What Is Dropshipping? The Complete Guide

The defining feature of dropshipping is that the website owner doesn’t need to invest in inventory or spend time on managing the shipping process.

“When a customer places an order on the e-commerce site, the site owner places the order with the drop shipping supplier who picks, packs and ships the order to the customer. It’s a relatively low-cost business to set up,” says SEO expert, Sam Ficek.

There are two common approaches to adopting a dropshipping business model.

One way of getting started is to search a supplier database and then choose a wholesale supplier. In Australia the main supplier currently operating is DropShipZone.

Alternatively, you can use an app that connects you to a vast number of suppliers. One is a Shopify app called Dsers. You can browse the products and order it directly from Dsers, which is connected to Shopify platform stores.

The dropshipping fulfilment model appeals to entrepreneurs who prioritise efficiency and low overheads.

“The main benefit of dropshipping is the speed with which you can get a website up and running,” says Ficek. “It’s also a very low-risk business because you don’t need to invest in any stock.”

Dropshipping has advantages from a costs point of view—but it is important to consider the trade-offs.

The biggest is arguably low margins.

“If you rely on paid advertising channels to drive traffic to your website, you’ll be lucky to make a 10% net profit margin—in fact, it’ll probably be lower,” says Ficek.

There is no control over the quality of products sold by your website. If the products disappoint, there will be no repeat sales and time will be spent fielding complaints. If the products fall below quality standards set by the Australian Competition and Consumer Commission (ACCC), the repercussions could be serious.

Another downside is that it can be difficult to differentiate your products from those being sold in other stores that are also sourcing from third parties. Price is one way to differentiate yourself—although it can quickly become a race to the bottom with negligible margins.

“You will still need to deal with customer enquiries when products aren’t delivered as expected, or couriers don’t leave delivery cards and so forth. This can be more time-consuming than if you had fulfilled the order yourself, as you essentially have to go through another intermediary to resolve the issue,” cautions Ficek.

Dropshipping comes with low margins, so the best kinds of products are those that are unlikely to be returned—either because they are very low in price or simple and unlikely to break. This will save time dealing with customers. Examples include clothes pegs or containers.

Dropshipping is a cost-effective way of testing the popularity of different products and niches because it does not involve needing to buy stock up front. If a product proves unpopular, nothing is lost.

And if it goes well, the website owner can choose to start stocking it themselves.

“Very often, if something proves successful, the business owner will purchase their own stock and fulfil orders themselves, in order to increase their profit margins,” says Ficek.

Dropshipping also enables the seller to tap into sales trends and abandon an inventory item that is not performing.

There is a range of website builders that can build your dropshipping ecommerce website. Monthly costs vary from as little as $5 (or even come free, minus plugins) to hundreds of dollars for sophisticated functionality.

Shopify is the largest dropshipping website builder. Other popular choices players include Wix, AutoDS, Weebly, Zyra, Fiverr, Squarespace, Spocket and SaleHoo.

Follow these steps to get your dropshipping business started:

• Research the market to choose the products you will sell–consider the demand and availability of certain products, too.
• Choose a dropshipping supplier.
• Build your ecommerce store–Shopify is the most popular.
• Comply with all tax requirements, such as getting an ABN.
• Start marketing and advertising your dropshipping store.
• Review sales data to identify the most popular products.
• Refine your offering.