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What is dropshipping and how does it work?

Dropshipping is a low risk, fast way to get your small business off the ground. It has become popular among sellers looking for a lightweight retail model to make getting started easier. This works because dropshipping simplifies inventory management and cuts down operating costs.

When businesses dropship, they don’t stock their own products. They get what they sell from third-party suppliers, which means there’s no need to spend money maintaining a warehouse or managing deliveries.

What is a dropshipping business?

Instead of always having a stock of products, you simply order a product when you make the sale. Dropshipping businesses need less startup capital, since they don’t have to manufacture or purchase their own supply.

That’s because dropshipping is done through suppliers, meaning there’s less for you to manage. The company you buy products from handles everything from storage to shipping. That means you save money on:

  • Paying for a warehouse or other storage space

  • Packing and shipping orders

  • Handling returns

  • Replacing your inventory

Another benefit of dropshipping is that you can do it from anywhere. The main requirement is being able to communicate with customers and suppliers. As a result, many people run these businesses from home.

With a traditional business model, where you supply your own goods, expanding can be difficult. More orders means more paperwork, calls to suppliers and a more complex restocking process. But when you dropship, extra orders aren’t a problem. All you’ll have to manage is putting in an extra request or two to your supplier.

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How to start dropshipping

Now that you know what dropshipping is, how can you make your business the best it can be? Below are tips to get you going.

Target customer segments

Successful businesses often specialise in a certain type of product or niche. This is important to keep in mind for dropshipping because, with such a wide range of products you can sell, it’s tempting to try and sell everything.

Specialising makes finding and communicating with a segment more targeted because you're selling products to people who actually want them. It also makes you more distinguishable from other dropshipping businesses – which matters a lot when you have less branding potential.

Give great customer service

One of the best ways to emphasise your value to customers is by creating a seamless customer experience. Happy customers are also more likely to recommend you to friends and family. Be sure to have a quality website that’s easy to navigate and simple to use from beginning to end.

When you run a dropshipping business, you should be aware that items will occasionally go missing or not turn up at all. Rather than being laser-focused on recouping profits when these issues come up, try to make things as easy for customers as possible. That means occasionally paying the cost of lost orders so your customers don’t have to.

All these things will make your business stand out more. But before getting there, the first thing you need is a reliable, reputable third-party supplier.

How to find dropshipping suppliers

Finding the right wholesale suppliers is crucial to setting up your business. It’s best to approach them with concrete requests and avoid asking too many questions, or going on about all the "great plans" you have lined up. It’s likely that you’re one of many small businesses reaching out for the same reason.

Here are a few ways to connect with suppliers to get started:

  • Contact manufacturers who make products you want to sell

  • Research on search engines using phrases related to your niche

  • Order from competitors to see the return addresses of their suppliers

Your task will be to convince suppliers that doing business with you is to their benefit. This is a time for relationship building rather than asking for discounts. That means having a registered business, being prepared to pick up the phone, sharing your online store if you already have one, or giving specific details on how and when you’ll sell their products.

Best dropshipping suppliers for ecommerce

There are plenty of big names in wholesale product supply. Take time to investigate the pros and cons of each and decide which are best suited to your needs. Of course, a great way is to reach out and have a conversation. The best suppliers will have sales teams ready to answer your questions – try to find ones with expertise in your product niche.

Here’s a list to get you started:

  • AliExpress: This is one of the largest marketplaces you’ll find online. Although items are generally cheaper, delivery times can be slow as suppliers are based in China

  • Worldwide Brands: A US–based directory of dropshippers, wholesalers and importers

  • SaleHoo: A large dropshipping directory based in New Zealand. Comes with a small annual fee

  • Wholesale Central: Another vetted dropshipping and wholesale directory based in the US

Finding the right supplier is essential to making your business idea a reality. Coming up with a shortlist of suppliers and reaching out will take time, but it's time well invested in setting up your dropshipping business.

Is there anything bad about dropshipping?

The short answer – yes. Although it’s convenient for you as the merchant, dropshipping has challenges. As there's a lot of competition, other businesses might set lower and lower prices, so it may be difficult to turn a profit at first.

If a supplier makes a mistake, this might be difficult to explain to customers. When you’re responsible for the issue, you can offer returns, store credit or other compensation.

There are also no opportunities for branding or personalising dropshipped products. Your customers get what the supplier produces. The lack of branding can also make it harder for your dropshipping business to stand out.

With all that in mind, we hope this explanation of dropshipping helped you decide whether it's right for you. If you’re starting out, it’s a low-risk model you can do from almost anywhere. But, as with every great business idea, taking that first step is what it takes to make it a reality.

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Max Elias