Business & Management

What is Dropshipping & How it Works?

Surely, you may already know the existence of the “Dropshipping” system (Possibly through a YouTube advertisement or on social media platforms). This system is not really new, it has been around for a long time, there are many e-commerce companies that have been created based on this method and this has made us learn many things about this system.

So you want to read thoroughly on the subject, grab a coffee or your favorite drink, and sit down.

The meaning of dropshipping is a type of retail sale, where the retailer does not store the goods in its facilities but instead transfers the customer’s order and the shipping details to the wholesaler, who must directly dispatch the goods to the customer. The difference between the wholesale price and the retail price will be what the retailer profits from.

Another definition of dropshipping to better understand this concept may be the logistics management system where e-commerce offers items for sale that it does not have, but are owned by the wholesaler, who will be in charge of preparing the order and sending it to the customer. Therefore, the online store only has to worry about attracting customers and loyalty.

Dropshipping In E-Commerce

This e-Commerce model is an important advantage for those who want to set up an electronic store quickly and easily. And it is that with a small initial investment you can have an online business and the only costs that you will face are those that come from the design of the virtual store, in addition to the domain and the hosting.

This sales method, the person or company that starts e-commerce acts as an intermediary between the manufacturer of the product and the user interested in purchasing it. It is not necessary to physically arrange the items that you offer on your website or store, so it will not be necessary to have storage space.

The manufacturer will take care of the entire shipping process. When including a shipping address, you must enter the order that corresponds to the customer, so that the item arrives at your address and not yours. To make the request to the dropshipper, the client must pay it first, so that you can acquire it for the lowest price and thus save your benefit.

In other words, the traditional logistics of e-commerce changes completely, since in Dropshipping, the online store is only in charge of managing customer orders, invoicing, and generating a database. It is the wholesale company that is responsible for storing, packaging and sending the products to customers on behalf of the company online.

The biggest difference between Dropshipping and the traditional sales model is that the merchant who sells does not have inventory. Instead, the merchant buys inventory from a third party as orders need to be filled. This third party is generally a wholesaler or even the manufacturer of the product itself.

Of course, Dropshipping also has advantages and disadvantages. For starters, since it does not require so much capital, it is possible to launch an online E-commerce store without investing thousands of dollars in inventory. There’s no need to worry about managing or paying for warehousing, packaging, or shipping orders, no need to worry about handling returns and inbound shipments.

How Does Dropshipping Work Exactly?

If you already have an eCommerce or are about to set up one, by creating agreements and negotiations with a manufacturer or wholesaler, you can sell items or products in your online store that you do not really have in stock.

And, at the moment that a person buys these products in your business, your supplier would also receive a notification, so that it is he who sends those products to those customers.

What is the benefit of each of the parties?

The business for the eCommerce owner is that they can sell products without stock and earn a commission on the manufacturer or wholesaler price.

The benefit for the Dropshipper is that they will be able to sell more products on the Internet without having to worry about positioning and/or managing their own online store.

What advantages does a Dropshipping service have for your business?

To start, it would be better you understand what its main benefits are:

Little initial investment

The retailer does not have to make a large initial investment to create this business model, so it can be said that this is a way to create a “cheap” store.

No expenses are assumed in installations, supplies, or distribution thereof.

Fewer logistics

The headaches of preparing packages and dealing with logistics companies for the distribution of articles disappear in this type of business.

Reduction of fixed expenses

As a business, the fixed expenses it generates are considerably lower than if the business were physical. Variable expenses are subject to sales success, so the little risk is assumed to create this business.

Great scalability

As an online store, it has an entire horizon open for the sale of its products; scalability is a fact.

No need for hiring

  • In theory, it does not entail personnel costs, since it does not have a warehouse, it does not need personnel to manage it and keep it up to date.
  • It is easy and cheap to configure and manage,
  • The risks are low,
  • You can run the business from anywhere, through your computer or cell phone,
  • The profit and scale of the business would practically not be limited,
  • You can combine dropshipping with other work activities.

Getting started with DropShipping using AliExpress

There are many e-commerce websites out there such as Amazon, Aliexpress, eBay, Rakuten, etc. But here only Aliexpresswill be as a case study.

So, taking into account that you already know what Dropshipping is, now we will show you the basic steps so that you can implement this technique yourself:

1) Do a search for a profitable niche first

The way to create a Dropshipping store in Spain starts from the search for a profitable and feasible niche by the retailer.

You must think of a niche that has the following characteristics:

  • Without saturation.
  • That does not have much competition.
  • Where there is a need to fill.
  • Make it profitable.
  • That it can be positioned quickly so that it attracts traffic to eCommerce, because after all, what it is about is generating online sales.

The price of the products to be sold must also be taken into account in order to calculate the approximate profits.

That is, with this system, the retailer will have a profit resulting from inflating the price that the supplier proposes.

Hence the importance of thinking about the final price of the products in that niche, so that the creation of such a business in Spain can compensate you.

2) Negotiation with the dropshipper

This point is very important since the conditions that will govern the operation of the business will come out of this negotiation, both for the prices of the products and the shipping of the orders that they will have.

The retailer will always have to try to have reasonable sales prices within the category of the products that are, therefore, the price at which they are purchased from the dropshipper must be the minimum possible to have more margin.

► Regarding delivery times to negotiate:

Delivery times must be as short as possible so that customers have their orders at home as soon as possible.

It is convenient and advisable to have more than one supplier, you never know what may happen and they may fail or have supply problems.

3) Creation of the Dropshipping online store

First of all, if you are going to try to build our business with AliExpress, the first thing you have to do is create your online sales store.

You must be very clear about how you want to develop your store. If you are an SME or self-employed, we recommend Prestashop.

An alternative to Prestashop could be Magento, but in this case, it must be borne in mind that the complexity – both in development and in daily management – will increase significantly.

4) Register on AliExpress

Once you have your online store created, the next step will be to register on AliExpress.

The process is quite simple, you will only have to follow the wizard and in a few minutes, you will have our account created.

5)Choose your product category

The next step will be to choose what products you are going to sell in your store.

You can use SaleHoo to discover profitable niches.

Once you have chosen the products, you will have to look for them in the categories of AliExpress.

6)Search your products

Suppose you choose kitchen accessories.

Next, you are going to see a series of general recommendations that will help you to know which products you should choose and which you will have to avoid.

7)Do not sell brands

If you can avoid selling brands much better. The problem with selling a brand is not having the certainty if you are selling something authentic or counterfeit, so our recommendation is that you go with lead feet at this point.

8)Try to sell products with ePacket

Many wonder what ePacket is. It is a service that is responsible for streamlining the shipping procedures for products that come from China or other distant countries.

This can be essential to receive in a matter of days an order that would take weeks in normal situations.

9)Filter by number of sales

Aliexpress has an option to filter by sales number.

It is recommended to use it and choose products that have more than 300 sales. That a product has a large number of sales says a lot about its demand and the reliability of the supplier.

Although beware, this should not be the only indicator that makes you opt for one or the other product.

10)Rating to be more than 4 stars

When looking for products on AliExpress, we recommend that you make sure that these products have more than 4 stars rating.

This is an indication of the qualities that affect the product and its services.

Simply by accessing the product you will be able to verify how many stars it has and if the users are satisfied.

11)Profit margin

After looking at AliExpress prices, you must establish a profit margin.

A good margin would be at least 50% so that your business can generate profitability and benefits.

It may be difficult at first to make the calculations, but it is a matter of practice to learn how much the customer is willing to pay and how far you can go.

12)Image research

Before introducing any product to your store, you must make sure that the photo of the product that appears on AliExpress corresponds to that of the real product.

One way to know if the image is real or not is by searching Google for images, and comparing it with the results we obtain.

13) Communication with the seller

At certain times you will have to contact the seller, so we recommend that you find a seller who responds to messages quickly and clearly.

Trust is essential when starting a business.

14) Register the products in your Online store

You have already selected the products that you are going to sell; Now you simply have to load them into your Online Store, either manually or through a module that streamlines the task.

15) Information about your products on Aliexpress

  • Product descriptions

It is convenient to create your own descriptions. Many AliExpress descriptions are not the most correct, in addition to being already indexed by Google, so yours must be unique and attractive to the client you want to focus on.

We strongly recommend that you spend time on this. It is not a simple description of the product, it must also be the method to convince the customer that they need it.

  • Indicate delivery times

You must show the user how long it will take to send.

They are products that come from China, so their shipping period, depending on the supplier, can be quite long and the client tends to be impatient when he lacks references.

17) Tracking orders

Due to the fact that the products are going to be delayed in their delivery, it is advisable to use some order tracking tool, and provide the customer with the data to save you work and messages about when it will arrive.

18) Add products directly to your Online store

If what you want is to introduce products directly from AliExpress, without the effort of creating it yourself, there are applications that can help you import them directly.

19) Start selling

Once you have introduced all the products in your online store, all you have to do is start selling.

It is advisable to have the products you have listed, with a link to AliExpress, so when a user buys, you will only have to look for the name of the product on your sheet and you will already know the URL where your order is. This will save you a lot of work.

Once the supplier has sent the product, the tracking number will arrive and our sale will be processed in DropShipping mode with AliExpress

20) Control of satisfaction

The final part of the online sales process for such a model is for the retailer to monitor customer satisfaction in order to assess the performance of their service.

A call, an email with a short survey, or a question showing interest in social networks can be examples of how to contact the customer, to find out if the result of their purchase has been positive.

Otherwise, your feedback will be used to correct any errors that may have been made.

From the dropshipper, the client will never know anything, therefore, any problem or incident with the shipment will have to be managed by the retailer, despite the fact that the responsibility falls on the supplier, hence the importance of the latter being trusted.

This knowledge and concern for customer satisfaction is highly valued by them, especially in an online environment, where the treatment seems more impersonal.

When they receive good service and, above all, they show interest in knowing the customer’s perception of the experience in eCommerce they like, which will achieve customer loyalty and make them make recurring purchases.

How to choose a Dropshipping provider?

It is important to note that when you start working through this system you are in a “partnership” with another company, in this case with the supplier you have chosen, and this has control over critical areas in your sales process (Quality, Shipping time and even legality), so it is important to choose carefully and not “marry” the first dropshipping provider we find.

A very important tip that we can give you is that before you start working with a supplier you don’t know, make a trial order, for yourself and for someone else, so you can check first-hand the experience your client will have when he receives your e-commerce package.

However, there are several things that you should clarify before starting to work with one supplier or another:

Does the supplier respond to returns? What conditions does it put on you? What if he sends you a damaged product?

  • How long has it promised you that it will take to prepare and send the order?
  • Have you asked if there is going to be a trace of your company or if you are going to send it without any brand?
  • How is your customer service? Do they respond quickly? This is one thing you could try yourself.
  • Do you secure the orders? What would happen in case the order is lost?
  • Do you offer any kind of guarantee to avoid fraud or counterfeiting?

Remember that it is always very important to read the opinions of other dropshippers who have previously worked with this provider in order to know “what foot you limp with” and not get caught again. It is also important to sign a Dropshipping Agreement Contract to prevent this seller from breaking the rules you have set with him.

5 Types of Marketing Strategies for a Dropshipping Business

The main activity of the creator retailer and business owner of Dropshipping is to get a lot of traffic to your website to promote sales.

► SEO strategy

An SEO strategy must be implemented, to enjoy a very good positioning and thus be able to gain more visibility on the Internet, since, no matter how beautiful and prepared the web portal is, if it is not possible to sell, nothing makes sense.

► Strategies on the Blog

It is highly recommended that the sales portal has a blog section. This will allow adding value to users or customers with posts related to information on items for sale, promotions, curiosities, and any other topic in line with the purpose of eCommerce.

The important thing is to be able to enter content with keywords, both in the articles and in the catalog photos and product descriptions, to work SEO.

Making comments on blogs of similar themes or solving doubts on other pages, providing the knowledge that they possess, also helps to make us more visible.

► Strategies with sending emails

When you already have a fairly powerful number of clients, you can distribute a newsletter with the aim of promoting sales, sending them the latest news, best-selling products section, or related news.

Another option that does not require much expense that will enhance the strategy is email marketing.

► Social media strategies

Social media should be used as a platform to spread our product catalog.

It is not recommended to open all the existing profiles and for having, only those that best combine with our business model in this system.

They can be used to publicize the latest news, promotions, product information, or even as a post-sales service channel and thus achieve customer acquisition.

► Advertising Investment Strategies

When starting the business, it is advisable to carry out a paid positioning campaign that gives us an initial push while the SEO strategy does not pay off.

It is about getting more sales, so even if the investment is small, it is very necessary. We can also use Google Ads to gain visibility on the search engine results page or create Facebook Ads for social networks.

Conclusion

There is no longer anything that escapes the power of electronic commerce, and nothing that cannot be achieved. Know customers but first, know what product you are most interested in selling. Analyze and assess all the possibilities and opt for the one that motivates you and interests you the most.

See Also
Guide to Freelance Success
Social Media Marketing Strategy for Small Business

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