How to get started with dropshipping
First off, this is a very complex topic, so this series of posts will be detailed and nerdy. And split across multiple posts. So buckle up, and let’s dive in!
Dropshipping is the business practice of having your product suppliers ship orders directly to your customers. They either manufacture or warehouse the products you want to sell and own the inventory until it’s sold. That way, you don’t have to shell out any money to buy inventory. This makes dropshipping a great way to start a new business.
I’ll discuss the benefits and drawbacks, how to choose a product, choosing a supplier, and determining pricing.
The benefits of dropshipping
Dropshipping is great because you don’t need to buy any products and either store it in your house or rent warehouse space. You also don’t need to package up every order and ship them out yourself. This reduces the amount of manual labor you need to do to run your store.
The drawbacks of dropshipping
While dropshipping is really convenient for many reasons, there is also some added complexity.
Longer shipping times
Depending on where your supplier is, it could take up to a month for your customers to get an order from China or two weeks to get an order from a US-based supplier. You have to factor in the fulfillment time as well as the shipping time. Fulfillment can take from 2 to 7 days, depending on the supplier and the product. Anything that’s made-to-order, like print-on-demand t-shirts will take longer to fulfill.
You still need to spend money
While you’re not paying for a lot of product up-front, you will have to purchase the customer’s order using your own money before you get the deposit from your customer making the purchase on your site. Make sure to plan for that.
Returns & refunds are more complicated
While you can accept returns or exchanges for anything you want, suppliers’ policies vary, and they will not accept returns for all situations. Some will accept returns directly to them; some will want your customer to ship the returned item to you. And in all cases, if the supplies accepts the return, they would reimburse you and then you’d reimburse your customer.
Here are some example policies:
Printful is more generous and will accept returns for up to 4 weeks after delivery. They’ll also only accept returns for product quality issues. They specifically call out that fit is not a valid reason for return.
Since Oberlo sources products from many different sellers and doesn’t own any themselves, the return policy depends on who is selling you each individual product. This can make it more challenging for you to handle returns.
Spoket is similar to Oberlo because they are sourcing products from many different vendors but their policies are better, because they make their suppliers choose from a limited list of return policies. They are: no returns, 15 days, and 30 days.
Amazon has conditioned shoppers to expect free and easy returns for up to 30 days. As a new brand, you have to overcome more skepticism from people before they’re willing to buy from you. A strict your return policy can really hurt you in the long-run.
How to get started dropshipping
So with that out of the way, let’s break down how to get started with dropshipping.
1. Choosing a product
When first starting out, it’s best to choose one or only a few products. This lets you focus on setting things up with the best quality and learn how everything works. It’s easy to get overwhelmed with all of the things you have to do to start a store, and starting with a limited set of products helps reduce that.
Consider these factors:
It’s best to sell things that you’re familiar with so that you can create better product information and answer customer service questions.
If you have more than one product, they should be related. Like essential oil diffusers; you could offer several different sizes or styles. Creating a general store from the start is definitely possible, but a lot more difficult.
Do you want to create repeat customers, or do you have a “one and done” approach?
Try choosing products that aren’t totally overplayed, like watches or jewelry are. While it’s very difficult to find unique products, there are some things which are more rare than others.
Is the product seasonal, or something that people want to buy all year? Seasonal items might sell better in their season, but the low periods will be very tough to survive through when you’re starting out. If you choose seasonal products, consider several products that each peak at different times in the year.
Use Google Trends to see what people are searching for. You can compare up to 5 different search terms and customize your results by language, country, category, and more. You want to see what people are searching for the most and whether search behavior has been the same, decreasing, or increasing over time.
Use Google Keyword Planner to look at your top picks, showing you how often people are using specific words related to your products. Anything that has fewer than 500 searches isn’t worth paying attention to until you’re established. You’ll also see the price ranges for Google Ads against each keyword and a low / medium / high ranking of how competitive the ads are for each. You want to look for keywords that have medium or low competitiveness and the higher the search volume the better.
Now take your top keywords and do a Google search to see what comes up in the Google Shopping results. This will let you take a look at your potential competition.
If you’re considering products from a marketplace like Aliexpress, go there and search for the products on your shortlist. Each one reports how well they’re selling and the supplier price.
Then check eBay to see if the product is sold there and what the pricing is. This is important to know because your pricing should probably be around the same amount. Pricing is covered in more detail below.
2. Choosing a dropshipping supplier
There are many dropshipping suppliers, each with benefits and drawbacks.
AliExpress has a very wide selection of products, and very low prices, but the quality is variable and products are fulfilled by the individual suppliers. Shipping takes a long time because everything is coming from China. The fulfillment and shipping and returns policies will all differ depending on the product supplier. AliExpress is more like the Amazon Marketplace where 3rd parties can list their own products, than it is like the products that Amazon owns and sells.
Companies like MXED or Printful warehouse and / or manufacture the products themselves. Because of this, fulfillment and shipping is faster and the quality can be more uniform, but prices will be higher.
Evaluate dropshipping suppliers on these criteria:
Product ratings, paying attention to ones with customer-provided photos.
Supplier ratings, whether in the Shopify app store or for marketplaces like AliExpress, for each product you’re interested in.
Returns & refunds policies.
Fulfillment and shipping policies.
On AliExpress, look for suppliers with the “Top Brand” badge. These companies will have the best product quality, customer service, and policies and practices of those on AliExpress.
Once you choose a supplier, order samples of one or more products so that you experience what the order and fulfillment process is like and can evaluate the product quality for yourself.
This is a whole blog post by itself! Pricing is challenging to get right but luckily, you can keep adjusting it over time. Here are the psychology aspects of pricing.
The price needs to feel like a good value.
Prices can be too low and make people suspicious of the quality, reducing your orders.
Prices that are too high will suffer more returns because people will feel like the quality is not worth the price.
Unless your product is completely novel, your shoppers will have a general idea for how much it should cost.
There are 3 questions which can help you pick the right price for a product:
What price would be too cheap for this product?
What price would be a good value for this product?
What price would be too much for this product?
Now, this technique is best if you can survey hundreds of people, but that’s tough to do for free or cheap. However, asking your Facebook friends is a good way to get some data. Once you get some responses you’ll likely see some trends. If you don’t see any trends, then you either haven’t asked enough people or this isn’t a good product to sell.
You don’t want to price your product near or below the “too cheap” price, as people won’t buy at that price. The usual saying is, “if it’s that good, why is it so cheap?”.
The same goes for the “too much” price. People think, “it’s better be good for that price!”.
Pricing close to either of those will put your product at a disadvantage because people will be too suspicious about the quality for the price.
Ideally, you want to price your product near the “good value” price, as this is the one which “just feels right” to people. However, you can’t just choose that as your price.
Your income has to be greater than your expenses in order to make a profit. Well, what are your expenses?
Technology fees like for Shopify or another web host, any apps you’re using, and any other tool costs.
We haven’t covered advertising costs yet, but you need to account for them in your pricing. You may start off with a money losing strategy of spending big to generate initial buzz, but that doesn’t work over the long term if your prices aren’t right.
You need to account for any income taxes you’ll have to pay.
The cost of goods sold (GOGS) which is just the cost of the product you pay
Shipping costs if you’re offering free shipping; you don’t need to worry about the cost of shipping supplies since you’re dropshipping
Headroom to discount and still make a profit
Any fixed costs you have like office space
A good rule of thumb is to take your cost for the product and
Shopify has created, and I’ve improved, a spreadsheet to help you calculate a profitable price. Make a copy of the spreadsheet into your own drive and you can customize it to your liking. Depending on what you enter, the suggested price may be out of line with your prior competitive pricing research. In that case, either the product isn’t one that works for you, or you need to reduce your costs. You’ll also learn that for a given price and your expenses, how many products you’ll need to sell each month to break even. Every product you sell after that will be profitable.
I’ll be publishing more about the mechanics of setting up a store that looks reputable and how the ordering and fulfillment process work in my next post.
Drop me a line with any questions!
And be sure to check us out on the Shopify App Store. You’ll need a way to keep track of all your shipments, and ShopClerk is a great solution.