March 10, 2020

Is Dropshipping Legit

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Dropshipping lets you work anywhere without overhead expenses. But is it trustworthy? Find out if this is a legit way to make a living.

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What Is Dropshipping?

Dropshipping is a business model that allows you to open your own hands-off online store from just about anywhere. You can start a dropshipping business with very little time and money. You just need an internet connection, website, and a credit card processing service.

You won't need to store any inventory or pick and pack any of your orders. Plus, you won't need many, or any, staff.

Instead, you partner with wholesalers and manufacturers that store, package, and ship products to your customers for you. That makes the upfront costs of getting into dropshipping super low.

With dropshipping, you don't have to touch the product at all. Instead, you can focus your efforts on marketing your business and handling customer service issues as they come up.

Can you start dropshipping with no money?
Technically, yes, you can start dropshipping with no money. Since you don't have to buy inventory or pay for a storefront, you just need to have a web presence.

Amazon also allows dropshipping on their platform. Just make sure you understand their rules before you get started.

But having your own website makes you look more professional. You can get started with Shopify with a free 14-day trial.

Since you only purchase products as they're being sold, you don't have some of the added pressures of a traditional shop. You'll never worry about having to sell off all your inventory because you don't keep inventory. Plus, with the low barrier to entry and low upfront costs, you won't be worried about getting sales.

Here's how it works:

  1. Customers visit your online ecommerce store and make a purchase.

  2. You pass that information on to your wholesaler or manufacturing partners.

  3. Your partners package and ship the item to your customers.

  4. You collect your sales price from the customer.

  5. You pay your partners for the item, which should be lower than your retail price.

  6. Your profit is the difference between what you pay your partners and what your customers pay you.

Sound too good to be true? Dropshipping isn't as easy as it sounds. Read on to learn the downsides.

Downsides of Starting a Dropshipping Business

Low Margins
Dropshipping margins are incredibly low. You should only expect 10%-25% margins on the products you sell.

Remember that you're not buying things in bulk. You're purchasing items one at a time as your customers make purchases on your website. The prices you pay aren't going to be as low as wholesale. Plus, you'll be charged extra fees for picking, packing, and shipping the items directly to your customers.

Those low margins come with a lot of hard work, too. You'll be responsible for maintaining your website, bringing in new traffic, placing orders with your suppliers, and handing customer service issues.

Long Shipping Times
By nature, dropshipping involves selling generic products that your customers will have to wait several weeks to receive. Online retailers like Amazon offer short shipping times free of charge.

Your customers may be accustomed to that type of online shopping experience. They may be unhappy about your extended shipping schedule. Read on to learn our tips on how to best solve this.

Competitive Market
A lot of people have taken up dropshipping as a business model because it's cheap to start. Keep in mind that the market is flooded with competition. You may find it difficult to maintain your business on a small scale because most people are competing for the lowest price.

Amazon has made it even more difficult to succeed at dropshipping. It's easily the largest ecommerce retailer out there today. If your dropship store features products that can be found on Amazon, you won't be able to compete with their low prices and quick shipping times.

Unbranded Products
Dropshipping isn't a great option for people who are looking to build a brand. Most of the items your customers receive will be in generic, unbranded packaging. It's unlikely that your brand will be associated with the products because you're selling other people's goods.

Little Control Over Service
The service that you provide customers is largely out of your control. Your suppliers are handling the product and shipping it for you. You don't get to see what kind of condition the product is in before it is shipped, and you have no control how the product arrives.

Plus, multiple items in a single order may arrive at different times. If you use several suppliers, a customer may purchase products from several locations. It can be confusing and frustrating when items arrive one by one.

But you have to handle all the complaints and facilitate returns when things don't arrive as expected.

Is dropshipping legal?
Dropshipping is completely legal! It's no different than when people purchase goods to sell in their own storefront. Dropshipping just allows you to avoid renting a storefront and managing inventory.

Bad Packaging Looks Low Quality
Some of your suppliers may be from low quality countries. The packaging they use can be bad. If a customer sees a foreign address or the packaging looks cheap, they may believe your products are poor quality.

Returns and Refunds Aren't Timely
Customers return 15%-40% of online orders. The return process can take a long time and the customer may become frustrated. You'll be the one who has to handle the customer during that time.

Returns are a headache for dropshipping business owners because you become a middleman between the customer and your supplier.

Here's how it looks:

  1. Your customer contacts you about a return.

  2. You contact your supplier to get an authorization number for the return (RMA number).

  3. Instruct the customer to send the product back to your supplier with the RMA number.

  4. Supplier refunds you your purchase price once they receive the item.

  5. You refund your customer once you see the refund in your account.

By the time the supplier receives and processes the returned item, refunds your money, and you then refund your customer's money, a lot of time can pass.

Sometimes, your supplier will charge you a restocking fee. You can either pay it yourself or pass it on to your customers. But most customers aren't happy when they pay extra fees on returns.

Inventory / Stock Issues
Your website isn't necessarily tied to your suppliers' inventory. Therefore, you might end up selling items that are out of stock because you don't have the most current inventory information.

When that happens, you'll have to notify your customers and it may make your business look bad. But you'll have a few options:

  • Refund the customer's money.
  • Provide an ETA for when the item will be restocked.
  • Let the customer exchange the item for something similar.

Multiple Suppliers can Complicate Things
You might use multiple suppliers to bring a variety of product options to your customers. But that can also make things challenging and costly for you as a business owner.

First, you will have higher shipping costs from your suppliers. If a customer orders several items from several different suppliers, you'll have to pay shipping to each of your suppliers.

While you might be tempted to pass on those costs to your customers, not many people are going to want to pay all the extra shipping charges.

Plus, your customers might start receiving items in multiple shipments from all over the place. This can be confusing and frustrating. It might make customers wonder if part of their order was forgotten.

Higher Than Wholesale Pricing With Fees
When a supplier sells a huge amount of product to one store, it's an easy win for them and they can offer a deep discount on the product. But when they partner with a dropshipping service, they only sell items one at a time. And they have the extra work of having to pick, pack, and ship the items.

Your distributors will likely charge you fees for the extra work on your orders.

Your Success Depends on Distributors
With a traditional store, your customer satisfaction and reviews are based on the service you're providing. But with dropshipping businesses, it's mostly based on how well your distributors are doing.

Your distributors are fulfilling your orders and you don't get to control how those products arrive for your customers. Their experiences are mostly out of your hands, but you'll be rated on how the distributor handles orders.

Products Aren't Exclusive
Other dropshipping businesses will likely have the exact same products that you carry in your ecommerce store. That means your store won't be as unique as if you were selling your own products. Plus, you'll be competing more on price than on the products you carry.

Why You Should Open a Dropshipping Business

Dropshipping can be a tough business to compete in and it has many drawbacks. But where there is risk, there can also be reward. Read on to learn some of the best reasons to open a dropshipping ecommerce store today.

Run Your Business Anywhere
With dropshipping, you just need a laptop and an internet connection. You can travel and still run your business from all corners of the world if you wish. This is a great option for people whose spouses travel or move frequently for their jobs, or if you'd like to try the digital nomad lifestyle.

Very Low Startup Costs
Dropshipping puts the burden of buying and storing inventory on your distributors. You'll have no warehouse costs and very little overhead to pay, if any.

On a small scale, you can run your business with just yourself. As you scale up, you can decide how much time you want to commit and whether it makes sense to build a team. It's a nice way to get started in ecommerce when you're new to the game or have a tight budget.

Low Risk
You won't have a warehouse full of product that needs to be sold. Your upfront investment is so low that you won't feel the pressure to make a certain number of sales.

Plus, you aren't paying the typical overhead costs of running a traditional shop like rent, storage fees, shipping, electric, and other expenses to keep the doors open.

Offer a Large Variety of Products
Since you won't have to purchase your stock upfront, you can offer a huge variety to your customers. You'll be able to tap into the stock of your suppliers and offer a lot of different products in one ecommerce store.

Simple Setup
Some of the ecommerce software on the market today makes setting up an online store extremely easy. You can have everything done in a matter of hours if you dedicate yourself to it.

Great for Testing New Products
If you have an online shop where you already sell your own product, dropshipping can let you test new products at no risk. Instead of purchasing new products in bulk and hoping they sell, you can test similar products by partnering with a supplier. Then, if the products perform well, you can bring them into your regular product lineup.

Easy to Scale Up
Dropshipping lets you scale up your business more easily than a regular shop. Your overhead costs and other expenses don't increase at the same rate as your sales. For example, if you want to sell more product, you don't have to spend more money on inventory and storage for that product. Nor will you have to hire more staff to handle more customers at the same rate.

What is the average dropshipping profit margin?
Profit margins for dropshipping are generally low, around 10%-25%. That's because you have to pay your suppliers extra to pick, pack, and ship each of your orders.

You can bring your profit margins up by keeping a small stock of inventory and shipping those items yourself. Focus on selling items in a particular niche and adding products that complement your niche.

How to Start Dropshipping

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Are you ready to open up your own ecommerce store with dropshipping? It's not easy and you'll be putting in a lot of work to keep your customers happy. But the rewards may outweigh the work for you. Read on to see what you'll need to do to get started.

Setup a Website

First, you'll need an ecommerce platform for your customers to shop. When you evaluate which platform you'd like to use, consider these factors:

  • Cost of the platform
  • Setup time
  • Support offered by the platform
  • Features
  • How easily you can scale up your business
  • Ease of use

Keep reading to learn some of your best options for ecommerce platforms.

Shopify
Shopify is an easy-to-use ecommerce platform that can simplify your dropshipping store setup. You can choose from one of their ten free themes, or upgrade to another theme for an additional charge.

Adding products is made easy with step-by-step prompts. You just need to know the product name, description, and an image to get started.

Shopify offers plans starting as low as $29 per month, ranging up to $299 per month. The biggest perk with upgrading to a more expensive plan is the larger shipping discounts that Shopify offers.

You'll need to either integrate a payment service with Shopify or use Shopify Payments. With Shopify Payments, you won't have to pay the 2% transaction fee that Shopify charges per sale. But you will have to pay the Shopify Payment fees. Other payment services will likely charge you the same standard processing fees, but in addition, Shopify will take 2% off the top.

Wix
If you're just starting out, Wix can be a user-friendly and low-cost way to begin a dropshipping business. Wix doesn't offer much customization, but they do have hundreds of free templates to choose from. You won't be charged fees on sales or payment transactions.

Plans start as low as $23 per month and range up to $500 per month for their ecommerce offerings. You'll be able to accept a variety of payment methods online, including credit card and PayPal.

BigCommerce
This ecommerce platform offers tons of built-in features and helps you market your store using SEO tactics. But BigCommerce is more difficult to navigate than Wix or Shopify, so it may not be for beginners.

To get pricing from BigCommerce, you'll need to request a quote.

Can I dropship without a website?
Yes, but it's not recommended. You can use a platform like Amazon as long as you're following their dropship guidelines. But having a website makes you appear much more professional. You'll look like an established business if you opt for having your own website.

Choose Your Products

The products you offer on your ecommerce store are going to determine whether you make it as a dropshipping business. Read on to learn some product strategies that will help you be successful.

Avoid Products That Customers "Need"
With the long shipping times associated with dropshipping, it's best to focus on non-urgent items. Do your best to avoid items that a customer might need to arrive quickly, like household necessities. Chances are, they won't be willing to wait the extra time it takes to ship — they'll simply run to a store or choose another online store.

Aim for High Order Totals
Try to sell products that will bring in an average sale amount over $50. This can help make sure your shipping expenses don't eat into your profits too heavily.

Personalized Products
People are generally willing to pay a premium for products that can be personalized. If someone is looking for a unique gift or perhaps a party favor, a personalized product is a great go-to option. Having a higher sale amount per order is key to success in dropshipping.

Consider Consumable Items
Repeat business is key in any business model. If you sell items that can be used up and need to be replenished, you can score some repeat customers. Look into items like makeup, cleansers, and food. Offer a subscription to products as a bonus to keep the dollars coming in.

Make Sure You Can Expand
When you choose a niche, make sure there are plenty of related products for you to offer. For example, suppose you want to sell pet food. A great way to expand your business and get repeat customers is to also offer other pet supplies, like toys, hygiene products, and other accessories.

Avoid Items Subject to Comparison Shopping
Try to find products that are unique and timeless. Avoid offering products that can be comparison shopped, price shopped, or become obsolete quickly, like electronics.

Find Your Dropship Wholesaler Partner

First, you'll want to know how to avoid fake wholesalers. Keep in mind that a real wholesaler isn't going to charge you fees to look at their products. Plus, they won't be selling their products to end customers at wholesale prices. After all, that would put them in competition with their customers, and that wouldn't make sense. Keep reading for some methods of finding your ideal dropship partner.

Order From Competitors
Once you know what type of products you'd like to offer, find them on your competitor's website and order them. Then, check the return address and other enclosed information to find the actual supplier.

You can reach out directly to the supplier and see how to set up a dropshipping partnership. Keep in mind that wholesalers want to work with legitimate businesses. Make sure you have your website up and stay professional and confident during the conversation.

Look to the Manufacturer
Research the products that you want to sell. Most of the time, you'll be able to find a list of distributors. Or you can call the manufacturer and request that information.

You can evaluate which distributors may be a good fit for your business and contact them directly.

Trade Shows
It can be helpful to get some face time with wholesalers. If you're feeling ambitious, attend a wholesaler trade show and meet with some of the companies that you're looking at. Building a relationship with potential suppliers may help you get a partnership.

Dropship Directory
If you do a quick search online in your niche, you can find a dropship directory of suppliers. Some of the directories make it easy because they will vet the suppliers before even listing them, which will save you some time.

The downside of using a directory is that the information is available to everyone. That means other people in your niche may be using all these suppliers already, which can make competing tougher.

Evaluate Your Supplier

Once you find a supplier, it's important to make sure the customer experience is going to be positive. After all, your entire business model is based on your suppliers' doing a great job with handing customer orders. Read on to see what you need to do before going live.

Place a Test Order
This is the only way you'll be able to see how the entire process works from start to finish. Here are some things to look out for:

  • Ease of order placement
  • How quickly the product ships
  • If tracking information is provided and how quickly
  • If an invoice included in the package
  • How the product arrives, e.g., undamaged, in good packaging

Test Their Customer Service
Customer service can make or break a partnership in a dropshipping business. You want to know if the supplier can help you with anything that comes up. Go ahead and contact their customer service line and ask some of these questions:

  • Are there options to customize the product?

  • What is the return policy?

  • Is there a price difference between wholesale and dropship? What is it?

  • What is the dropship fee?

  • Does your company use EDI to communicate inventory to dropship websites?

  • Can I get discounts based on quantity?

  • Do your prices ever change? What should I know about that?

  • Do you offer a product warranty?

What is EDI?
Electronic data interchange (EDI) is an automated way to keep your ecommerce store updated with your dropship supplier's inventory. EDI updates your website in real-time and keeps you in sync with the supplier. It's a great feature that avoids backorders and keeps your customers happier.

Run and Market Your Business

After you've completed all the setup, you can start marketing your business and taking customer orders. You'll also want to make yourself available for customer questions and concerns.

Try to figure out where your target market spends their time. If there are Facebook pages or other social media platforms related to your store, start being active on them.

Another great way to help your business grow is to create content for your products. Having a blog on your website helps you rank better with Google.

Choose blog topics that are relevant to your products and show how useful they can be. But try not to directly promote or push your product in your content. Instead, focus on providing helpful information to your prospective customers.

Tips for Building a Successful Dropshipping Business

The initial setup for a dropshipping business can be straightforward. But there are other bits of useful information that can help you grow your ecommerce store into a success. Keep reading to learn some of the best tips.

Consider Keeping a Stock of Items
The whole point of dropshipping is to eliminate the need to buy and store inventory. But keeping some of your best-selling items on hand can help your business tremendously.

First, you can buy products at a lower price when you buy larger quantities of them. You also won't have the fees associated with dropshipping, which will increase your profit margin significantly.

Your customers may also appreciate not having to wait so long for those items to be delivered. You can stand out from your competition by offering faster shipping.

Request a Dedicated Service Rep
If you're going to be handling all the customer service woes that come up, it's better to have a dedicated person to reach out to at your distributor. You can develop a deeper relationship with that person and allow them to learn your business. Then, if you have problems, you know who you can reach out to.

Learn How to Market Your Business
Since your competition is teeming with dropshipping, you'll want to take some serious stock in marketing. Make sure you understand your target markets and appeal to them.

The best way to learn what kind of marketing you should be using — and how — is to learn from your competition. Choose a competitor that you feel is successful. Do they seem to have paid ads, social media posts, and a blog? Try to implement some of those and see which ones work best for your business.

Analyze Your Sales
Take note of which items and item categories are selling best. Try to determine why they're selling better and if you can make that happen with some of your other products. Or, maybe you can bring in similar products and grow that category.

Choose a Niche
Instead of trying to offer anything and everything, work towards being a specialized store. You can offer products related to whatever niche you choose.

For example, workout clothing. If you set yourself up to sell workout clothing, you can easily branch out to include gear. Maybe your yoga clothing is doing best, and you'd like to start offering other yoga accessories.

Is Dropshipping Worth It?

Dropshipping is a great option for people looking to start an entrepreneurship journey. But it requires a lot of work. It's not a get-rich-quick kind of deal. You'll be putting in time trying to build your marketing and dealing with a lot of customer service tasks.

You'll save a lot of time and money by not keeping your own inventory and outsourcing the fulfillment. But your time can quickly become consumed by communicating with unhappy customers.

Ultimately, it's a low-risk way to start your own business. If it doesn't work out, you won't be out much of an investment.

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