What Is Dropshipping? Pros and Cons of Earning With Dropship

The trend of doing business on and using e-commerce platforms is growing fast, bringing new terms, one of which is Drop Shipping. So what is dropshipping, and what are the pros and cons of making money with Dropship? If you are asking these questions, or looking into Dropshipping for your business plan then don't miss the article below from Mona Media

What is dropshipping?

Drop Shipping (or Drop Ship) is an English term for a business model that lets an online store operate without holding inventory, owning products or shipping them to customers. This model is considered suitable for everyone, especially students, office workers and others with little capital who don't need to own products.

Drop Shipping is also seen as a supply chain management approach that skips the transport step: the seller does not keep goods in a warehouse. When a customer orders, you act as the middleman, taking goods from the supplier and the carrier and getting them to the customer.

The Dropshipping model mostly focuses on product marketing, customer care, order tracking and managing your online selling pages (on sites such as Shopee, Tiki, Lazada, Amazon, eBay and more).

See also: 10 steps to build a successful small business on your own

How does the dropship model work?

A dropship model works like this:

• A retailer, or dropshipper, who wants to start selling has to contact product suppliers, negotiate their dropshipping policy and sign a working contract.
• Once the process is agreed, the dropshipper sets up their online store. It can be on social platforms such as Zalo, Facebook or Instagram, or on e-commerce marketplaces, or they can expand across all of these channels.
• Then you wait until the store is running and orders come in. The retailer passes the order details to the supplier, who processes the order and delivers it to the customer under the retailer's name.
• The retailer's profit is the difference between the price they set and the price they negotiated with the supplier, after deducting costs such as transaction fees and shipping fees.

This selling process is invisible to the buyer, who does not know the stages their order went through before it reached them.

See also: How to price your products correctly

Steps to make money from dropshipping

The steps to make money from drop shipping are as follows:

• Step 1: Choose products and suppliers with suitable prices, and negotiate prices and shipping terms with the supplier. This is the first and a very important step: a reliable supplier with quality goods and stable prices brings good profit and largely decides whether dropshipping succeeds.
• Step 2: Choose a sales channel. You can list your products on a store through e-commerce sites such as Amazon and eBay, or on your own website through Shopify and similar platforms.

See also: Multichannel selling and common distribution channels in marketing

• Step 3: Customers come to your store to buy directly and pay you through a Payoneer or PayPal account, or a payment gateway accepted by the marketplace where you sell.

• Step 4: Buy and ship to the customer. You use the money the customer paid to buy from the supplier and ask them to ship the product to your customer.

• Step 5: The supplier packs and ships the goods. At this point you can track the order details and the delivery process yourself, and a customer care process you project.
• Step 6: Add up the number of items sold and calculate the profit each product brings, then adjust your plans accordingly.

However, whatever form of business you run, it has its own pros and cons, and Dropshipping is no different. Next is a closer look at the advantages and the problems of the Dropshipping model, so you get a full picture before deciding to start.

Advantages of dropshipping

You don't need much capital

One special advantage of Dropshipping is that you can start a business right away without much capital. You don't have to buy any stock or have a warehouse or yard to store goods.

You do not even need a shop. Dropshipping saves you many of the costs that come with traditional retail.

Easy to start

Starting an online store is easier than starting a traditional one. You do not have to worry about things like:

• Managing a warehouse and paying for storage.
• Packing each product and shipping customers' orders.
• Tracking unsold stock on your books.
• Handling customs declarations and domestic shipments.
• Placing repeat orders for products while keeping track of stock levels.

Low cost

Running a dropshipping business costs very little. You never buy goods to hold in stock and you pay no warehouse fees, so overheads stay low. In fact, many businesses use this model and run it from a home office.

The only tool you need is a computer for online marketing, and it costs less than $100 a month. Once the business is steady and grows, you will want to invest in better marketing equipment. Even then, the cost stays lower than traditional retail.

Work from anywhere

With dropshipping you can sell from anywhere. All you need is a device with an internet connection to post product photos and look after customers. You can present products at home, while out and about, and so on.

Easy to scale

A traditional shop or business that wants to double in size has to put in twice the work. With dropshipping, the supplier takes care of that part, so scaling up is simple.

Disadvantages of dropshipping

Alongside these advantages, dropshipping also has limits.

Low profit

Profit from dropshipping is much lower than from traditional retail. You act only as the middleman who promotes products and earns a commission from the supplier, so margins are thin.

Competition in dropshipping is now fierce, and profit margins keep falling with it.

Hard to track goods

When you source from several warehouses, it is hard to see where each shipment has got to. Suppliers also do not always offer the technology to help you.

Complicated shipping

You do not control shipping. You depend on the supplier, which makes things complicated. For example, if you take goods from 3 places with 3 different shipping methods, you pay for all 3.

Mistakes that come from the supplier

Sometimes customers will complain about product quality. You are only the middleman and the fault lies with the supplier, but you can still take the blame unfairly.

Where can you do dropshipping?

Dropshipping on Amazon, eBay and Etsy

If you dropship in overseas markets, you cannot ignore the the biggest e-commerce marketplaces above.

• First, find your products on AliExpress, the huge marketplace that has supplied dropshippers for years. Search for products there. Besides AliExpress there are also Dhgate.com, Doba.com, Banggood.com and others.
• Then open a store on eBay, Amazon or Etsy.

Dropshipping on Shopee, Tiki, Lazada and Sendo

In the past, dropshipping in Vietnam was in its infancy and few people did it. Recently more people have started, and there are many case studies of dropshipping in Vietnam.

See also: Top 5 well-known e-commerce websites

• The advantage of working in Vietnam is that there is no language barrier, and you understand the market and its demand better than you would globally.
• The hardest part of dropshipping in Vietnam is that you have to find suppliers yourself and negotiate good shared prices.

Build your own dropshipping store with Shopify

Shopify is a platform that makes building an e-commerce website easy. Its Oberlo app lets dropshippers import products from marketplaces like AliExpress into your store with one click.

• Customers order and pay first. You then use that money to buy the product from the supplier and ship it to the customer.
• Shopify is widely used because it is easy to set up. Its simple interface suits people with little knowledge of websites or code, and it offers many selling features.

In short, dropshipping is an online business where you do not stock goods or handle shipping. To sell this way, you need marketing skills such as SEO in e-commerce, The Google Ads service, Facebook Ads, Instagram Ads and more. Dropshipping has its limits. But if your sales plan and operations are built carefully, you can overcome those limits and build a successful dropshipping business.

You may also be interested in: A simple process and order management software for online sellers