What is Drop Shipping?

Thinking of starting an online drop shipping business? Read our guide to find out everything you need to know…

What is Drop Shipping? ​

Drop shipping is a supply chain management method in which a retailer does not keep inventory but instead assigns the fulfilment of customer orders to a third party wholesaler or manufacturer. When a customer makes a purchase, the dropship supplier will ship the order directly to the customer in the retailer’s name.

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What Are the Steps of Drop Shipping

1. A retailer advertises a supplier’s products on their e-commerce store at a mark-up.
2. A customer orders a product from the retailer’s website.
3. The retailer sends the order details to their dropship supplier.
4. The dropship supplier takes responsibility for packaging and shipping the order. 

The Drop Shipping Opportunity ​

According to data from Smart Insights, it is projected that the number of digital buyers will increase from 1.52 billion in 2016 to 2.41 billion in 2021. Furthermore, retail e-commerce sales are expected to grow to $4.08 trillion by 2020. Many savvy business-owners are responding to this phenomenal growth by opening up their own online stores, and around 27% of these have adopted drop shipping as their fulfilment method of choice. 

Who is Drop Shipping For? ​

With its low set-up costs and minimal risk, drop shipping is ideal for aspiring entrepreneurs who are just looking to dip their toes into the world of online retail. It is better if you have some knowledge of web development and marketing so that you can set up your website yourself. However, many small-scale drop shippers also sell through e-commerce marketplaces such as eBay and Amazon. 

What Are the Pros of Drop Shipping? ​

• Less capital is required to set up your store as you will not have to purchase stock.

 

• It eliminates many laborious and time-consuming tasks. By allowing your supplier to take care of warehousing products and fulfilling orders, you don’t have to worry about:
  • Packing, kitting and shipping orders
  • Tracking inventory
  • Handling returns
  • Continually ordering products and managing stock levels

 

• There is little to no pressure about having to sell your inventory as you won’t lose anything if you don’t manage to sell any products.

 

• You enjoy lower overheads as you don’t have to rent or buy warehouse space to store and manage your inventory. It also rules out the need for a physical business location as all you need is a laptop and an internet connection.

 

• You are protected against overselling, as Big Commerce explains: “Rather than raising inventory costs by overstocking to meet unlikely maximums, having a drop shipping supplier as a backup saves you money without losing those sales.”

The Challenges of Drop Shipping ​

• Low barriers to entry have led to oversaturation within the e-commerce sector as such the world of online retail can be intensely competitive. You may have to set low margins in order to compete with businesses who offer low prices.

 

• Entrusting your supplier with the tasks of warehousing, fulfilling and shipping products means that you have little to no control over how your orders are fulfilled. Unless you are willing to pay extra, you will not be able to control how your brand is presented during the delivery.

 

• If your supplier makes a mistake in how an order is fulfilled, you will have to take responsibility and apologise. Partnering with a low-quality supplier can lead to endless frustration, poor customer experience, lost customers, and reputational damage. 

What is a Drop Shipping Niche? ​

Before selecting your products, you will need to settle on a profitable niche to target. Niche products refer to items that are popular among a well-defined segment of customers within a larger audience. Setting up a store that specialises in niche products means that you will face less competition. You will also be able to run hyper-targeted marketing campaigns that are far more likely to convert customers. Furthermore, lower levels of competition mean that it will be much easier to stand out on search engines and drive lots of organic traffic to your site. 

10 Factors to Consider When Selecting Products to Drop Ship ​

So how can you be sure that you are investing in a profitable niche? As part of your product research, be sure to ask yourself the following ten questions: 

1. Identify the wholesale price of the item, and then calculate what kind of profit margin is available to you.
   
2. Do some research on the size of the market. 
3. Draw up some audience personas to help you get a better idea of your target market.
   
4. Conduct comprehensive research on your competitors.   
5. Determine whether your chosen niche is steady or just a fad.
   
6. Find out if the product is perishable, disposable, renewable or seasonal? 
7. Try to find out if the product is available locally.
   
8. Research if there are reliable suppliers for the product. 
9. Ask suppliers to send estimates for what the expected shipping time would be for the product.
   
10. Find out if the size and weight of the product will affect packaging and shipping costs.  

What Kinds of Products Are Best Suited to Drop Shipping? ​

Due to the reduced amount of transportation involved, drop shipping is particularly suitable for products that are fragile, large, valuable, or that require special shipping conditions. Also, the low risk nature of drop shipping means that it is a great way to test new products. 

Where to Find Suppliers? ​

As a drop shipper, the suppliers you choose to partner with can have a major impact on your business’s reputation and customer satisfaction. When looking for suppliers, one thing to ask yourself is whether you would prefer to partner with an Irish supplier or one that’s located further a field. 

Why Partner with A Domestic Supplier? 

• The shorter supply chain simplifies and accelerates order fulfilment
• It will be much easier to conduct product quality checks
• They are more likely to respond faster to your requests and queries
• Partnering with a domestic partner will enhance your brand image
• It may be cheaper as you do not have to contend with customs or tariffs 

Why Partner with An Overseas Supplier? 

• You will be able to access products that are not available in your country
• There is more of a variety of products to choose from
• Manufacturing costs may be lower

Sourcing Suppliers

There are a number of different methods of finding drop shipping suppliers in 2019. You can start your research by using search engines such as Google or Bing. You can also leverage your network by asking for referrals and recommendations from other drop shippers. You can make useful connections by joining an industry network or group. Another good idea is to attend national and international trade shows. Alternatively, many people find that browsing a drop shipping directory is a great place to start. These contain comprehensive lists of different wholesalers, suppliers, other drop shippers, auctioneers, and much more. There are numerous free and paid directories available online. 

What to Do Before Partnering with a Supplier ​

1. Get in touch and enquire about their services. For example, you could ask about minimum order quantities, customer support, or whether they offer a free trial.
2. See if you can contact their other clients for references.
3. Do a small test order. This will allow you to check the quality of goods, delivery times, packaging and more.
4. If you want to, you could also order from the competition for comparison.  
5. Be sure to get as much information as possible about their charges and fees.
6. Before proceeding, read the contract carefully.

 

Our video on importing from China offers some handy advice on how to find suitable suppliers.