Dropshipping is prevalent that every stakeholder in the e-commerce industry is aware of. While it is not a new concept, it has quickly gained popularity in recent years. In fact, according to a study conducted by Market Data Research, the dropshipping market should record a compound annual growth rate of 32% in the coming three to four years. While this concept is widely practiced and well-known in the North American market, dropshipping is quickly taking over the e-commerce industry in the Asia-Pacific region as well. Looking at the current market trends and forecasts, this is the perfect time for businesses to join the dropshipping bandwagon and reap maximum benefits.
Understanding the Concept of Dropshipping
The idea of dropshipping is quite simple. Instead of building an inventory and managing the products, vendors purchase products from the respective third-party suppliers as they receive orders from the customers. Then, the goods are delivered to the consumer directly by the supplier. The seller of the product will not have to handle or manage any products.. As specified, dropshipping does not follow the monolithic model of maintaining an inventory and all the hassle that comes with it. This business model provides the business owner more freedom. Following diagram is a representation of how the dropshipping model works.
A basic model representing the dropshipping process.
With the launch of AliExpress by Alibaba in 2010, the dropshipping concept soared to new heights within a few months. All sorts of cultural and language barriers were removed through Aliexpress as customers around the world were able to purchase products from Chinese drop shippers and manufacturers in just a few clicks. According to the analysis of Wholesale Ted, by 2015 a market trend was set for those interested in the dropshipping business. This is because competitors such as Oberlo and Shopify joined the world of dropshipping and e-commerce. Some business entities are reluctant to join the dropshipping bandwagon in 2022, but per the Google trends studied by Cloudways, the search for the term dropshipping is nowhere near a decline. This is a healthy indicator that the e-commerce stakeholders are still looking into this concept and seeing its potential.
Top 3 Benefits of Dropshipping in 2022
There are numerous reasons why an e-commerce business should follow the dropshipping model. Here are the top three reasons that can convince anyone to start dropshipping immediately.
Lower Costs
As per an analysis performed by Statista, the average cost to run a warehouse based in the U.S. amounted to $7.90 per square foot in 2021. Similarly, Freightos Baltic Index reported that the ocean freight rates for transportation continue to touch new heights reaching $10,174/FEU, an increase of 466% on the previous year.
Every business owner in the world would want to reduce their costs and maximize their profits by eradicating shipping charges and warehouse costs. It may sound impossible, but with dropshipping, it is entirely possible to do so.
This is because the dropshippers do not handle the shipping services to the end-customer. Hence, they do not need to buy or rent a warehouse to keep the items in stock. All that is managed at the supplier’s end. Similarly, because the supplier does not send the products to the dropshipper, there are no shipping costs involved.
Dropshipping for Startups
Startups can gain the maximum advantage with dropshipping. Instead of investing large sums of money in buying a lot of material for the inventory, they can skip that part and focus their efforts and money on other aspects of the business.
Scalability and Flexibility
Every business owner starts their project with the mindset that the business will become successful in a certain amount of time and will expand accordingly. But when it comes to scalability, most businesses start to fail because of following poor strategies to expand the business. It is one of the major issues that arise because of the inability to manage the inventory expansion.
But organizations that follow the dropshipping model do not face this problem. This is because the order fulfillment depends not on where the warehouse is situated or whether there are enough people to pack and ship the order to the destination. Businesses that have varied traffic during different times of the year or seasons gain maximum benefits using the dropshipping model.
Lower Inventory Management Efforts
Since there is no inventory to maintain, businesses can save time, cost, and effort. The amount of time and manpower that is wasted on tracking and managing an inventory can increase costs and dependency on the business. The costs of shipping from a certain inventory are also taken out of the equation. This means that the drop shipper can eliminate all these efforts.
6 Steps to Start a Dropshipping Business
Dropshipping sounds like an easy venture, but that is hardly the case. Like any other business model, it is important to understand the concept and then implement it. Following are the six basic steps that every interested person must follow when starting a dropshipping business:
1. Choose the Right Business Idea
Picking and implementing the right idea is perhaps the most crucial part of a dropshipping business. Explore all available options as per the current trends and happenings of the market. If you do not have any idea about what you want to explore, study the trends on Google and various analytical tools to get a better view of the popular products.
2. Analyze Your Competitors
To gain a place in the market, analyze the trends that others are following. Perform market research for the business idea you want to execute. Gain maximum insight into relevant competitors and keep an eye on all the strategies that they follow. This helps with understanding their strengths and weaknesses allowing you to create strategies for dropshipping that do not have the same mistake patterns.
3. Find the Right Suppliers
A supplier is the most important aspect of dropshipping. The success of your business entirely depends on the relationship you have with the supplier. You are forming a long-term partnership and must follow a standard checklist to ensure that quality product is being delivered to the customers.
4. Build the Right Dropshipping Store
When creating your dropshipping store, it is important to showcase your products. Remember that the online platform should be accessible, user-friendly, and handle your performance needs. Focus on the design and feel of the store that will ensure the attraction of people that visit it. Keep the content precise and clear and avoid regular pitfalls such as pop-ups and reminders that create confusion.
5. Market Your Store
Like any other business, you have to market your dropshipping store. Social media is one of the best ways to market your shop. Google Ads, Facebook, Instagram, LinkedIn, and Twitter are some of the best places that can quickly get the word about your business around. But apart from that, you can always post reviews from genuine vendors and users of your store and services on review platforms. Content and email marketing are additional tools that can also make an impact.
6. Optimize Continuously
Once you complete the first five steps, never for a minute assume that you are done and dusted with your part. Optimization is a continuous process, and business models like dropshipping should be considered iterative. This means that the business owners must constantly look at statistics and market trends followed by competitors and improve their existing strategies continuously. Keeping an eye on customer reviews and the traffic coming to your store can be the perfect indicator of your business’s health.
Bottom Line
Dropshipping is a vast but exciting ecommerce trend. The form of dropshipping may change with time, but the basics are here to stay long term. One of the biggest reasons why many organizations follow the concept is because it is simple to understand and easy to implement. Learn more about other ecommerce trends in 2022 to see what other adaptations can benefit your retail business.
At UpStart Commerce, we understand the importance of dropshipping. We love to build online stores that cater to the dropshipping model specifically. Learn more about how we can help you get started in the world of ecommerce via dropshipping here.
