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How Dropshipping Works For Beginners

Dropshipping
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Do you want to start dropshipping? Do you know how dropshipping works? Here you are, about to learn a simple step by step on how dropshipping really works and how you can start your own dropshipping business as a beginner.

 

 

There’s really not much to learn about dropshipping. It’s neither a skill to acquire. You can even start dropshipping business by hiring someone at Fiverr to design an online store for you. It doesn’t require you to know how to design a website either.

You can buy a web hosting package from Bluehost and get a free domain name to start. And all that can cost you less than N100,000 if you want good standard Store. Or less, if your standard is not high enough. And you can signup with any dropshipper to get products to sell on your site.

The process can be automated, so that the most you can do is calculate profit to help you know what to deduct and pay as taxes as at when due.

What’s Dropshipping?

The best definition of dropshipping to me is from Shopify, which also happens to be a major player in the dropshipping business. But I kind of like the way Wikipedia puts it, without the fluff and decor of enticing customers.

So, I’m going to give you the two definitions just in a way to expand the definition beyond marketing. Another definition that’s close to that of Shopify is from Oberlo. And it’s another player in the drop-shipping model. But I won’t give you Oberlo’s definition since it’s same with that of Shopify.

Wikipedia definition of Dropshipping: it’s a supply chain management method in which the retailer does not keep goods in stock but instead transfers its customer’s orders and shipment details to either the manufacturer, another retailer, or a wholesaler, who then ships the goods directly to the customer.

Here’s Shopify definition of Dropshipping: It’s a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer.

And dropshipping follows a process, which I have described in a step by step below.

Step #1: Customer Places Order On Your Site

This is where it all begin, when a customer places order for a product on your drop-shipping site. Your site must be well optimized to handle orders faster and more efficiently, in the best user friendly interface possible.

The order process activated by potential customers are the most important activity on a dropshipping store. Without customers placing orders on your site, you do not have a dropshipping business.

Steps To Order A Product On A DropShipping Site

  • Step 1: Find a product you want to buy on a site
  • Step 2: Search for the product if you don’t know the category
  • Step 3: Click on add or buy product to add product to your shopping basket
  • Step 4: Continue shopping to buy more product.
  • Step 5: Or end shopping to checkout and pay
  • Step 6: Signup if you are an existing customer
  • Step 7: Or Create a new account before you buy
  • Step 8: Pick shipping method and finalize check out

Step #2: Your Store Sends The Order To Your Supplier

Once you receive an order placement on your dropshipping store, the order is transmitted directly to your supplier. This process can be manually done or transmitted automatically. If done automatically, then you don’t even need to know when it happened.

Your supplier will receive the order alert with all the shipping details of the customer, which will enable them to perform the next action point, to transmit the order package to the customer. But a manual operation requires you to place that customer order with your supplier and pay the agreed wholesale cost for the product, plus shipping.

One of the most popular marketplaces for ecommerce entrepreneurs using the dropshipping business model is AliExpress. This site is owned by Alibaba, one of China’s most popular eCommerce Store.

Step #3: Supplier Sends Order directly To Customer

The best part is that after you sell a product to a customer who has ordered it from your site, you repurchase it from a dropshipping supplier like AliExpress (Automatically or manually) and then have it shipped directly from their warehouse to your customer.

This part is done solely by your dropshipping supplier. You probably don’t know their inner workings. But this is what goes on at the drop-shippers warehouse on your behalf. They do this on your behalf. And your customers hardly notice the product is not shipped from you.

Also, suppliers uses white label shipping or you can agree on a branded shipping that carries your own brand. That’s up to you. It may cost extra more to brand those shipping materials and invoice, depending on what you want them to brand for you. This is what happens at a dropshipping fulfillment center once a customer submits an order on your site.

Steps On DropShipping Order Fulfillment

  • Step 1: Order is received by supplier
  • Step 2: Order Picking is done at suppliers warehouse
  • Step 3: Order Packing is done either at suppliers warehouse or shipper
  • Step 4: Order Shipping is done by preferred shipping company

Step #4: Profit Margin

How much do you want to make from dropshipping business? You have to define your success path. You need to plan your product by identifying all the elements that would help it succeed.

Deciding your profit margin is not just to add a markup on the product. It starts by identifying the product value, competitive rates, suppliers price, ad spend, even before markup can be decided.

Formula For Profit:

To determine what your profit per product would be, you need to do some arithmetic. You need to attach some financial figures to each element of the price point. And here are the elements in consideration.

Your Price: the price you set as retail price for the product. That’s your suppliers price, plus your ad spend and your markup. In some cases, which I advise you do, add shipping fee as part of your final retail price.

Suppliers Price: this price is determined by your supplier. It’s the agreed price that your supplier would give you for each item. It doesn’t include any other price point.

Ad Spend: here’s your confirmed cost of acquiring a customer or selling a product. This cost may vary for different ad campaign. So, you maybe flexible with deciding your ad spend per campaign, as its most likely to change each time you run an ad campaign. You can either add this to your markup or add it as a separate cost.

Your Profit: that’s what’s left of your retail price after you have deducted suppliers cost and ad spend. It’s not your total markup if you did not include it as a separate cost to your retail price. So, your profit is what’s left from the retail price after all necessary deduction have been removed from a sale.

For example, if you sell 100 units of a product at a defined price, your profit will be 100 products multiplied by the unit retail profit of the product, after all the price markups like suppliers price, ad spend and shipping fees are deducted.

Step #5: Scale Up Your Business

If you have a proven dropshipping business, the next plan will be to scale things up. You will need to increase the frequency at which the steps of your dropshipping model is repeated. The more customers that are ordering and paying for your products the more profit you can calculate.

That means you have determined your ads is successful and your product profitable. Then, increase your ad spend to run more frequent advert, while you watch more sales coming in. Take a clue from tips below on ways you can consider scaling up your dropshipping business.

Tips To Scale Up A Dropshipping Store

  1. Automate order fulfillment to speed up order processes
  2. Automate order tracking to give customer assurance about their order delivery timeline
  3. Join an affiliate network to promote your store and attract potential customers
  4. Negotiate with your suppliers for better and cheaper price
  5. Expand your support team as order level increases to speed up response rate
  6. Consider content marketing to drive free and unlimited web traffic to your store
  7. Test, test, and test until you find out what works best for you

How To Start A Drop-shipping Business

Starting a drop-shipping business is simple than you think. You can start without a website or even startup capital. You don’t also need to stock products or handle inventory at all.

The only requirement for starting a drop-shipping business is passion, commitment and consistency. All these are just part of being hard working. And this hard work can be channeled in finding best selling products, enhancing the effectiveness of your dropshipping site and advertising your products to generate sales regularly.

Below are the simple steps you need to follow to start your dropshipping business.

  1. Select a niche audience to target with a niche solution
  2. Perform competition research to weigh your competitive advantage
  3. Secure a supplier for the kind of niche you want to target
  4. Build your eCommerce website yourself or hire freelance developers online
  5. Create a customer acquisition plan to drive traffic to your store
  6. Analyze and optimize for better performance and increase sales

A niche selection is important. One of the reasons customers patronize drop-shippers instead of major eCommerce stores is the niche simplicity of product selection. They know what your site sells and they can easily search through the varieties of same items to pick what best matches their need. This is your best strategy when started a dropshipping business.

Moreover, you have to consider customer acquisition as your biggest investment plan. Your customers are the life of your business, and you must properly plan for acquiring new customers on a regular basis.

But don’t forget your website design and user interface. If your customers can’t browse your site easily and able to checkout without hitches, then you don’t have a business. Make your site the most user friendly eCommerce Store ever. That’s your best winning strategy.

Top Dropshipping Suppliers

If you are starting your own dropshipping business, you will need a supplier. A dropshipping supplier is not the same as any other kind of supplier. There are basic requirements a dropshipper should have to qualify as a dripshipping supplier.

Every dropshipping supplier must have the capacity to accept, process and ship customers order directly. That’s what makes them dropshipping suppliers. And all these suppliers listed below are equipped with the right structure to handle your dropshipping business interest.

  • Dropship Direct
  • Sunrise Wholesale
  • Worldwide Brands
  • Wholesale Central
  • MegaGoods
  • Inventorysource
  • National Drop-shippers
  • Dropshipper.com
  • AliExpress
  • SaleHoo
  • Doba
  • Wholesale2B

Before you pick which supplier you want to work with, visit any of these suppliers and check through their product selection, prices, operational structure, delivery conditions, and return policy.

You can also have more than one supplier as a backup strategy, incase one supplier falters, you can switch easily to another supplier. Also, product quality should be another consideration you must not take lightly.

Conclusion

How dropshipping works is simple. And it works the same for every country. Things that are most important in a dropshipping business are the supplier, niche product and target customers. Where you are operating from doesn’t matter.

So, Nigerians can do dropshipping business profitably. Imagine starting an eCommerce business without stocking products or handling inventory. Plus not doing delivery too, since your supplier will deliver directly to the customer on your behalf.

The concept of dropshipping is simple to start without capital, once you can build your website. The supplier bills you only when a customers orders an item on your store. And you pay the supplier from money paid by the buyer. There’s no upfront payment for stock required.

Chinedu David
Chinedu David is a business consultant, trainer, marketer and strategist. I founded Mystore, an eCommerce business in 2013. I have a vast experience in eCommerce, digital marketing and startup consulting. Having worked with SuccessDigest newspaper for over 10 years, as a telecom editor. You can contact me by phone, email or social media.You can also reach me via email: nedu@myblog.com.ng or Call/Text/WhatsApp: 07087770518
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