E-commerce has developed a whole new business vocabulary, and one term that confuses many merchants is dropshipping. How do you know if it is right for you? When is the best time to get into drop ship and which is the best drop shipper to work with?

What is dropshipping?

When a retailer doesn’t keep goods in stock themselves, but sends the customer order and shipping details to another retailer, to a wholesaler or directly to the manufacturer. Like any other retail enterprise, profit is made on the difference between the wholesale price and the retail price that the drop shipper has stated to the customer. Some dropshippers have also earn a pre-set commission which is generally paid by a wholesale to the retailers.

Benefits of being a dropshipper

• Instant stock offerings - for a traditional business, there is a time lag while stock is ordered and delivered to a chosen location, dropship technology means that a retailer can immediately offer all the stock they’ve selected.
• Lower costs - setting up an online business involves a number of costs: website setup, hosting, and capital to buy inventory. Dropshipping removes the risk of buying too much inventory, too little, or the wrong size/color/weight/specification. Because there’s no unsold stock, you don’t need any capital tied up in stock you can’t shift.
• Risk free product testing - researching the market is a huge cost and trying to establish what your customer base wants can be a huge gamble. Dropship systems allow you to try out products, and even services, without risk.
• Unlimited product range - even the smallest online merchant can offer an extensive product range with drop shipping - the process of listing products is your business, but fulfilling customer orders is your supplier’s responsibility.
• Reduced administration overload - unpacking, storing, retrieving, handling, labelling and packing stock for onward shipping can take up a huge amount of business time and don’t necessarily add anything to margins. Dropshipping, a simplified form of third party logistics (3PL), saves all that administrative cost and gives the vendor scope to develop the profitable elements of their enterprise.
• Easy to scale - if your business takes off, you can simply expand without having to engage with substantial capital investment.

Dropshipping With Shopify - Some Risks:

• Skinny profits - retailers have to find customers and the easiest way to do this is the offer the best prices, but this inevitably means reducing margins.
• Finding customers - a lot of the risk move from the supplier to the merchant with dropship systems because suppliers can allow absolutely everybody to list their products. This means that to differentiate yourself from other merchants you have to become more attractive and the most attractive element of purchase is always price, as stated above.
• Fulfilment issues - finding the right dropshipper is the key to success. Because a merchants don’t hold inventory themselves, they can’t know if the customer’s order is going to be fulfilled until they get an acknowledgement from the dropshipper. If the merchant has already taken the product price from the customer, they have to issue a refund which reduces profit, disappoints the customer and adds to your overhead.

How to make dropshipping work for you

• The most crucial ingredient to success with dropshipping is to find a partner whose inventory you can completely rely upon. Dropshipping with Shopify, for example, causes immense problems for merchants who have complex shops, because its inventory lacks customization processes that ensure real time inventory feedback keeps up with customer purchasing. Shopping Cart Elite’s automated inventory ensures that your business never lags behind realtime stock levels.
• Differentiate yourself with content management - we’ve already said that there is intense competition in the dropshipping industry, and one way to be sure that you have the customer’s attention is to supply excellent content. Once again, Shopify has limited CMS and blogging which means you’re unlikely to be able to boost your SEO. Shopping Cart Elite is eminently customisable and puts SEO at the heart of its design to give its customers the edge when in competition with other merchants.
• Fulfilment problems - reviews will help you understand just how potential dropshippers perform in practice. Don’t let yourself be misled by sales team patter - engage with existing customers, look at forums and use review sites to check the real performance of your drop ship shortlist.
• Use blended gross profit margins to help your pricing strategies - gross profits allow you to know the break-even point of your business but finding your blended margin allows you to manage your pricing strategy effectively. Ask lots of questions of your drop ship partner before committing - one of the most painful experiences reported by many merchants who start out dropshipping with Shopify is that every additional function and service the vendor needs to add will be charged on a monthly basis.
• Customization - if there’s one problem that bedevils almost every customer who attempts drop shipping with Shopify, it’s the fact that the system offers just only one free-text field per product. No separate tabs means that your product listings look sparse and it’s almost impossible to create the differentiation that we mentioned earlier is so vital to success where profit margins are tight. By contrast, Shopping Cart Elite gives vendors plenty of scope to customize, and even personalize their online offering so that it becomes attractive and memorable.
• Seek automation as standard - the one way to make your business successful is to reduce your overheads - a drop ship system that offers substantial automation gives you much more opportunity to get involved in the profitable elements of online commerce, and SCE provides automation in virtually every area of activity, meaning you need less time and less people to generate more sales and make better profits.

Is your business drop ship ready?

Consider whether you need a niche market to launch your dropship business - some people find it easier to get into dropshipping by picking a key market such as a hobby area or something specialist inside a wider market like customization items inside a wider automotive store. Once you’ve mastered the techniques you can then expand your drop-shipping throughout your entire ecommerce venture.

It’s important to understand where your business priorities will change when you begin to drop ship. You’re not involved in order fulfilment, but you are completely committed to all the customer relations - questions and complaints are entirely your responsibility and that means you need superb CRM, not just as a structural part of your dropshipping partner’s offering but as a priority that runs through your business as a whole.

Reputational issues are also important - knowing that you’re putting your business in the hands of your dropshipper means you really need to do your homework before choosing a partner to work with. An unreliable drop ship organization can really harm your business. Shopping Cart Elite has an excellent reputation for helping those new to dropshipping to master the necessary skills that give your online venture the best chance of success.

Mastery of directional challenges - one of the biggest threats for any dropshipping business is staying on top of directional challenges. Directional challenges can be both positive or negative - for example if you list a product that your customers don’t buy, you need to be ready to jettison it rapidly, while a new ad might massively outperform your expectations and lead to you having to upscale both your inventory commitment and your financial commitment. Some suppliers can remove their inventory, leaving you with gaps in your offering that you must either fill with another supplier or replace with a different product. Automation is your best friend when it comes to swift business footwork and SCE is a world leader in giving you plenty of automation so that you can focus on directional challenges and pleasing customers … the places where your online enterprise will thrive.