Many people shy away from starting an online store because of the startup costs and fulfillment hassles.
But imagine if someone offered to pay your up-front inventory costs on thousands of items and manage your fulfillment operations. It'd be much easier to get started, and you could run your business from anywhere in the world. Sound too good to be true? It's not, if you know about dropshipping.
In this article, I'm going to teach you all about dropshipping. I'll go over a simple definition, list the benefits, show you how to find dropshipping wholesalers, and give solutions to some common problems associated with dropshipping.
What is dropshipping?
Dropshipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, stores using the dropshipping model partner with a wholesale supplier that stocks its own inventory, transfer customer orders and shipment details to them, and the supplier in turn ships the goods directly to the customer.
The biggest benefit of dropshipping is you don't have to worry about fulfillment or inventory issues. Since private label shipping lets you ship from the wholesaler with a return address and invoice customized to your ecommerce store, you’re still able to build a distinct brand while dropshipping.
The benefits of dropshipping
There are a number of reasons you should consider dropshipping. Here are a few of the most compelling.
1. You don't need lots of capital to get started: Dropshipping makes it amazingly easy to get started selling online. You don't need to invest heavily in inventory, yet you can still offer thousands of items to your customers.
2. Convenience and efficiency: Successfully launching and growing an ecommerce business takes a lot of work, especially if you have limited resources. Not having to worry about fulfillment is incredibly convenient and frees up your time to concentrate on your marketing plan, customer service, and operations.
3. Mobility: With all the physical fulfillment issues handled, you're free to operate your business anywhere you can get access to an internet connection.
4. It's a tested model: Plenty of online stores, even major retailers like Sears, use dropshipping to offer a wider selection of products to their customers without having to deal with increased inventory hassles.
How do I find dropshipping wholesalers?
Before contacting suppliers, you'll want to make sure your legal ducks are in a row. In the United States, most suppliers will ask for your business EIN number and a copy of your state sales tax and/or resale certificate. Once you're properly established, you can start contacting dropshipping suppliers.
If you already know what products you'd like to drop ship, contacting the original manufacturer is the easiest way to find qualified distributors. Not all distributors will be willing to drop ship, but it will give you a list to follow up with.
Unfortunately, the market is littered with scams and low-quality information. If you do decide to invest in a directory, I can recommend the paid directory World Wide Brands as a reputable source of dropshipping wholesalers, but it's still very important to exercise caution.
Google can also be an effective tool for finding drop shippers, but you need to keep a few things in mind.
Finding wholesalers 101
Need to find a wholesaler for your new dropshipping business? Check out the chapter below from our free dropshipping guide to learn how to get started.Find dropshipping wholesalers
3 ways to use Google to find wholesalers
1. Search extensively: Wholesalers and drop shippers are notoriously bad at SEO and marketing, and usually aren't going to pop up on the first page of Google for a term like “handbag wholesaler.” Instead, you'll need to dig deep into the search results, often going through 10 or 20 pages of listings.
2. Don't judge by the cover: Suppliers also tend to have outdated, late ‘90s-era websites. So don't be scared away by abysmal design and layout. While a sleek, modern site could signal a great supplier, a low-quality one doesn't necessarily indicate a bad one.
3. Use lots of modifiers: As you hunt for suppliers, don’t stop with a search for “wholesale.” Make sure to use other modifier terms, including “distributor” , “reseller” , “bulk” , “warehouse” and “supplier.”
Common problems with dropshipping
Despite my glowing recommendation, dropshipping isn't ecommerce nirvana. Like all models, it has its weaknesses and downsides. With some planning and awareness, these issues can be managed and need not prevent you from running a successful dropshipping business.
1. There will be loads of competition and bad margins
Solution: It's true. Products that can be drop shipped will spawn a lot of competition. Usually this will lead to cutthroat pricing and diminishing profit margins, making it hard to build a viable business.
To be successful, you typically can't compete on price. Instead, you'll need to offer value in a different way, usually through top-notch product education, service or selection. For more information on how to pick a profitable niche and add value, see this post on finding a product to sell.
2. Syncing inventory is difficult and leads to out-of-stock items
Solution: The best way to mitigate this problem is to work with multiple suppliers with overlapping product lines. It's inherently dangerous to rely on a single supplier. Having two suppliers doubles the likelihood that an item will be in stock and available for shipment.
Eventually, you’ll sell a customer an out-of-stock item. Instead of canceling the order, give the customer an upgraded product for free! You might not make much—if any—money on the order, but you'll likely build a loyal brand advocate.
3. It's hard to sell products that you never see
Solution: In today's world, it's possible to become an expert in just about everything through information online. Selling products from manufacturers with detailed websites will allow you to become intimately familiar with a product line without ever having touched a physical item. And when you do need to answer specific question about a product, a quick call to your supplier or manufacturer will give you the answer you need.
You can also buy your most popular items to get acquainted with them, and then resell them as “used” or “refurbished,” often recouping most of your investment.
4. Involving a third party will result in more fulfillment errors
Solution: Even the best drop shippers make occasional mistakes, and mediocre ones make a lot of them. Suppliers are fairly good about paying to remedy problems, but when they're not, you need to be willing to spend what's necessary to resolve the issue for your customer.
If you try to blame your supplier for a fulfillment problem, you're going to come off as amateurish and unprofessional. Similarly, if you're unwilling to ship out a cheap replacement part to a customer because your supplier won't cover the cost, your reputation is going to suffer.
One of the costs of dropshipping convenience is the expense of remedying logistical problems. If you accept it as cost of doing business—and always make sure to put your customer first—it shouldn't be a long-term issue.
The final word on dropshipping
But dropshipping does provide an easy way to get started and the ability to leverage other people's capital without having to invest thousands of your own. When managed correctly, it can form the foundation of your own successful online store.
Learn More: Dropshipping with Oberlo
About the author: Andrew Youderian is the founder of eCommerceFuel, an ecommerce entrepreneur, and owner of numerous online stores built using the dropshipping model.