs of your dropshipping eCommerce.

HOW PROFITABLE CAN IT BE? DROPSHIPPING GIVES MONEY?

Generally, the profit margins of dropshipping e-commerce range from 15% to 45%.

However, profit margins for consumer durables and luxury items (electronics, jewelry, etc.) can generate a profit margin of more than 100%.

It is about finding the right niche and supplier and finding a market without much competition.

A good way to increase your margins is to have the product manufacturer itself, rather than a supplier, effectively eliminating the middleman and increasing your profit margins.

Once the business gains some traction, it can quickly turn into a money-making machine that requires just a little bit of work to maintain it.

WHO IS DROPSHIPPING RECOMMENDED FOR IN 2020?

Dropshipping is an excellent business model for those just starting in the internet business world.

It is attractive to newbies, as it is a low risk and low investment way to start your own business.

As the amount of capital that needs to be invested in this business model is very small, it is also ideal for those who already own a store with a stock, but are looking to try specific products in the market to see how it works before investing in buying your stock.

There are some types of entrepreneurs that drop shipping will be perfect for. Let's list some of them:

Entrepreneurs Testing Possibilities

Dropshipping can be a great way to test new products, or even a new startup, before investing heavily in stocks that may not sell, making this the perfect business model for the entrepreneur who wants to test their ideas, business models and products before making a major investment.

Entrepreneurs with Little Starting Capital

Dropshipping is the cheapest method of selling online because you don't have to buy stock in advance.

Because of this, the dropshipping model works well for entrepreneurs who have a limited budget or prefer to keep start-up costs as low as possible.

Beginners in the Online Business World

The dropshipping online sales model is also great for those who are starting to sell online. The fact is, selling online is not easy. Driving traffic and converting that traffic can be difficult for a beginner.

Due to the low costs associated with starting a dropshipping business, it allows new entrepreneurs to start learning about the tricks and the difficulties of setting up an online store, how to generate traffic and optimize conversions before investing thousands (or more) in stocks that you can get stuck with if you can't sell.

For those who want to sell many different products online

Dropshipping is also for people who want to sell a wide variety of products or products with a high price range.

Depending on the price range of the products you intend to sell, or if you want to sell hundreds or thousands of different products, it is almost impossible to start a business like this without a huge initial investment to acquire all that stock.

In that case, dropshipping would be the appropriate model because, again, you don't have to buy the stock in advance.

WHO IS DROPSHIPPING NOT RECOMMENDED FOR?

There are also some types of entrepreneurs for whom the dropshipping model is not recommended. we will list some below:

Entrepreneurs Focused on High Margins

Probably the biggest problem with the dropshipping business model is narrow margins.

Generally, for traditional products, your net margins (the price you sell for less the cost you pay for the sender, ads, and fees) is around 10-20%.

Of course, some more experienced and trained dropshipping entrepreneurs achieve higher margins, like 40-50%.

Your margin will depend on how competitive your niche is, and how you can differentiate your “brand” from other drop stores.

Entrepreneurs Focused on Your Brand and Branding

Building a sustainable brand, in the long run, is difficult, but the benefits can be worth it and the costs in the long run.

However, building a brand while using the dropshipping business model is much more difficult, as there are several elements of the customer experience that you will not be able to control.

For example, you often find that after a customer has bought something from you, it is out of stock with the supplier. This leaves you in an uncomfortable and frustrating position because many times when this happens, you have to cancel the purchase and return the money to the customer.

Therefore, to be successful in dropshipping, you need to have good communication with your suppliers.

Another point to keep in mind is that, as you are not shipping the product on your own, you have no control over the experience of the customer who will receive the package. Almost 100% of the time it will be the product in a dull brown box.

You need to ask yourself if this is the experience you want your customers to have. Finally, since you do not ship products on your own, you do not have a relationship with freight companies.

When something goes wrong and your customer doesn't receive the package, you can't just call the post office and fix the situation. You need to coordinate this with your supplier.

Which can take days to resolve, again, leaving your a customer dissatisfied with your brand?

Entrepreneurs with Little Experience With Digital Marketing

Most suppliers (who can also export their products to their customers) have sales targets in which 20% -30 % of sales must come from direct sales to consumers, usually through their e-commerce website.

In the world, most suppliers sell to end consumers through Alibaba and other similar Chinese websites.

This means that if you are selling your products, you are competing directly with your supplier, a supplier that may have much higher margins than you do on the same products.

Any chance of competing directly against suppliers is useless. They almost always win because the prices are much lower.

To beat suppliers, you will need to be creative and explore channels they are not using to acquire customers, such as: Selling to your eCommerce Instagram followers, selling with ads on Google, with ads on Facebook and Instagram, and using advanced SEO techniques.

Drop-Shipping Errors for Not Committing in 2020

The following are some common mistakes that should be avoided when choosing your products to sell using dropshipping:

Do not choose products based only on your likes and dislikes: Always base your product decision on facts, research, evaluation, and validation of market demand and the niche in which you will operate;

Do not sell counterfeit products or replicas: This is illegal in most countries! Avoid these types of products to avoid serious problems. Only use dropshipping products from trusted suppliers. No selling fake Nike sneakers at your dropshipping store!

Don't be a Maria goes with the others from dropshipping: "If everyone is selling, I should also take the opportunity to sell too". Don't fall for it! The trend products market is typically very saturated, so there will be high levels of competition.

CONCLUSION - IS DROPSHIPPING LEGAL IN 2020?

Yes! Dropshipping is cool. In the US, dropshipping happens daily, and you are a user of this practice if you shop online at sites such as Walmart, etc.

In practice, dropshipping fits into business intermediation, since whoever does the dropshipping provides the service of finding and offering a supplier's product to the end customer.

Around the world, thousands of people make a living with a laptop in front, at home or anywhere in the world with internet, intermediating sales.