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Are you planning to start a dropshipping business? It may even be that you have already started but you are seeking for more insight about how to run the business. This article provide you a step by step guide on how to start a dropshipping business.

The article is segmented as highlighted below:

1. Introduction
2. How dropshipping works
3. Your start-up budget
4. Find a niche/product
5. Find a manufacturer/supplier
6. Choose a platform to market your products
7. Marketing strategies to adopt
8. SWOT Analysis of dropshipping business
9. Porter’s Five Forces Analysis of dropshipping business
10. Conclusion

Introduction

What is Dropshipping?

Dropshipping is a retail type of business, falling within e-commerce supply chain management system, which enables a retailer operates with zero inventory, but instead upon orders being placed by customers, searches and sends a customer detail to the right supplier, who in turn delivers ordered goods to the customer.

Traders who have limited access to capital but have the burning desire to start a retail business take advantage of the benefits it offers:

• It is easy to set up: All you have to do is to work together with a  supplier, create your website and extensively promote your dropshipping business.
• The setup cost is relatively low: You only need to spend money on hosting, website applications and driving traffic to your site.
• Business risks are relatively low: The business can be run from anywhere without incurring overhead costs such as renting a warehouse, office space or employees.
• Every product has a supplier: No need to worry about finding a dropshipping supplier since every product in the market has a dropshipping supplier who will deliver it to the customer.

 How dropshipping works

The tripartite process:

1). The Retailer – the retailer buys from the producer/supplier

2). The Supplier – the supplier/wholesaler supplies directly to the customer.

3). The Customer – the customer takes delivery of the goods supplied by the supplier/wholesaler.

To set up a dropshipping business, it is important first of all to choose the products you want to deal on and then collaborate with producers/wholesalers that trade on such products. As a matter of necessity, you will have to set up an interactive website that will showcase your products and apply some marketing gimmicks to attract traffic to your site. Since you are going to market your products all over the world, potential customers are likely to locate you through your website.

Read Also: How to Start a Rice Mill Business

The Drop Shipping Model:

The Customer – orders goods from the retail shop.com

The Retail shop.com – receives an order from the customer and forwards customer’s details to the producer/wholesaler/drop shipper.

The drop shipper – supplies goods directly to the customer:

Your Start-Up Budget

Your start-up budget cannot be estimated with every amount of certainty since every dropshipping business is unique. However, there are basic costs that must be incurred before you can take off. To launch your dropshipping business, you may need to spend money on the following:

1. Initial product/niche research: You are likely to research the niche market and the products that will go well with the market. This might cost you almost nothing since you are likely to conduct online research yourself.
2. Set up a website and a web hosting. You may need the following to create an interactive website:

• A name for your domain
• Web hosting provider
• AliDropship plugin
• CMS – WordPress content management system
• Your creative effort

You must choose a name your potential customers must recognize and locate on your online store. Then select a domain provider that will host your website. With these, you must build your site by either going to WordPress.org and downloading its software to your server. It is usually free of charge. Or you engage a website professional who will set up for your interactive website

Find a niche/product

Finding the right products to market profitably is probably a daunting task. Therefore searching for a new product to add to your product range should be a continuous exercise. The important thing is to keep on experimenting with new products all the time. The list of features below is some of the guiding principles to be taken into consideration when making your choice of products.

1. The products chosen must be unique in certain ways since common products are likely to be available in the brick and mortar shops.
2. The products must not be easily available, so you keep on searching until unique products are found, take advantage of it before other competitors become aware of it.
3. Make finding the original price of your products difficult for your customers by buying from AliExpress, since goods from AliExpress cannot be traced.
4. Be careful not to sell your products above a certain amount of money considered to be what potential buyers can spend on dropshipping products. In the USA, it is between $8 and $ It is because this amount is considered the highest price consumers are likely to spend on an impulse purchase. However, before you decide on niche/products to market, avail yourself of the following tips:
   • Take time to browse some of the profitable online stores to find out the products they deal on and that will give you a clue on which product to add to your stock.
   • Also visit the online community sites since they display relevant product behaviour, opinions and interests that are relevant to what you need.
   • Social shopping sites share opinions that are relevant to you. Visit the sites and see what they are recommending.
   • Visit your local community trade fairs, bazaars and thrift and co-operative societies, who knows, they may have information of interest to you.
   • It will not be out of point to first order for sample. With this, you will be able to assess the quality of the products. also, you can have first hand information about the quality of their customer service delivery. Some people may see this as a waste of time, The truth is that, ordering for samples may save you some headache in the future. It is better to get it right from the beginning than for you to invested heavily on a wrong product or supplier.

Many products are available for drop shipping online e-Commerce business that should fit into your range of products. The bottom line is that some of these products should be trending in 2020, should have a low price, and must be popular, convenient to ship, but above all, be profitable.

Read Also: How to Start a Perfume Business

Find a manufacturer/supplier

This is the right moment to choose the drop shipping companies that would supply your needs for your dropshipping e-commerce business. Due diligence must be observed in selecting suppliers to reduce the errors that are inherent in this kind of business. All you need to do is to consider the following:

• Features – What services are offered by the dropshipping company such as pre-sale, during the sale and post-sale services? Can they offer help in choosing for you the trending products, loading and transportation of the products, and also will they accept damaged products?
• Product catalogue – You must carefully verify the product catalogue to see whether it contains the range of products you would like to trade on.
• Pricing – The price at which you are offered the product by the drop shipper should be important to you since your profit is aligned to it, so select the company whose price is reasonable.
• Shipping options – What kind of shipping options can the dropshipping company offer? These may include: truck, rail, sea, air or does the circumstances of each case to be considered.
• Support services –  are support services likely to be available, such as notification of new product’s arrival, taking in of damaged products and quick resolution of complaints as necessary?  Some of the best shipping companies are listed below:
  1. Salehoo –  known for its high volume directory and giving you access to 1,6 million products.
  2. AliDropship –  It has the facility to help newbie become entrepreneurs overnight.
  3. Worldwide Brands  –  This is based in the USA but has directories with over 9,000 suppliers who are certified.
  4. Doba  –   Doba commands over 2 million products from over 200 suppliers and offers you online support services.
  5. Dropship Direct   –   Dropship Direct is known for its best price.
  6. Wholesale2b –   Wholesale2b has the advantage of the best distribution options.
  7. National Dropshippers –   This is one of the leading drop-shippers that provides the fastest shipping speeds.
  8. Investory Source  –    Investory Source offers you access to over 1 million products, as well as letting you make use of its data feed to send products to your website or other market places of your choice.

For Nigerians businesses who are into dropshipping, finding the right supplier may not be easy since almost all the suppliers are located overseas particularly in China and are hardly visited except through online communications.

Choose a platform to market your products:

It is important when starting your dropshipping business to figure out on which platform your online products are to be marketed. You have two choices: to set up your e-commerce store or to sell on established platforms in Nigeria, notably, Konga and Jumia. These popular online stores permit other merchants to sell on their platform.

Depending on your knowledge and experience on dropshipping as well as resource availability, selling your products on established platforms is recommended when resources are limited. But in a situation where human and financial resources are available, you can launch your e-commerce website.

Marketing strategies to adopt

Dropshipping takes a lot of hard work to make it work particularly for a starter before it can start making a profit.  Therefore you must do extensive research on the target market, competitors and the products that are likely to be preferred by the customer.  For instance, before you commercialize your dropshipping retail store, you are expected to have done the following:

Read Also: How To Set Budget on Marketing

1. Make formal and informal contacts with your target market, products of your choice, suppliers/wholesalers you want to partner with, competitive activities and the potential demand.
2. Have an interactive website including quality pictures, relevant contents, product descriptions, the speed at which shipping documents are processed, fair return policies and guarantees.
3. Make a choice of relevant promotional tools for social media.
4. Set up the social Rabbit Plugin to administer your social media marketing automatically and at the same time connect to the stores’ social media.
5. Configure the necessary additional plugins that will help manage your website.
6. Continue to research on existing and new products and add potentially profitable ones.
7. Adopt proactive pricing policies and strategies
8. Launch your promotional blitz
9. Update your pricing strategies over time as necessary.

Dropshipping SWOT Analysis

Although many have been said already about dropshipping business, it is important that you conduct the SWOT analysis before to start the business. Essentially, SWOT analysis will reveal to you the strengths, weaknesses, opportunities and threats regarding the business. While strengths and weaknesses are internal factors, these factors can be used as comparative benchmark to your competitors. You have control over your strengths and weaknesses. Therefore, they can easily be changed by you. On the other hand, opportunities and threats are external. You may have control over opportunities and threats but you can position your business to take advantage of the opportunities while you shield your business against the threats.

Why must you carry out the SWOT analysis of your business? As mentioned, SWOT analysis helps you identify your strengths, weaknesses, opportunities and threats. With this, you can take steps that will help you build on your strengths while you minimize your weaknesses. Also, you will be able to scan the opportunities which you can take advantage of while you mitigate the threats.

Read Also: SWOT Analysis and How To Use it

So, let quickly consider that strengths, weaknesses, opportunities and threats of dropshipping business.

Strengths: In this segment, you will consider what your business is good at. That is, such thing that you have that your competitors don’t have. This tends to give you an edge over your competitors. Once you are able to identify your strengths, the next step is for you to build upon them. The strengths about dropshipping business may include the following:

• Ease: It is easy to conduct financial transactions online through electronic payment system. Financial transactions can be conducted at home or from any part of the world. This is a major advantage of dropshipping business over brick and mortal type of businesses which require that customers need to physically visit the location of the business before they can conduct financial transactions.
• Marketing: Marketing and advertisement is cost effective. You can take advantage of free internet marketing tools such as social media marketing, target emailing and SEO.
• Global Reach: You can expand your business beyond your geographical location. Customers can reach you from any part of the world. This can provide you a large clientele base.
• Consumer Communication: A line of communication is automatically opened when customer place an order. You can use the information to reach them in the future about new products and new arrivals.
• Low start-up Costs: If you are starting online retail store, the start-up costs are much lower when compared to regular offline store. You don’t need to pay rent for a large space neither do you need to pay extra fee for products that are heavy, large or fragile. Some products are special and must be kept in special conditions. With dropshipping, you can easily avoid such costs. You don’t even need to start thinking about how to insure valuable goods against theft.

Weaknesses: Despite the strengths of drop shipping business, it has its own downside too. These are discussed below:

• No Direct Interaction: You don’t have direct interaction with customers. In most cases, direct interaction affects customers’ decision making. You may not be able to persuade customers to buy your products. Customers’ decisions are main based on their personal judgment or perception about the product. Unfortunately, customers may not have sufficient information that may be helpful to them to make buying decision.
• Shipping Cost: Shipping cost can be higher than the cost of the product itself. This can discourage customers from buying.
• High Customer Expectations: In most cases, customer expectations are too high that small dropshipping business may not be able to meet. You can imagine your small business competing with amazon.com.
• Personal Aspect: Not all customers like buying through internet. Some people still prefer visiting the market to make purchases.

Opportunities: These are the external factors that you can take advantage of. This includes the following:

• Availability: Your business is open all round the clock. Unlike offline business which has opening and closing hours, if you sell on the internet, your store will be open 24/7. This helps you to make more sales.
• Large Varieties of Products: There are many products to choose from. If a particular product is not selling, that may not mean you need to close up. You can easily find other products. You can keep testing the market until the find the products that are right for you.
• Global Market: E-commerce business gives you the ability to sell to the global market.
• Industry Growth: E-commerce business is still growing and the growth is expected to continue at high rates. You can position your dropshipping business to benefit from the growth.
• Market Growth: More people are having access to the internet. It was reported that about 2.3 billion were online in 2011. This number still fell below 40% of the world population. By March 2020, this figure has risen to 4.57 billion.

Read Also: 17 Small Business Ideas for Students in University

Threats: It is important that you are not carried away by the strengths and opportunities of the e-commerce business. You also need to consider the possible threats. And these are highlighted below:

• Competition: Before the era of e-commerce business, companies only compete with other businesses within their locality. But now, you are competing globally. The level of competition is increasing by the day as a result of the low barriers in the industry. In fact, there are many people who are into e-commerce business without having a website. Some manage their drop shipping business through social media such as Facebook.
• Low Profit Margin: Because of the stiff competition, you may not be able to increase your prices. This will affect your profit margin.
• Fraud: The rate at which internet fraud is being perpetrated is alarming. This give customers concerns and may discourage them from conducting financial transactions online.
• Less Control: You don’t have total control over the business. The shipping is being handle by a third party. Unfortunately, you are the one to take responsibility for the delivery of products bought by your customers.
• Privacy: Customers can’t conduct financial transactions online without providing some private information about themselves. The fear of breach of privacy and the possibility of misuse of their personal information may not encourage that to buy online. A large number of spam emails that people receive could be traceable to the information they supplied on e-commerce websites.
• Legislation: Governments are losing tax revenue on online sales. The fact that customers may not need to pay sales tax on online purchases, this serves as incentive to them to buy online. But what happens if the government decides to impose tax on online sales? Customers may not see any justification to buy online again.

You need to understand that SWOT analysis is not what you do just once at the beginning of your business. You need to do it on a regular basis like once in every one or two years. It helps you know where your business stands per time. Also, you can easily benchmark your business position against competitors. What was once an opportunity when you started your business may no longer be an opportunity today as business environment is always changing. Also, it is possible that your competitors have mastered your strengths and neutralized them. With new technology and features that emerge everyday, one can easily overcome what was once a weakness. That is why you mustn’t see SWOT analysis as one-off exercise. You should not be surprised to see brick and mortal businesses now competing with drop shipping business successfully now. With the help of shopping cart software, traditional retailers now sell products from their websites. Some of them even have live chat to interact with their customers online.

Before I finish this section, I will like to explain more on how you can carry out the analysis of your business and that your competitors. Beginning from your business, you should know where you stand per time. You should constantly check traffic coming to your website. It the number increasing or decreasing? What is the bounce rate? What is the ratio of returning users to new users? What is your conversion rate? What keywords is your website ranking for? Answers to these questions may help you identify some of your strengths and weaknesses.

What do you need to find out about your competitors? You need information about the new products they are selling. It is possible that there are new products they are selling which you are not aware of. You should analyze their promotions. If there are running aggressive promotions, this may impact your business negatively. You may even discover the new promotion ideas which you can use for your won business. You should also equip yourself about their pricing strategies. Try to conduct a search on Google about the products that you sell. Find out about your competitors that are ranking for the keywords. You can also discover the keywords you can use for search-engine-optimization or pay-per-click campaigns. Take time to visit your competitors websites. If you notice any clearance sales item, it may indicate that the items are slow-moving products. Wisdom demands that you should avoid selling such products.

Porter’s Five Forces Analysis of dropshipping business

Another marketing theory you can use to analyze dropshipping business is Porter’s Five Forces. This will be useful for people that are contemplating starting their drop shipping business as it will enable them to analyse the competitiveness of the industry. The use of Porter’s Five Forces to analyse the business will let you know whether an industry is low or high competitive market. We shall be analyzing this under five headings namely:

• Threat of New Entry
• Competitive Rivalry
• Supplier Power
• Buyer Power
• Threat of Substitution

Read Also: Understand The Use of Porter’s Five Forces Model in Business

Threat of New Entry

It is important to know if there are any entry barrier to the business. How easy is it for individuals to start dropshipping business? To determine this, you will like to consider certain factors such as the time and cost of entry, required specialist knowledge, economies of scale, cost advantage and technology protection. In any business, if you find out that the entry barrier is high, it could be a good business to consider. But unfortunately, that is not the situation in the case of dropshipping business. It is easy for people to start the business. And it doesn’t even take much time to start. You don’t need any specialist knowledge to start drop shipping. Anybody can start at any scale. However, you may benefit from economies of scale. Technology has given everyone a fair playing ground. But if you have a large number of social media followers or email list, this can give you an edge over someone who has no or little in place.

Competitive Rivalry

When analyzing competitive rivalry, you will consider the number of competitors, quality differences, switch costs and customer loyalty. With ecommerce business, the competition is very stiff now. You are not only competing with the local retailers. You are actually competing globally. Also, when it comes to drop shipping business, there is little or nothing you can do to differentiate your products. The fact that a customer buys from you today does not guarantee that he will come back to you the next time. The reason is very simple. It is easy for customers to switch at any time. To overcome the challenge of competitive rivalry, you may need to up your marketing efforts. Nevertheless, huge marketing costs can erode your margin.

Supplier Power

How powerful are the suppliers? This can be assessed by considering by the number of suppliers, size of suppliers, uniqueness of services, your ability to substitute and the cost of changing. Good enough, you have many suppliers to choose from. However, it is good that you do your homework before deciding on a particular suppliers. Check online for customers’ reviews and comments. If you have to make annual payment upfront, changing suppliers may become costly.

Buyer Power

In any market where your buyers have too much power, they will end up dictating terms and conditions to you. To know whether your customers are powerful, you will consider the number of customers you have, size of their order, differences between your competition, price sensitivity of your products, ability to substitute and cost of changing.

In drop shipping, you will be selling online. This gives you the prospects of having a large customer base. But this is not automatic. Before you get to that level, you must have invested heavily in marketing and promotions. Don’t forget that customers can easily switch to your competitors. But if you have a large number of customers, you may not feel the effects of one or two customers leaving you especially is the size of their orders is small.

Threat of Substitution

Is there anything that will make your customers stick to you under rain or sun? Customers may not be interested in your business. They are interested in someone who can meet their needs. If you are not meeting your customers’ needs or you are not visible enough, you will soon see them disappear.

Conclusion:

Dabbling into dropshipping business may be an attractive proposition because of its low start-up budget, but making headway may be a herculean task. It may cost so little to start but it is highly labour intensive. Therefore, first things first, before deploying resources into it, research on how it works, the cost of setting up the business, potential manufacturers/suppliers, best niche/products that can be drop-shipped, and potential profit to be made.

Online Business, Starting a Business

Tags: Business ideas, Online Business Ideas