How to Start a Dropshipping Business
Pay attention to four crucial factors that will determine your success or failure
Dropshipping is one of the most popular streams of income on the Internet.
The idea is simple and irresistible: you sell a product that you don’t actually own.
So who owns the product?
The dropshipping company.
When the customer places an order, you pay for and order the sold item from the drop shipper and the drop shipper sends the sold item to the end customer. You pocket the profit — the difference between what you charge the customer and what you pay the drop-shipper for the item.
Rinse and repeat.
You basically find a customer for the drop shipping company. You in effect become their salesperson and/or affiliate.
This means you don’t need to keep any inventory whatsoever. Nice.
A Triangle of Trust
It’s a triangle with 3 corners: You (the vendor), the customer, and the drop shipping company.
If you don’t order (and pay for) the sold item, this model will obviously not work. Actually it would be fraud, and you can be sued for such negligence. So if you sell 100 items a day, you either need to manually place 100 orders with your drop shipper or use the automation tools that some of these companies provide (see the list of such companies at the end of this article). Such a sweet problem to have, isn't it?
But the drop shipping company needs to be vigilant as well. Products that are ordered but takes weeks to fulfill the order, plus another 4 weeks “in transit” is not good for anyone. Your reputation will be mud even though you’re not doing the shipping yourself.
So the trick is, you either offer a unique product that cannot be found at anyplace else, or you offer it at such a low price that the customer accepts the long wait time as something worth it. More about this later.
3 Main Issues
There are 3 main issues with dropshipping:
- Shipping time
- Product quality
- Customer service
Shipping Time
Since a great majority of drop shipping items are ordered from China (lowest cost), the customers do not mind waiting for 3 to 4 weeks.
However, after the COVID-19 pandemic, shipping times have become an issue for drop shippers due to the drop in the number of flights. Fewer cargo flights mean longer wait times for the customers.
One tactic to lessen the wait time is to promote the products of companies with warehouses in the United States (or the country where you live and sell your products). You can easily spot such companies by checking their “Shipped From” list of countries. If your country is listed, you can ship the purchases much quicker.
Secondly, you can charge for DHL Express shipping from China to decrease the shipping time to under-one-week but that will increase your cost and decrease your sales. This is a tactic that may work if you sell expensive (but not too heavy) items with a generous profit margin.
Or you can order in bulk and then repackage and reship it yourself from the United States (or whatever country you may happen to be in). For example, you can send bulk purchases directly to your Amazon FBA store and let Amazon handle the rest. But that violates the whole idea of not owning any inventory.
Product Quality
How good is that trinket in reality, that sexy item which looks shiny and bright in the catalog of your drop shipper?
You don’t want to have an egg on your face when the customer opens the brown box and finds out something much inferior to what they were led to believe. That kind of experience creates nothing but a high return rate, which is a waste of time for everyone involved.
There are two ways to get around this:
- Order a sample and make sure the product is what it’s claimed to be. Do it before you offer the product for sale.
- Work with a sourcing company (like Oberlo) who guarantees product quality for those items that they sponsor and vouch for.
Customer Service
Dropshipping is impersonal commerce. People who never see one another exchange money and receive products, all done on mutual trust and goodwill.
Dropshipping these days requires access to 24/7 customer service either through email, live chat, or phone call.
We increasingly have the customers and shippers live in different time zones. Thus such assurance that their queries will be handle in real-time by a real person (and not a recording asking you to answer an unending series of questions and demanding you push buttons like an obedient pidgeon) is a great source of comfort for your customers.
Even if you may not afford one yourself, make sure at least your dropshipping company has a good customer service to field any complaints and issues around the clock.
A Fourth Factor: Sourcing
A fourth and perhaps equally important factor is finding the right product to sell, also called the “sourcing” issue. As a drop shipper, you’d need to take this factor into consideration as well.
What makes sourcing problematic is its seasonal nature. Swimming suits might be good for June and July but you need to switch to something else in winter months. You can sell a lot of items with Christmas themes and colors in November and December but you’d be smart to shift to another line of products in January.
All these fluctuations in seasonal consumer demand require constant vigilance on your part to make sure your e-commerce store remains relevant.
One tactic to avoid such fluctuations is to sell evergreen products (like socks, flashlights, or doormats) or impulse items (Hula-Hoop, Pet Rock, Beanie Babies). But either the competition will be fierce (for evergreen products) or risk of failure will be high for the impulse item since you never know which new fad product will go viral. And as in the stock market (when it’s too late to bet on a stock that recently went up like a rocket), by the time you hear a product went viral, it’ll be too late to catch up with and unseat the already-established competition.
Other Details to Pay Attention To
- Are there any “minimum purchase” requirements? Usually, a customer will order one item at a time. But if your drop shipper asks you to place a minimum of 5 orders per item, then what are you going to do with the remaining 4 items? It won’t work.
- Make sure you pay a single flat fee for an item to the drop shipper. Any hidden additional costs will cause you to lose money.
- How does the drop shipper handle the returns (and there WILL be returns, count on it)? This is related to the quality of the merchandise. Make sure a product is not cheap because it’s low quality. If that’s the case, you’ll have a lot of returns in this day and age of Amazon-spoiled consumers. How do they handle returns? Do they get in touch with the customer and do the required follow-up? How is the payment refunded and when? What is the safe-return policy? You have to investigate all these issues and print it somewhere on your e-commerce site or ordering forms/cart to avoid unnecessary headaches and lawsuits.
- Shipping time. How tolerable is it? Usually, you’ll have a product manufactured and warehoused in one country (like China) shipped to another country across the world like the United States. This is a truly international selling business. You should educate all your potential customers (and publish in print) that this is NOT Amazon Prime: they will NOT receive their merchandise within 2 days. BUT they will receive either an original item not in Amazon or at an Amazon-beating price even when the shipping cost is included. Someone said, “pick two — good, cheap, fast.” Something’s gotta give. In this case, you’ll be able to ship good quality products at a low price but not fast.
- Are there any membership or transaction fees? Some online commerce platforms that also do drop shipping, like Shopify, charge a monthly fee whether you sell anything or not. At this writing, Shopify for example is charging a minimum of $29 a month (after a free 14-day trial period) and it goes all the way up to $299 a month. Again, how much they are charging for using credit cards? Are there any additional fees if you use a third-party payment platform? Are they charging any extra fees for “store management tools” etc.?
“Pick two — good, cheap, fast. If it’s good and fast, it won’t be cheap. If it’s cheap and fast, it won‘t be good. And if it’s good and cheap, it won‘t be fast — which is dropshipping.”
Selected Dropshipping Companies
* Oberlo/Shopify
The best well-established e-commerce and dropshipping platform in the market today.
These two web sites work hand in hand. With Oberlo your source our your products, transfer them to your Shopify store and sell them. Basic Oberlo “Starter” account is free. The basic account costs $29.99 a month and Pro will need $79.99 a month. Shopify has a free 14-day trial offer after which you pay anywhere from $29 to $299 a month. You pay extra per transaction whether you use Shopify’s or a third party’s credit card payments. 64% to 74% discount on DHL Express, USPS, and UPS shipping. Offers a lot of bells and whistles like free SSL certificate, discount codes, gift cards, abandoned cart recovery, social media sales channels, and access to a theoretically unlimited number of products.
* AliExpress
Alibaba’s e-commerce operation where you can open a store, upload your merchandise, and start to sell. It’s available in 220 countries and territories, with 200 million monthly visitors. Your customers can shop on Aliexpress in 18 languages, which means your product descriptions are translated automatically to 18 languages. Be ready to pay a commission in the 5% to 8% range per transaction. Returns are accepted within 15 days after receipt of the merchandise. No fees for opening or closing an account.
* Salehoo
A powerful search engine to find the best drop shippers for a product. Provides access to 8,000 wholesale and drop shipping suppliers and 2.5 mil products for a monthly subscription fee that starts at $67 per year.
* CJ Dropshipping
If you already have a store on WeD2C, Shopify, WooCommerce, eBay, Amazon, Lazada, or Shopee, you can still use CJ as your order processing system. It has warehouses in China, USA, and Thailand. CJ performs the following functions for its subscribers: 1) Product sourcing. 2) Order processing (with or without an e-commerce store). 3) Store authorization. Works with Shopify, Woocommerce, eBay, and Shipstation stores. 4) Product listing or connection (for those products that are already in CJ store). 5) Automatic order import. 6) Order upload via Excel or CVS file (for those without an authorized CJ store).
* WholeSale2B
Offers 1 million products to dropship. You don’t need to open a store here since the platform syncs with e-stores on Amazon, Shopify, WooCommerce, and BigCommerce. But if you like, you can open your own WholeSale2B store as well.
* Doba
Doba, with headquarters in Utah USA, works pretty much the same as all other dropshipping sites: you find a product from Doba catalog. Post it on your online store. Someone buys it at retail. You pay Doba at wholesale. Doba ships the product. You smile and repeat the cycle. Doba has a 30-day free trial period. After that, you need to pay at least $29 a month for the privilege. At Pro level, it goes up to $249 a month. The site offers “Curated Lists” for hot-selling items that are trending upwards. It also offers a training program for $399. If you’d like to sell your own stuff on Doba you can do it too by listing your products on Doba Marketplace.
* Spocket
Dropshipping for original US and EU products. Offers a free “The Complete Guide to Dropshipping Winning Products.” Allows ordering sample products for quality check. Faster shipping due to the fact that Spocket suppliers are already based in US or EU. Free setup without any credit cards or registration fees. You can brand your products and invoices. 30–40% discount on all products.
* Amazon FBA (Fulfillment by Amazon)
Amazon, the mother of all e-commerce sites, now allows you to access millions of Amazon Prime members. This is how it works: You ship your new or used products to the Amazon fulfillment center. Amazon catalogs your products and offers them to any Amazon buyer as a ready-to-ship item. When the item is sold, Amazon ships it for you. Amazon FBA costs from 99 cents to $1.35 per unit sold, plus, $39.99 per month for a Professional account. Industry observers suggest you’d probably need around $3,000 to start dropshipping on Amazon FBA.
* Zendrop
Zendrop promises fast shipping (within 2 days), custom packaging for your products, American support agents for US members eliminating the inconvenience of dealing with agents located 12-hours away, private labeling option to grow your own brand, auto-filling orders, bulk orders for high-volume shippers, branded Thank You letters sent from your store, real-time analytics. Integrates with Shopify stores. Free basic membership. Pro-level available for $33 a month. If you dislike Aliexpress’s long wait times, you can try Zendrop.
* Eprolo
Free app signup. Supports 300K products. You install Eprolo app on your Shopify store, find a product on Eprolo and then list it in your Shopify store. When you receive an order, you pay for it to Eprolo. Eprolo ships the item for you as fast as within 5 to 8 days. Provides customized packaging and branding.
* eBay
https://www.ebay.com/help/selling
eBay is a well-known online seller of auctioned items but it allows drop shipping with certain restrictions. One major restriction is, you must be able to buy wholesale for items to be offered on eBay for dropshipping. You have to be a vendor-approved for bulk purchasing. Another restriction: you cannot buy your products from another retailer like Alibaba or Amazon and then drop ship it on eBay. I honestly cannot recommend dropshipping on eBay for three simple reasons:
- You need to buy bulk wholesale and thus tie up capital upfront before you can offer them on sale on eBay. The whole idea to drop shipping is not own any inventory, which is a contradiction in terms if you are buying inventory wholesale.
- You need to pay a listing fee for every item you list on Ebay which increases your bottom-line cost.
- You don’t even own your buyers' list. The inhouse mail list is where the money is. By not allowing you to build your own customer list eBay will deprive you of a precious tool to build up your business. You end up building a customer base for the eBay but not yourself. Not fair.
Happy selling!
