What is Dropshipping?
Dropshipping is a retail fulfillment selling method where the seller doesn’t stock, or touch any inventory themselves. Instead the seller is advertising items directly from their supplier. When the seller sells an item, they forward the sale to their supplier, then the supplier ships it directly to the sellers’ customer for them.
The only major difference between standard retail selling, and dropshipping selling is that with dropshipping; the seller doesn’t touch any inventory. The seller only buys the inventory after their customer has purchased from them.
I originally started dropshipping back in mid 2000’s. There wasn’t as many people doing it back then. Not like today. A couple years ago dropshipping started to explode when all these “gurus” (I use this term loosely, as they’re not really gurus) started marketing the method of dropshipping as a get rich scheme to make money.
Dropshipping isn’t a get rich scheme. It is like any other business. It takes hard work and dedication to build up a business and be profitable. Dropshipping is no different.
Today is even harder to do it, because of the sheer competition. There is a massive amount of people doing it now today than there ever was.
- Fast setup. As fast as 5 minutes toget a new store fully up and running.
- Low capital. You don’t need to invest thousands and thousands of dollars into this business model. You can do it for the price of a domain cost per year. As low as $15/year.
- No physical location. You can dropship from any country, anywhere in the world you have internet. You can do it from a beach, or your own private island. You can do it from any internet café.
- Unlimited products. There are almost no restrictions of products you can sell. If a supplier/manufacturer/distributor exists, you can dropship their products.
- Highly scalable. There is no limit to dropshipping. Getting stores to 7 or 8 figures is doable. Like any business it is hard, but can be done.
- Low risk. Due to how easy it is to setup, and the almost no cost to get started, there is almost no risks involved.
- Unreliable shipping. You are not in control of shipping, with that comes problems. Items get packed incorrectly, items get lost in the mail, items can get sent to the wrong buyers.
- Unreliable suppliers. It can take awhile to find the right suppliers. There are scam suppliers out there. It’s your job to sort through them.
- Saturated market. For most people who are new to dropshipping and don’t know the tips/tricks, it’s highly competitive. New people getting started seem to always sell the same items as everyone else is trying to sell.
- Low profits. Dropshipping has generally low profits until you can carve out a unique niche for yourself, and until you get your branding out there where customers are willing to pay more to buy from you.
- High number of chargebacks. Due to the model of dropshipping, combined with shipping issues, dropshipping has a much higher number of chargebacks through the buyers’ credit card company or paypal, and there is not much you can do about it.
- Buyers don’t read. I’ve sold millions of items online through dropshipping, and one thing I can tell you is that the larger majority of buyers do not read item descriptions. They buy without reading and there is where issues arise.
How It Works
- Seller first creates an online store. I recommend Shopify. They have a 14 day free trial that you can try out.
- Seller then needs to figure out what niche to do, and choose products within that niche. The goal is to become an expert in that category.
- Next is locating suppliers. I recommend everyone start out with Aliexpress. Aliexpress is a Chinese retail marketplace that ships products worldwide. As you get more experienced, you can branch off and located more exclusive and higher end suppliers.
- Next is finding products from those suppliers. I recommend a mix of popular items, and a mix of items no one else is selling.
- Those items can then be added to the sellers’ store.
- Next step is to blog daily, do Facebook posts, Twitter Posts, Instagram & Pinterest images. All based on your niche, and products you are adding. Then the seller can also run paid advertising.
- Buyers then visit the site, and purchase that item from the seller.
- The seller gets the money, and then uses some of it to purchase the item from their supplier. The seller keeps the profit.
- The supplier then ships to the buyers address directly, and usually does what is called blind shipping. Where they remove the suppliers name from the shipping labels. So the buyer doesn’t know where the item came from except the city/country.
Dropshipping’s Bad Name
Dropshipping has come under fire for the last couple years and now has a stink in its name. This is because of dishonest sellers. Whenever a new ‘hot’ type of industry gets popular, it always attracts a lot of people to try it out, and with this, comes scammers, and dishonest people trying to make a quick buck.
One reason was sellers were not informing their buyer where the item was coming from. Buyers would see that the seller would be USA-based and would assume the item would be coming from the location of the seller. When in fact, the seller’s dropshipping supplier would be overseas in China, Thailand or India. The seller would then process the order and have it shipped from the supplier. Then 2-3 months later the item would finally show up to the buyers’ door. The buyer would feel cheated.
When I was doing dropshipping, I was always upfront about where the item was coming from, as well as shipping times. So buyers wouldn’t be caught off guard. Certainly, I would miss out on many sales because of this, but I wanted 100% satisfaction from my buyers. But thousands, and thousands of new dropshippers started opening stores up, and were hiding the fact that they were dropshipping. This became a global issue that was all over the news. Buyers worldwide felt cheated.
The same thing happened with shipping times. Sellers wouldn’t display accurate shipping times. They would ship an item from China by ‘regular mail’ which can take 2-3, sometimes 4 months to arrive to buyers address. And they wouldn’t share this information with the buyer. Personally, I always ensured I was using epacket shipping, which is 2-3 weeks tops! I couldn’t stand shipping stuff by boat, it takes too long.
One other thing that has given dropshipping a bad name is due to item quality. Dropshippers who just didn’t care would sell any item. A $0.60 cent item from China and sell it for $49.99 USD. And then when the buyer received it, they felt it was garbage and was a dollar store item. Buyers again felt cheated. There is a right way, and a wrong way to price items for resale through the dropshipping method, but a large amount of scam sellers didn’t care. They just want the quick sale.
Whenever I taught dropshipping to my students, I always told them, never sell any item online for a price you wouldn’t be happy to sell to sell to your friends/family and neighbours.
If you have any questions about the Shopify platform or dopshipping, please leave me a comment here or ask me a question on Quora.
This Post is a re-edit of my 2007 blog post entitled “What is Dropshipping?”
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Founder & Chairman of the Board
Defranco Enterprises Inc & Defranco Enterprises LLC
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