Dropshipping is an effective way to trade for entrepreneurs

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Dropshipping is an effective way to trade for entrepreneurs
Picture: nik bibik | Dreamstime

With the beginning of the development of trade via the Internet, the most significant problem for entrepreneurs was the need to organize a warehouse for goods and store them.

Gradually, all over the world began to apply a successful scheme of online shopping business – dropshipping.

What is dropshipping?

Dropshipping is a type of business in which the intermediary performs all the functions characteristic of trade without direct contact with the goods.
  • Selects groups of goods to be sold and contracts directly with manufacturers;
  • Advertizes suppliers’ products in accessible ways, carries out complex marketing;
  • Finds buyers, concludes contracts for the supply of goods to them directly from manufacturers’ warehouses;
  • Organizes fast payment schemes for goods with buyers, manufacturers;
  • Controls the availability, movement of selected goods, timeliness of settlements with customers and suppliers.
Handmade: a source of income or just a hobby?
Handmade: a source of income or just a hobby?

How to start dropshipping? Running a dropshipping business requires knowledge of modern trading business, logistics process, international payment systems, good response, analytical thinking, perseverance.

How to start dropshipping

To begin with, you should legalize your activities by registering as a business entity in state bodies. The tax system allows you to do this business under a simplified system, so the process of taxation and reporting does not take much time.

Picture: nik bibik | Dreamstime

At the next stage, we are actively involved in activities in all areas:

  • Select the product groups that are in demand and look for direct suppliers;
  • We thoroughly study their characteristics, useful qualities, varieties;
  • Studying logistics for selected product groups;
  • We open an online store or organize the placement of goods on a well-known marketplace such as Pandao, e-bay, Alibaba.com, etc.;
  • We conduct a powerful marketing, advertising campaign, search for buyers;
  • We connect to all the necessary options for payment systems that will be used in trade (international bank cards, Western Union and MoneyGram payment systems, WebMoney, Yandex, PayPal, postal transfers);
  • Concluding contracts and actively working.
Brand Ambassador: who is it and how to become one
Brand Ambassador: who is it and how to become one
Important! Dropshipping is not difficult to organize, but there are a huge number of competitors involved in it. Your knowledge and business activity, organizational discipline are the key to future success.

How does dropshipping work?

The key point of the dropshipping business is a responsible supplier who, after receiving an advance payment, is guaranteed and on time to send any unit of the selected product to the right address. When concluding contracts with suppliers, you should describe in detail the procedure for quickly notifying you of the availability of all ordered goods (or the absence of any of them at the moment), changes in manufacturer prices, shipment of each unit of goods to buyers. This will largely ensure uninterrupted operation, the absence of additional disputes over delivery times with customers and suppliers.

Picture: Vaeenma | Dreamstime

The general scheme of work on dropshipping consists of the following stages:

  • Your online store, after the advertising campaign, accepts orders for goods;
  • Summarizing them by suppliers, you order goods from them under previously concluded contracts, indicating the exact delivery addresses to customers for each batch or unit of goods;
  • Pay for the order to the supplier and generate invoices indicating the retail price, the cost of delivery of goods for each parcel;
  • The supplier packs the package with the goods, including your prepared invoice;
  • Track the movement of each parcel to the addressee;
  • After the customer receives the goods, you accept payment from him.
USP – Unique selling proposition
USP – Unique selling proposition

The client can pay via courier service or directly to your accounts. Regular customers can be asked for full or partial prepayment for the goods. After establishing close cooperation with the main suppliers, you can offer them the transition to the system of payment for goods after their receipt by customers.

Where to find suppliers

The Chinese goods market is boundless and saturated with a huge number of direct suppliers, manufacturers. At the initial stage, you can work with well-known Chinese dropshipping suppliers. They can be contacted through their websites, such as aliexpress.com, alibaba.com, focalprice.com, tmart.com, buysku.com, dx.com. www.screamprice.com.

Companies sell almost all groups of consumer goods:

  • mobile phones, laptops, tablets, other electronics;
  • clothes and shoes;
  • everything for the home;
  • household tools and accessories;
  • toys.

Working with Chinese dropshipping leaders will allow you to better master the skills and work patterns.

Home business ideas for women
Home business ideas for women

In the Russian space, dropshipping platforms Dropo, Altermoda.ru, MegaOpt24 have gained popularity among the owners of online stores.

Main items of income and expenses

Any type of business is aimed at making a profit. To assess the prospects for its receipt, it is necessary to calculate approximately future costs, determine the size of the minimum average markup on the goods sold. The main items of expenses for dropshipping:

  • sales value of goods from manufacturers (direct suppliers);
  • organization of an online store or placement in the marketplace system;
  • expenses on advertising, product promotion;
  • shipping costs for parcels;
  • organization of tracking the movement of parcels;
  • providing modern computer accounting;
  • wages, social contributions for employees;
  • taxes
Network marketing: all about this type of business
Network marketing: all about this type of business

Income is formed from the funds received from customers for the products shipped to them, minus expenses. The difference between income and expenses determines the net profit of the store owner.

Pros and cons of dropshipping

The main advantage of trading under this scheme is the absence of costs for creating and maintaining own production and maintaining warehouses for goods.

Picture: nik bibik | Dreamstime

The second major advantage is the possibility of obtaining a larger percentage of income. Lucky entrepreneurs who know specific suppliers and the market of goods receive up to 80% of the profit.

But for this it is necessary to minimize the influence of possible negative factors:

  • Lack of direct control over product quality. It is important to use products from reliable manufacturers;
  • The movement of all goods is not so easy to track. Competent organization of accounting based on specialized programs is required;
  • Delivery interruptions. Reliable courier services will help you organize logistics correctly, save money, time and nerves.
Franchising: business features
Franchising: business features

The impact of the pros and cons of dropshipping largely depends on the entrepreneur himself, his intuition in the right choice of suppliers and couriers.

Interesting facts about dropshipping

  1. Over the past 5 years, sales volumes under dropshipping schemes in the territory of the former Soviet Union have increased many times over most types of product groups: Clothing, underwear; Bijouterie, jewelry; Perfumery, cosmetics; Bags, watches, accessories; Gadgets; Spare parts for cars; Sports equipment and meals. Large manufacturers of consumer goods are very interested in dropshipping, which allows them to significantly save resources on product advertising and sales.
  2. A sharp increase in the turnover of dropshipping schemes in the world occurred during the 2008 crisis. Producers of consumer goods were in an incredible panic, they did not know what to do with their products. Dropshipping merchants came to the rescue, showing their ability to advertise and sell in a severe crisis, mastery of the art of marketing.
  3. In the United States, dropshipping appeared in the late twenties of the last century. And in 1955, the turnover of American dropshippers amounted to more than 2 billion dollars!