Part 1: Dropshipping
There are many ways to make money with a Shopify website. I will be exploring 9 different business models that many have had success with. Today we will discuss how to make money with the Shopify dropshipping model.
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One of the most common methods to generate money with Shopify is by using it as a dropshipping reseller account. In this case, you’ll be selling the products of other businesses that have been sourced from around the globe.
The term dropship means that when an order is placed, you submit the order, and the merchant ships directly to the customer. You never see or touch the product. The merchant gives you an excellent price for the item sold so that you have room for margin to make a profit in the middle.
Some merchants offer high commissions but most will let you keep all of the profits for yourself after fees, as long as you can provide a sales channel (Shopify). One of the most common techniques to accomplish this using Shopify is by signing up for the Oberlo catalog of products.
Using Oberlo, you can pick products that fit your niche market and load them into your Shopify store with ease. Oberlo has a free account but I would recommend upgrading to the paid account so that you have access to tracking numbers to provide to your customers.
With just a small monthly investment in Oberlo and Shopify (currently under $100 a month combined), you can load your website with thousands of products, set their price, set their shipping price, update the product description and images, and with the right add-on apps you can even pull in reviews, the ability to share on social, and much more.
For example, let’s say that your niche market is cats. You can load your store up with products such as cat toys, cat grooming tools, and cat beds.
If your focus is on the cat owner, you can load in products such as cats on t-shirts, mugs, jewelry, shoes, purses, pillows, shower curtains, sheet sets, hats, and much more. It is so much fun to skim through the Oberlo catalog, type in your search term, and add your products to Shopify.
Now that you have a good idea of how to use Oberlo for dropshipping with Shopify, let’s take a look at the Pros and Cons of starting a drop-ship online store.
List of Pros of Dropshipping
No need to worry about store appearance, it is virtual!
One aspect of a traditional business that a drop shipper does not have to worry about is the appearance of their store – they can focus more on making it clean and friendly online using Shopify themes and apps.
Cost-effective – No physical storefront
Since you will not be running a brick-and-mortar business, you will not have a physical storefront or location that customers can visit. The advantage is that you will save a ton of money by not having to pay rent, utilities, insurance, or other fees.
No storefront means “work from home”
You can work on your dropshipping business from anywhere that you can use your computer. No more driving into the store or office. Save on gas, car expenses, sleep in, create the lifestyle you want around your new work-from-home business.
No need to worry about inventory, storage, and management
A drop shipper also does not need to worry about the back-end of their business – such as inventory and product storage. This can be a challenging aspect for individuals with no business or even warehouse management experience, and it is an advantage to simply have these responsibilities taken away from them.
Another advantage of dropshipping is that suppliers absorb the cost of inventory, storage, and shipping. This allows for greater profits in return.
When you are creating your prices for your products, you will need to be aware of how much money you will be paying up-front per order (in this case it is per product sale) as well as the ongoing costs (the cost of maintaining the product in your store).
A traditional business may be able to set their prices higher than drop shippers because customers place more trust in their goods because they are seeing them in person before they purchase them but we also know that a traditional business often raises their prices to cover all of the monthly expenses of a physical business.
Pass that cost-save on to your virtual customers by lowering your prices since your overhead will be so low.
Because dropshipping eliminates some of the costs of operating a traditional business, your investment is significantly lower. This means that if your venture fails, you can get back up and try again with less of a loss.
However, it is important to note that even though there’s a lower risk involved in drop shipping, it does not make drop shipping any less work. It will be just as much work (if not more) to get an established market niche for your online business.
Dropshipping is a nice model because you can scale with ease. Start out with one focused product or a handful and when you feel ready, grow your store to hundreds or thousands of products. The possibility is endless.
For the most part, a drop shipping company using Shopify is a touchless business. Once your products are set up, many dropshipping apps complete the full sales process for you based on a time setting.
For example, process all orders at once after 24 hours or process them individually as they are created.
No need to hire a local team of employees
Since everything is virtual, you do not need anyone to come in and run the shop! If you decide to hire VA’s or contractors to assist you with your online store, you can stay social/SEO/sales focused and do everything virtually.
This is great because you can hire the best people for the job from anywhere around the world, not just your local pool of talent.
List of Cons of Dropshipping
Competition from other businesses that adopt the same model
You will have competition from other businesses that adopt the same model (multiple companies that want to take advantage of suppliers with the same offers).
Risk for being cheated by suppliers or drop shippers
Risk of being blacklisted by suppliers or drop shippers – if a business is discovered to be earning profits without fulfillment, all suppliers and/or drop shippers will deny them access to their products or services, which limits the ability of a business to operate.
Delays and Lost Orders
Supplier/drop shipper may delay order delivery, falsely advertise order delivery timeframe, or not fulfill orders at all. Working with suppliers overseas can also make this a stressful situation due to the time difference or language barriers as well as general cultural differences that may exist in their shipping programs.
Difficult to reach the upper echelons of success in dropshipping
A difficult aspect of dropshipping is that it takes a lot of work and marketing expertise to reach the upper echelons of success. Traditional brick-and-mortar businesses have more capital to acquire customers, as well as more time to let their brand grow organically through word-of-mouth advertising.
When you run a virtual business, you may not just be competing locally. Your products can reach a much bigger audience. A dropship reseller must rely more on marketing and outreach to make a name for their business.
Can’t build customer loyalty
Since drop shippers do not interact with customers directly, they are unable to build that same kind of customer loyalty. Customers who purchase from a drop shipper may be less likely to return since they have no relationship with you or your brand.
Building trust and loyalty can be hard for an online business and takes a lot of time, patience, and trial and error.
Difficult to plan for future growth
One of the downsides of a drop shipping business is that you will have a hard time planning ahead for your growth because you cannot accurately predict your sales.
Many traditional businesses can look at past sales and data to project their sales into the future, but this is not something you will be able to do with a brand new dropshipping business.
Difficult to advertise locally without a physical inventory
Traditional businesses are able to promote their products by placing them in stores, where potential customers can browse and take them into consideration before making a purchase.
Since drop shippers do not carry their own inventory, they are unable to use this strategy to attract customers. Instead, drop shippers focus on online advertising strategies like SEO and PPC advertising.
Slow delivery time
When you source your dropshipping products, you may be able to select the location of the merchant but oftentimes for the lowest price, your products will be shipping from overseas.
Depending on the size and location of the product, some will ship fast although many will have up to a 30-day delivery window. Now that many countries are used to the Amazon Prime and Next-Day urgency with shipping, 30 days will seem very long and at times painful for some of your shoppers.
Can’t handle product returns
If customers purchase a drop shipped product and it doesn’t match their expectations, they will return the item to you for a refund which you as the retailer are responsible for. Since you don’t have control over your inventory, you won’t be able to issue an exchange efficiently which may cause customers to shop elsewhere.
The goal is always to have top-notch customer service and keep the customer happy. My recommendation is to allow customers to keep most of the items and offer a full refund so that money is not lost on return shipping as well.
If the items being returned are not defective and are of high value, you can attempt to sell them again and ship them out locally from your physical location or use them as free giveaways for product reviews.
No control over product quality
Since you won’t own or have any control over inventory, it will be difficult for drop shippers to monitor product quality. It is recommended that you purchase samples of everything you sell to review the product and make sure that it is something that you want to sell in your store.
This can become a daunting and costly task if you have hundreds or thousands of products loaded into your storefront. By not ordering samples, you are gambling on the customer experience and may experience returns.
Dropshipping is a great way for people to get their feet wet with running an online business. It’s not as complicated as managing your own inventory and you’re able to take advantage of the benefits that come from dropshipping like low start-up costs, increased profits, and ease of use.
If you want more information on how to set up your store or what products would be good sellers, we invite you to contact us today. We can help make sure that your store has everything it needs so that customers will keep coming back again and again!
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