Are you keen on kicking off your business with a practical, rewarding dropshipping business model? Find all the info you need in this post to succeed as a breakout entrepreneur. Entrepreneurial skills can lead to a pool of wealth in due course. Right now, dropshipping is one of the most lucrative entrepreneurial endeavors with a massive market appeal. Random people can sell products, set prices, market your brand, and do much more.
And here’s the catch – you don’t have to invest much to start earning money through dropshipping. But several prospective entrepreneurs find it challenging to apply a workable dropshipping business model across niches. If you’re at odds as to what works in this multi-trillion-dollar industry, don’t despair.
Through this article, you’ll get essential info to help you start a lucrative eCommerce campaign. Locating the right ideas and maxing out your business effort becomes a walkover after reading this post.
Table of Contents
What is Dropshipping?
Dropshipping is an eCommerce model that allows individuals or groups run an online store without an inventory. Through dropshipping, a marketer can sell on behalf of a company and have products shipped directly to customers. Dropshipping does not need marketers to store, package, or ship products at any time.
What is a Dropshipping Business Model?
A dropshipping business model is a flow of commerce from a source (manufacturer/producer) through an intermediary (retailer) to the end-user (customer). The social exchange involved in a dropshipping business model is shown below:
Why Should You Start Dropshipping?
Money-making potential
Dropshipping could be a money spinner under perfect circumstances. If you’re looking for a side job or want to become your own boss, dropshipping is a job to consider.
No inventory management required
You don’t need to have a warehouse or logistics staff to run a dropshipping business. All you need to do is connect buyers to suppliers and manufacturers, set prices, and make a profit. You’ll also have to respond to customer complaints if a product is defective or for general service responses.
Flexible work schedule
If you’ve had it as a 9 – 5er, dropshipping is one of the best jobs you can switch. With dropshipping, you can take full control of your career. Everything from work hours per day, how many customers to respond to, etc. are in your hands. And with automated software, you can engage dropshipping and make money even when you’re asleep.
Main Stakeholders of a Working Dropshipping Business Model
Three stakeholders need to be part of a functional dropshipping business model – the producer, retailer, and customer(s).
Producer/Manufacturer
The producer originates a dropshipping model through:
- Manufacturing products that can be sold on retail,
- Carrying an inventory for several marketable products,
- Shipping products to consumers directly after a retailer places orders,
- Selling products to retailers at wholesale prices
- Providing replacements to defective products, and
- Restocking products with high market demand
Producers are responsible for the sustenance of a dropshipping business. If supplies from manufacturers are inadequate or fail for whatever reason, the model collapses eventually.
Retailer
In a successful dropshipping business, you are in charge of the retail element. A retailer sells the producer’s goods through your website. Your part in the model is to choose and market products that can earn you a profit. Retailers are also responsible for setting shipping costs and prices on marketed products.
Customer
The customer buys products from a retailer and receives orders directly from manufacturers. Customers do not lay complaints about defective products to manufacturers, but retailers. The retailer presents complaints from customers to manufacturers. If the product makers support replacement of defective goods, they will initiate a swap process common to regular trades.
What Determines the Profit Margin of a Dropshipping Business?
Niche
A profitable niche tends to attract more consumers than niches with little to no demand. If many customers need your products, it’s only natural for consumers to fancy paying more for it.
However, selling products that may not command massive demand may lead to a shortage in orders. In such markets, commanding a huge profit from dropshipping may not happen.
Consumer base
The consumer base is an integral factor that determines how much profits come from dropshipping. If your chosen market doesn’t support a constant influx of new customers, it may be difficult to get good profit.
Product
Some products may be expensive and attract very few sales. Dropshipping in such markets may not command much profit, unless the niche experiences an uptick in demand. However, markets with in-demand, affordable products tend to support profits on larger scales than other niches.
Your reputation
If you’ve been in the dropshipping business for some time, you’ll know it’s a low-risk, high-reward venture. But if you don’t have a stellar reputation online, rewards from dropshipping could be underwhelming. Witty customers tend to rely on customer reviews before they purchase products from a retailer. In most cases, potential customers tend to avoid retailers penalized by Google for whatever reason.
Maintaining a pristine reputation is an important ingredient for success in the dropshipping sector. Adhere to laid-down standards in a competitive, lucrative market, and your profit margin will look good every time.
How to Start a Dropshipping Business
With the simple steps below, you can start a dropshipping business and make money easily:
- Choose a niche you have knowledge on and that has potential for consistent profit
- Research competitors and trending products to include in your dropshipping portfolio
- Contact suppliers/manufacturers to confirm minimum order quantities, shipping times, etc.
- Compare product quality among suppliers and choose top products in your niche(s)
- Build your store or overhaul an existing store with a huge customer base
- Market products available in your store
- Spread your marketing efforts with advanced digital campaigns to bring in more potential customers
Final Thoughts
A functional dropshipping business model in a thriving market is sure to bring in much profit. It is important for entrepreneurs to effect best practices when initiating and running a dropshipping business.
Engaging in this low-risk, high-profit market has helped many become financially stable and in some cases, employers of labor. Since there’s little to no setup cost needed in becoming a stakeholder in dropshipping, you stand to gain much as a middleman.
