What is Dropshipping? Explain business model, [everything in 2020]

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This is a question that cannot be answered in a minute or only reading a summary. Well, the most common formula to know about what is dropshipping is, direct shipping it is the order fulfillment channel used by online retailers.
But it needs the initial part of it. For emerging e-commerce entrepreneurs, direct delivery is one of the most desirable fulfillment options. A list of retailers who prefer this method is not required. No deposit is required.
Conversely, once the customer places an order, the shipper buys the product directly from the manufacturer or supplier. This may surprise you – is this kind of business model profitable?
To remove a reservation at first glance, briefly introduce the most recent statistics:
In 2019 alone, data-based forecasts show that e-commerce sales will account for 13.7% of retail transactions. This number has increased so dramatically.
This guide details all aspects that potential e-commerce retailers can use to catch up with direct shipping. Before embarking on the problem of becoming a freight specialist, you need to understand the following key indicators:

  • process and consignment.
  • Best direct shipping app.
  • How does the shipping business work?
  • Best direct shipping sales channel.

Regardless of where you plan to sell products online (on eBay, Amazon, or even to open your own online store), if you start a business selling products at home, you won’t want to carry too many (if any) listings

Most people who start their first online business through auctions or online stores do not have much money to buy a bunch of products and do not have enough space to store and store the products they want to sell online.

By working with a real drop shipper will save you a lot of money.

As mentioned earlier, the original drop shipper is a certified wholesaler who provides dropshipping. Not all wholesalers deliver direct shipments.

In fact, it would be very difficult to find a truly certified wholesaler who can ship directly and work with online sellers.

It is very easy for online sellers to work with drop shippers. Once you have found the drop shipper you want to work with (the owner of the product you want to sell), they will then give you access to images of their product so you can post it on your website, auction, blog or plan to sell online.

When a customer orders a product, you order the product from the wholesaler and then send the product to your customer.

Advantages of consignment

Some of the advantages of direct selling include:

Sellers and manufacturers can focus on their strengths.

The reason why the direct selling business is so successful is that it allows each party to focus on their specific area of ​​expertise. Companies that set up direct sales sites should do this because they have the ability or vision to create storefronts that can attract and convert customers.

On the other hand, direct shipping greatly benefits suppliers, who are good at manufacturing or creating their products, but are too busy or not interested in developing e-commerce platforms to sell them.

The advantage of the consignment is that it provides an opportunity for both parties (shipper and supplier) to rely on their own advantages and partners to achieve prosperity.

Seller has no upfront inventory cost

When shipping, make sure that inventory funds are not a problem. As a merchant, you do not need to spend money to buy inventory, so the upfront cost is extremely low.

When a customer places an order, your supplier or manufacturer will fulfill the order and you will be paid.

This makes direct delivery an attractive option for risk-averse merchants. If you are unwilling or unable to purchase inventory in advance, you can work with suppliers or manufacturers to handle inventory and fulfillment.

Eliminate logistical troubles for the seller

Another major headache for retailers is logistics. Printing, packaging and shipping takes a lot of time and requires a certain level of expertise, especially today when consumers want online orders to be delivered quickly and cost-effectively.

Merchants who use the direct shipping business model can avoid order fulfillment problems.

Disadvantages of consignment

Just as there are many benefits, there may also be some disadvantages.

Tricky supplier relationship

In some cases, suppliers may prefer to sell products in bulk and wholesale them to retailers instead of shipping them to customers individually when the order is received.

They may also hate direct shippers to charge sales commissions. If the supplier sells goods directly to customers, it may be the supplier’s goods.

Of course, both of these situations depend on the supplier’s personal preference.

Both bulk sales and building your own e-commerce site can be beneficial, so it is always up to the supplier to decide which method is feasible for their business and capabilities.

Some manufacturers and suppliers even have their own e-commerce sites and choose to participate in direct shipping arrangements because this helps expand their coverage and bring additional business.

Little control over the customer experience

You cannot always guarantee that the supplier will deliver on time and that the product will meet expectations.

Reputation is everything in online business. Therefore, keeping your reputation in the supplier network is a big risk.

If you are not a stockist, it is difficult to control turnaround time and customer satisfaction.

The most successful direct selling companies have invested huge sums of money in maintaining the high standards of their suppliers and are constantly struggling to ensure compliance with agreed delivery schedules.

Product quality may be inconsistent

Product quality can make or break, especially if you are dealing with shippers overseas. As a businessman, you have no say in the supplier’s manufacturing process; if you do not carefully review the supplier, you may end up selling products that do not match the website description and quality standards.

Step-by-step guidance to establish a direct sales business

Drop shipping Step-by-step guide
How Drop shipping Business Work

Contrary to the beliefs of some online experts, setting up a direct sales e-commerce company is not easy. This requires effort.

If you have decided to take up the challenge and are ready to accept the benefits that consignment can provide, then you should take the following steps to open and operate a consignment e-commerce business:

Choose your niche

The first step in developing a direct selling business is to understand your own positioning. Which market do you want to serve? What type of products should you sell?

Usually, the best way to answer these questions is to consider your own interests.

If you are truly passionate about what you sell, then starting a business is much easier. Therefore, when you determine your market segment, please focus on things that arouse your interest.

Having said that, you also need to find a niche market that makes business sense. It’s great to develop a product you are passionate about, but if it doesn’t make money, it’s a hobby, not a business.

Therefore, before deciding which product to sell, ask yourself the following questions:

Will it generate attractive profits?

As a businessman, you are in a profitable business. Therefore, you need to choose a product or market segment that can provide a reasonable profit margin (at least 25%). You can do this by doing some research on the products sold on direct selling sites.

Visit a website like AliExpress and search for your product. Look at the cost of the goods, and then calculate the numbers to find out how many goods can be sold.

Is the transportation cost low?

You may not be the one involved in shipping and handling, but the cost of sending and delivering orders is critical to your customers.

Unless you plan to bear the shipping costs yourself, focus on products and suppliers with lower shipping costs.

Research the market

Already found a great product? Big. Next, study the competitive landscape of your niche market. Who are your competitors?

How are they doing and what are their disadvantages? The answers to these questions will help you figure out how to market and position your e-commerce business.

Define your standards

At this stage, you have selected the products to sell and figured out how to position yourself in a competitive environment.

The next step is to set standards for how you wish to implement the project. Here are some questions to ask:

  • What is your delivery turnaround time?
  • How much profit will you get?
  • What is your refund policy?
  • What are your supplier terms?

The answers to these questions will help you find and review suitable suppliers for your shipping business.

Build your e-commerce website

E-commerce website
E-commerce website

Now, let’s talk about your e-commerce website. The direct selling business mainly runs online, so you need to find an e-commerce solution to support your store.

On e-commerce platforms, there is no shortage of other options on the web-in fact, you can check our detailed reviews of various solutions here.

That said, when it comes to direct shipping, we strongly recommend Shopify because it is one of the most convenient platforms for direct shipping on the Internet.

Shopify is connected to multiple direct selling platforms (including Oberlo), which makes it easy to find suppliers and purchase products.

We have outlined very detailed guidelines on how to build an e-commerce website for your shipping business, but generally, the process involves the following steps:

  1. Create an account with an e-commerce solution provider,
  2. Connect your e-commerce website to a direct selling platform,
  3. Start adding products,
  4. Set directory,
  5. Customize your website,
  6. Add pages and set up navigation,
  7. Find your products and suppliers.

This part of the process is closely integrated with the website building steps above. As mentioned earlier, you want to choose an e-commerce platform that integrates with a direct selling solution.

Once this is done, you can start browsing the platforms of products and suppliers.

Depending on your e-commerce solution, the specific steps here will be different, but you can do the following:

Search for the product you want to sell. Direct selling solutions usually have a search function to find suitable items and suppliers.

Just enter your product or niche and the system will generate a list of items that can be added to your site.

Add items to your site. Most direct selling solutions make it incredibly easy to add products to your site. In many cases, just click a button.

For example: in Oberlo, all you need to do is click “Select Product” and set the price. From there, the item will be sent to your store.

Review, analyze and optimize

Once you start selling, you should analyze your performance and determine your strategy based on methods that work for you.

Make sure you have Google Analytics installed so you know where the traffic is coming from.

It is also important to analyze your acquisition costs. Unless you sell quality products, shipping profits can be low, so you want to be efficient and cost-effective when attracting new customers.

Finally, check customer feedback and talk to your supplier to understand how the process is progressing and whether there is a possibility to improve or optimize the process.

The cost of running a direct sales business

Of course, the cost of running a direct shipping e-commerce website may vary. It all depends on the products you sell, the tools you use, and how your business operates.

The following are some common costs associated with operating a consignment business:

E-commerce platform fees

The construction and operation costs of e-commerce platforms are high, so they should be included in the budget.

Let’s take a look at Shopify, which is one of the most popular direct selling e-commerce platforms. A start-up business may be best suited for its basic plan, which is only $29 per month. Their advanced plan can reach up to $299 per month.

Direct selling platform cost

The cost of the direct shipping solution should also be considered, that is, the platform on which products can be found and added.

The specific details will depend on your direct selling platform. Oberlo’s price ranges from $29.90 to $79.90 per month, while Modalyst’s price ranges from $30 to $480 per month.

We will discuss these solutions in more detail below. It can be said that it is important to research various direct selling platforms to find a suitable solution for your business. Another tip?

Test the platform before becoming a paying user. Some solution providers offer free trials, so you can try their systems.

Advertising and marketing expenses

Since every business is different, there are no fixed numbers for advertising and marketing. Your cost will depend on the channel you use and budget and pricing.

When it comes to direct marketing, the most common advertising and marketing channels are Google and Facebook advertising.

Google ads

If you are looking for benchmarking, DemandJump does an excellent study of customer acquisition costs (CAC) in various industries. For e-commerce, DemandJump found that the average CAC for display ads is $65.80, while the average CAC for paid search is $45.27.

Facebook ads

According to WordStream data, Facebook’s average cost per operation (CPA) is $7.85. By looking at data from different industries, WordStream’s research found that the CPA costs of common e-commerce vertical industries are as follows:

Clothing – $10.98

Beauty – $25.49

Home improvement – ​​$44.66

Retail – $21.47

Direct selling platform review

Direct selling platforms enable entrepreneurs to easily find products and suppliers, automate the process of interacting with them, and even assist in marketing. Here are some of the most popular direct selling platforms on the market:

Oberlo

If you use Shopify as an e-commerce platform, Oberlo will appear as an embedded Shopify application.

They have a selection of selected, trusted suppliers, and options imported from AliExpress, where all product images, details and prices are already available.

Oberlo’s platform also allows bulk ordering, you can order up to 1,000 orders at a time, and they can be shipped quickly.

Modalyst

Modalyst helps companies find fast-shipping direct mail products covering a variety of categories and price points.

They work with American-made brands, international luxury brands, and unique handmade designers, so that the company has millions of products and suppliers.

In addition to a wide range of applications, they are the only direct transportation platform that provides automation, which means that products can be delivered to American customers within 3 working days.

Spocket

Spocket can help companies quickly ship products from many suppliers in the United States and Europe to identify products with high conversion rates.

Spocket handles inventory and order fulfillment and automates the process, so you don’t need to worry about them.

Their products are also 30-60% cheaper than standard retail prices, so companies can enjoy higher profit margins.

AliDropship

Alidropship was created by a team of developers and affiliates with a large number of experience working with Alibaba and AliExpress.

Alidropship offers a wide range of products. In addition to giving you access to 50,000+ AliExpress projects, the solution also provides pre-edited product pages.

Each item has a clear URL, description, and image to reduce the seller’s manual work.

And, if you really want to adopt a manual method, Alidropship also provides site building services. You can order a custom store and their team will build one for you.

Shipping and customer service

Shipping and Customer services
Customer services

As we talked about, customer service is one of the more significant challenges that the direct selling business will face. When products come from suppliers, it is difficult to manage turnaround time and make clear promises to customers.

It is also difficult to determine who is responsible for customer service. If the product fails or fails, who should handle the interaction with the customer?

This may require communication back and forth with the supplier. If the shipper is unwilling to have a difficult conversation with them, it may make them feel pressured by the customer and bring this situation to the supplier. Of course, this may risk a relationship.

Therefore, this situation usually ends in this way: the shipper acts as an intermediary between the customer and the supplier.

The key is to come up with solutions to satisfy everyone and manage both relationships to achieve positive results.

Here are some tips for getting the best customer service results:

Respond to complaints/questions immediately.

Set a clear solution timetable. Tell the customer that you need to discuss with the supplier and you will be back in XYZ hours/day.

Set clear expectations with suppliers. Tell them about the problem and let them know that you have promised your customers to provide a solution within the XYZ time frame.

Be polite to customers and suppliers. Both relationships are critical to achieving positive results.

Looking for multiple solutions. Before establishing a relationship, try to establish standards with the supplier so that you can understand their terms on various issues.

When problems arise, this will make it easier to develop a solution strategy. You should also find multiple suppliers so that there are no problems.

Keep everyone in the loop. If it is difficult to find a solution, set a timetable with the client so that they can expect to hear from you.

If all you can guarantee is an update, then you can give it to them as long as you say yes.

Also Read: Click here to know more online business!

#Conclusion

Starting a direct selling business is an exciting adventure, but you should also realize that it is not easy.

Like every business, it requires work, challenging relationships, and can only succeed if you can maintain high standards of service, which requires strong e-commerce direct shipping supplier relationships.

If you are ready to meet the challenge and prepare to work, then direct delivery may be a great opportunity to build a low-cost, large-scale online business.

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RITU RAJ

Hello, readers, this is RITU RAJ, Author, Editor, and full-time speaker. I am legally handling the official NEWSTOPTEN.COM channel. You guys are my responsibility to bind with us. Whenever you have any suggestions comment below. Thank you to give us your valuable time from your meaningful life.

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