What is dropshipping and how does it work?

Dropshipping is a business model that lets entrepreneurs act as intermediaries between suppliers and buyers without having to hold the product or handle its delivery. 

With dropshipping, you profit from the gap between the price the supplier gives you and the price you offer the buyer.

In other words, you only buy from the supplier after the customer has paid you, so you earn what is essentially a broker's margin. But it's important to understand that it isn't that simple…

How does dropshipping work? 

In a dropshipping business model, you promote products and provide an online storefront, usually through a website that works as a store (Shopify). When a customer places an order, you send the order to the supplier and let the customer know the products are on their way. From there the process doesn't require much involvement from you, just customer service and making sure the product arrived.

#wait

Dropshipping appeals to a lot of people looking for a quick profit, so most of them pick generic products, don't know how to run things properly and end up losing money (on ongoing expenses). That's why I recommend that anyone who wants to get into this field understand that it's a business, not an easy way to make money. 

Let's look at the "key players" in dropshipping:

The dropshipping process starts with you - you are the person identified as the seller of the product to the end consumer, and you set the price, even though a third party holds the inventory and ships the items.

Manufacturers supply products for sale to wholesalers and retailers. You can buy products from manufacturers, but the large minimum order amounts can be a barrier to starting your own business, which is why some manufacturers offer dropshipping services.

On the third side, of course, are the buyers, who are looking for different products at reasonable prices.

What makes dropshipping a popular and successful business model?

1. You can start learning from anywhere (even for free) 

If you spend a little time learning the basics, you can set up a business quickly and learn the rest as you go. It's easy to start a dropshipping business because the startup costs are low, especially compared with other retail business models. For example, you don't need a warehouse to store products or a team to help you. You also don't need to worry about inventory or shipping. All of this means you can start your business today. In fact, you can have everything up and running within a few hours.

That said, it does take effort and time.

2. A dropshipping business has growth potential.

As you grow, the business model doesn't need to change much. One of the advantages of dropshipping is that infrastructure costs don't skyrocket as you scale, which leaves you more time to invest in marketing. The more you focus on promoting your business and delivering a great customer experience, the more you'll grow.

3. Flexibility.

You can work from home on your laptop, at whatever hours suit you. It's ideal for entrepreneurs who want a business that works for them, without a boss looking over their shoulder.

4. Low risk.

Dropshipping entrepreneurs won't lose money on unsold inventory. You can start small to test the market. 

Alongside the profit potential of the dropshipping model, it may not be right for everyone, for several reasons:

1. Low profits at first.

It takes time to learn the market and get to know the nuances of the trade, as with any new field really.

2. High competition.

Anyone can get into dropshipping, so sometimes the same product is sold by many different sellers. That means you need to be creative in this field, and if you don't consider yourself a creative person, you'll find it harder to succeed.

3. Shipping delays.

We have no control over how long it takes an order to arrive, and a delay can lead to a poor customer experience. 

In addition, China has a lot of holidays (for example, Chinese New Year - see the explanation by Naor Shuan) when the factories are closed, so you'll have to pause your activity for one to three weeks.

4. Not as easy as it sounds

It may look very easy from the outside, but once you start you realize it isn't that simple. There's a lot of material to learn and apply, and it's important to understand that there are still expenses: you should also come in with 3000-4000 ₪ that you know is going to be invested in the business.

How do you make your dropshipping business successful?

While most products sold online can be used for a dropshipping business, that doesn't make them good choices. To succeed you'll need three things: a product with good margins, a reliable supplier and market demand. If even one of these is missing, you'll struggle to succeed and will probably end up asking "Is dropshipping worth it?"

The key to all of these is research and analysis. Instead of "putting the cart before the horse", take the time to learn properly how to combine the three principles above.

Calculate the profit you want before you invest in any products - many people make calculation mistakes that hurt their income. 

One important note to finish.

If you get into dropshipping, avoid shortcuts like manipulative marketing or selling low-quality products. That will only hurt your business and drive customers away.

Still asking yourself whether this world works or not? The next video is for you