how to start a dropshipping business: a check of the advantages and disadvantages

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Dropshipping is a very important topic in e-commerce. Why? Because when used correctly, you can run a very profitable business with dropshipping, even without owning your own products or warehouse. What may sound strange and dubious at first is actually a widespread business model! So take a few minutes and read this article.

dropshipping definition

Let’s start at the beginning and first explain what dropshipping is in the first place. Dropshipping means drop shipping and refers to the distribution process in which a retailer stores its goods with a wholesaler and, in the case of a customer order, ships the goods directly from there to the customer. 

The remaining processes, such as returns, still end up with the retailer. Basically, this process has been used for a long time, for example with bulk goods such as building materials that require a lot of storage space. Why is this business model so lucrative? Because you can save yourself lots of work and costs by outsourcing part of the sales process.

Who is involved in the dropshipping process?

Because the whole thing might seem a bit confusing, let’s also highlight the parties involved once again. This is because there are a total of three parties involved in the dropshipping process: The seller, the wholesaler and, of course, the customer. The seller is the one who offers and manages the products in his online store. He mainly takes care of winning customers for himself and selling the products. As soon as he receives an order from a customer, he contacts the wholesaler and sends him all the important details about the order, such as the customer’s address and the ordered product. The difference between the amount he owes the wholesaler for the product and the amount he charges the customer represents his profit here.

So the wholesaler takes the order, packs the ordered product and then sends it on to the end customer. He takes care of all the formalities involved in shipping, customs and distribution. The customer then receives the product he ordered. The customer cannot see whether the product comes directly from the retailer or whether it has found its way to him via dropshipping through a wholesaler. So it’s a well-functioning system.

Advantages of dropshipping

There are numerous benefits that come with dropshipping. Especially for entrepreneurs who are just starting their business. For them, a crucial factor is that they need a small amount of startup capital to get started with their store. In addition, the products do not have to be sent to the online retailer and stored again somewhere in large quantities. It’s really straightforward and that’s what makes it so attractive. In addition, the merchant does not have to pay for the products until a product has actually been purchased by the customer. So as a retailer, you don’t have to invest a lot of money upfront to order a certain amount of products. Dropshipping is also less risky in this respect.

Another advantage is that as an online retailer you can build up a wide product range and vary it at any time. Thus, rapid growth is also possible and products from abroad can also be sold. Of course, the wholesaler or manufacturer also has clear advantages from dropshipping, since he can significantly increase his order range without much effort. In short: As an online retailer you can save costs for personnel and storage of products with dropshipping. Perfect for starting your own business as an online entrepreneur!

In summary, dropshipping offers the following advantages:

  • Low start-up capital required
  • Easy entry into the e-commerce business
  • Products do not have to be stored in large quantities by yourself
  • No need to invest large sums in advance
  • Possibility to build up a wide range of products
  • Products can be sold from abroad
  • Save costs for personnel and storage

Disadvantages of dropshipping

Where there is light, there is also shadow. And therefore also the model Dropshipping has its disadvantages, which we do not want to contain to you. Because sometimes it is not as easy as dropshipping sounds. After all, you have your own trade that you have to take care of. So you should deal intensively with the topics of data protection, right of withdrawal and marketing. You have to reach your customers, convince them of your offer and assert yourself against competitors.

One of the most important requirements for your business to work is a well-functioning and clear website. It should be structured in such a way that the customer can quickly find his way around, can easily order and thus have a pleasant buying experience. Also, don’t underestimate one of the biggest disadvantages of dropshipping: The margin. This is because it is significantly lower than for a retailer who buys his products in large quantities from a manufacturer. His risk is higher here, but he gets a volume discount due to a large purchase, which can be worthwhile from a certain amount of products.

In addition, there may be problems on the part of logistics. Since you as a retailer outsource the entire logistics to an external service provider, you can only influence the processes to a certain extent. For example, it may take longer for a product to reach your customer. In addition, there can always be delivery problems and problems with availability that fall back on you. Also, you can’t always influence how the products are shipped and how they are packaged. Therefore, it is important to look for a reliable provider that you can rely on.

In summary, dropshipping offers the following disadvantages:

  • Intensive dealing with the topics of data protection, right of withdrawal and marketing.
  • A professional website has to be built
  • Margin is significantly lower than in retail
  • Logistics are handed over to an external service provider
  • Little influence on the shipping processes

The dropshipping types

If we get a bit more specific now, dropshipping can be divided into different types. Roughly, there are two different types you can choose from:

1. FULFILLMENT VIA A WHOLESALE LOCATION

If you decide for dropshipping via a wholesale warehouse, you can theoretically access the entire selection of products of the retailer. However, there are possible limitations here. For example, if a product is already sold out because another retailer was faster than you.

2. FULFILLMENT VIA A COSIGNATION WAREHOUSE

With a cosignation warehouse, you have exclusive access to a storage area that is only available to your company. This area is provided to you by a wholesaler. This way you can benefit from the secured supply of goods. However, there are often additional costs or restrictions due to purchase obligations.

Costs of dropshipping

It is not possible to say in general terms how high the costs are that you will incur with dropshipping. On the whole, it depends on the provider you choose for your business. Therefore, compare the following cost items with different providers:

  • Shipping fees
  • Handling fees
  • Surcharges for small quantities

Choosing the right products for your dropshipping business

TREND PRODUCTS FOR YOUR ONLINE STORE

Before you can start your dropshipping business, you have to decide on a product that you can offer in your online store. One way to find a suitable product is to jump on current trends. Here it is important that you are one of the first to recognize the trend and offer the appropriate products. The faster you are at spotting these trends, the more money you can make. Of course, this requires that you are the first to recognize the trend. It’s always helpful to keep up to date with the latest trends from other countries, mainly the USA. Most of the time, the trends start there and eventually spill over to the world, which you can benefit from with your dropshipping business.

USE THE ADVANTAGES OF YOUR BUSINESS MODEL

Likewise, when choosing your dropshipping products, you can take advantage of the benefits you have in contrast to a “normal” store in the USA. For normal online stores it is a big risk to offer expensive products. After all, the seller has to buy them in advance and thus invest a lot of money. If they do not sell, the seller is left with the products. You don’t have this problem as a dropshipping merchant. You buy the product from the retailer only after a customer has already bought the product and you have received the money. So basically you don’t take any risk.

The same applies to the sale of particularly large or heavy products that are costly to store and sell. Here, a normal retailer pays a good chunk of money to get the product sent to the warehouse, to cover the storage costs and to send the product to the end customer. You as a dropshipping merchant, on the other hand, only pay once for the shipping from the supplier to the end customer and thus come off a lot cheaper.

Products in niche markets are also ideal for dropshipping. Again, normal retailers take a risk when they decide to sell products from niche markets. After all, they never know if they will actually get all the merchandise sold and can thus be left sitting on the products. This problem does not arise for dropshipping merchants either. In addition, niche products have the advantage that they usually have little competition. So if you choose a product that is in high demand in a niche market, you can also make good money with your dropshipping business.

Dropshipping: Finding the right provider

Finding the right provider is one of the most important steps on the way to a successful dropshipping business. Fortunately, there are now a large number of providers in the the world with whom you can start your dropshipping business. However, you should not immediately commit to a provider, but first have a product sent to you. This way you can be sure that it delivers what it promises. In addition, make use of the experiences of other dropshipping users and inform yourself about different providers on the Internet. Using several providers for different products is not recommended in most cases. This usually only increases the shipping costs and reduces your margin. When choosing your dropshipping retailer, make sure that he ships his goods from Germany and that he has enough products in stock.

To make sure nothing goes wrong, you should pay attention to the following points when choosing the right dropshipping retailer.

1. BREADTH OF THE PRODUCT CATALOG

There are several dropshipping retailers that either specialize in very specific products or offer a wide range of products in their catalog. Which retailer you choose depends on which products you want to offer in your online store. However, choosing a merchant that offers a wide product catalog has the advantage that you can scale your business more easily. So, if you want to offer a new range of products, you don’t need to change the merchant.

2. SYNCHRONIZATION OPTIONS

When choosing the right dropshipping merchant, you should also pay attention to the synchronization options they offer. After all, things like orders, stock levels and catalogs need to be constantly updated. Here, many dropshipping wholesaler offer different options. Some even require some technical know-how, such as API or CSV.

3. MULTIPLE SHIPPING OPTIONS

Also, look for a dropshipping merchant that works with different shipping companies. This way, you also have the option to sell your products to different countries. Keep in mind that your website should also be available in different languages.

4. RELIABLE CUSTOMER SERVICE

In case of queries and returns from customers, the merchant should be transparent and offer good conditions to your customers. Moreover, it is always convenient if the customer service of your dropshipping merchant is multilingual, as this way customer questions from different countries can be answered reliably, even if the merchant is located in Germany.

Build an attractive store

The prerequisite for customers to actually buy your product is that yourdropshipping stores must be attractively designed and easy to use. After all, the first impression of your store decides whether customers stay longer on your website and ultimately buy a product. So make sure that your store makes a professional impression and is clearly laid out. If you are not familiar with designing and programming, it is recommended to contact a professional web designer.

Otherwise, you can rent an already well-functioning store system from certain providers, such as Shopify. Here you can choose between different design templates and do not have to worry about the hosting of the store – all this is done by the provider. However, you will of course have to pay a monthly fee.

Here you have to weigh up what is more profitable for you. However, it is advisable not to save too much, especially when creating the store. After all, this is largely responsible for the success of your e-commerce business.

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