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Dropshipping is a relatively new trend in the e-commerce business which has quickly spread from the US to many other parts of the world.

It is a new method in the distribution and delivery leg of the business that allows customers to get their orders directly from manufacturers, not sellers.

Sales are still made through retail partners, but the main notable difference is that for sellers there is no need to invest in stock before selling a product.

It also means that there is no need for retailers to maintain storage space for stock and they can remain focused on just selling.

The shipping and distribution are managed by dropshipping providers. So how exactly does this work and is it a good idea to get into the dropshipping business?

How dropshipping works

In an e-commerce transaction, there are three key protagonists; the buyer, the seller, and the dropshipper.

The focus here is on the dropshipper since that is where the key change in the e-commerce business model is.

Once the buyer places an order with the seller, the seller then passes that on to the dropshipper. The dropshipper prepares the order and labels it with the seller’s details then ships it directly to the buyer.

This method offers sellers an unprecedented advantage in time and cost, presenting entirely new opportunities to e-commerce stores.

Let’s look at how the basics workflow is like.

The first thing you need to do is contact a dropshipping provider. This is a company that sells products for a wholesale cost.

Say for example you find a manufacturer who is involved in the dropshipping model and is willing to sell a product for perhaps US$10.

Then, it’s time to do a little market survey and see how much that product can retail for.

Check out some popular sources such as eBay or Amazon (perhaps Lazada if you’re in the Asia region) and check out the common market prices of that product – perhaps US$20.

Lastly, the difference between those two prices is the potential profit you can make off each sale that you facilitate.

Do note that for the most part, profit margins will be relatively light. This is because the dropshipping provider takes care of almost everything for you, including bearing shipping costs.

Since this is primarily an e-commerce activity, your main focus in the business will be in the creation and maintenance of the website that you use to sell.

Some people may choose to work with established e-commerce platforms, but if you are thinking of going it for the long run, I recommend starting your own store such as the Shopify dropshipping store.

Your own store will allow you better branding, complete control over the site and its design — eliminating the fees you will have to pay to an external platform.

You also won’t be competing with other sellers on the same platform!

Starting your dropshipping business

1. Choose your niche
I highly recommend that you choose a niche to start off with. This will help you focus on a specific segment which will make it easier to draw a category of buyers.

Take for example you decide to only sell eyewear.

Choosing your niche is important as you need to make sure that the segment you are moving in to isn’t already oversaturated.

More dropshippers means less money in the potential pool for you. However, thanks to the genius of manufacturers, there are always new products to look towards.

If you get lost and can’t make up your mind, always remember to try and deal with products that you have knowledge or passion about. This may be items that you use personally and mesh with your hobbies and interests.

Aside from that, make sure that what you are looking at is profitable.

Some niche markets have very narrow margins, even for dropshipping. The best case is to look for a niche that is able to offer you an average margin of at least 40 per cent minimum.

2. Finding the right supplier
Aside from what you do to carry out sales, another important element to success in dropshipping is making sure to find the right supplier.

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These are the guys who actually have the products and will carry out shipping for you, so if they make a mistake, it is your reputation that is on the line!

A good supplier will often have common characteristics such as having helpful staff, being quick to ship, have a decent quality of product and not try to charge you massive order fees.

Ideally, test out a potential supplier’s system before you work with them. Make a small order and observe how efficient their system of delivery works.

3. Competing against others
Since the dropshipping business has become so popular, expect to compete against others.

You aren’t the only one interested in a business with low overhead, so be prepared to fight it out for sales.

Make sure you keep an eye on top competitors in your niche (you can try trolling eBay or Amazon to have a look). Try to see how many other sellers are in your niche and the way they operate.

For example, how they list products, what kind of visuals they use and such.

Listen to your customers and pay attention to what they are saying. Also, take note of what the customers of other dropshippers are saying.

This information will usually let you know what they like, or dislike and you can refine your business accordingly.

4. Get more customers
Customer acquisition will always be one of your key challenges and there are many ways to approach this.

From paying for ads to making use of Google quality rating guidelines to draw customers in, how you work it depends on your preference.

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For example, paying for ads is a quick way to get a massive influx of customers but the costs can quickly add up. If you aren’t paying attention to your profit and loss, this approach might get out of hand quickly.

On the other hand, by starting a blog section and drawing interested parties to your site, you are establishing a long-term strategy that will be slow to start off but has immense potential.

The information you share can also help establish your industry expertise and build trust with potential customers.

Conclusion

Now that you know the basics of dropshipping, I have to say it is an attractive field to look towards for passive income that is slightly different from affiliate marketing.

Once you’ve established yourself it might even be possible to start several sites to take advantage of more types of product!

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Image source: Oberlo

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