Starting a drop shipping business continues to be a hot topic in e-commerce circles. I’m sure you’ve already heard through the blogosphere the story of Justin Wong. He is the internet entrepreneur who made $12,000 within a month of launching his online store.
He started his online store with zero investment, and hit the proverbial jackpot in less than 30 days.
The remarkable thing is that Justin’s story is not unique. There are literally millions of other entrepreneurs who have started online stores without any upfront investment. In fact, at Modalyst, we see each month tens of thousands of new online stores come to market, each emboldened by the dream to build a legitimate and lucrative side hustle.
The question is how do you join this party? First, you need to understand what drop shipping is and how it works.
What is Drop shipping?
Dropshipping is a retail method for online stores to sell products and have the suppliers ship the items directly to their customers. This eliminates the challenges of holding inventory and allows you to focus on things like marketing and sales.
The key difference between drop shipping and the standard retail model is that the selling merchant doesn’t warehouse or own any inventory. Instead, the merchant purchases inventory as needed from a third-party — usually a brand, supplier, or wholesaler — to fulfill orders.
So, the online seller never actually sees, holds or ships the item, they are effectively advertising it for the supplier and marketing up the price of the product so they can make a profit.
How does Drop shipping Work?
In simpler terms, this is how drop shipping works:
- The retailer “stocks” products on their website or marketplace
- The retailer doesn’t actually hold these products, they are held by the supplier or wholesaler (who could be anywhere in the world). These products may cost $1 per unit from the supplier, while the drop shipper lists them at $3 each (making a profit of $2 from the sale).
- When a customer orders a product from the dropshipper’s website, the merchant receives a notification. The merchant then forwards that order to the supplier, either manually or automatically.
- The supplier fulfills the order and ships it directly to the customer under the drop shipper’s name.
- Understand the Pros and Cons of Drop shipping
- Find the Best Shopping Cart Technology for You
- Decide on your Intended Customers
- Find Drop shipping Suppliers
- Set up Social Media Accounts for Your Store
- Find Helpful Apps
- Create Marketing Strategy
- Deploy Marketing Strategy
- Make Your First Sale
- Retain Customers
- Analyze and Adjust
Understand the Pros and Cons of Drop shipping
Drop shipping offers the ability to start an e-commerce store without the inherent risks of owning inventory. This is incredibly appealing to entrepreneurs who want quickly launch a business without the hassle of overhead cost and shipping logistics. That being said, drop shipping comes with it’s own challenges that are often overlooked. Every business model has it’s challenges and drop shipping is no different. In order to be successful, you should prepare yourself for some of the challenges you will likely be facing.
You are the one dealing with the customers.That means any issues that your suppliers have with shipping on time or delivery in general will fall on you. Make sure you are prepared for many hours of customer service. This is not necessarily a bad thing as any time you have direct communication with a user is an opportunity to retain or upsell.
With shipping costs, you win some, you lose some. Deciding on your shipping policy can be daunting since your suppliers will all be charging you different rates based on their location. While your inclination may be to focus on covering your costs, instead focus on your customer’s experience. If they are about to check out and find the shipping cost overwhelming, they will more than likely abandon the purchase. Try offering flat rate shipping with a threshold for free (for example, after reaching $49, free shipping).
In general, approach shipping as “you win some, you lose some” mentality knowing that if you do your calculations properly, you are likely to even out at the end of the day
Suppliers may be a pain. Remember you are relinquishing your control over inventory so you can only hope the suppliers have the same standard of customer service and professionalism that your store promises its customers. This may not always be true so prepare your self for constantly updating your product selection until you find the most consistent and reliable suppliers. Modalyst however, has a implemented a vetting process for suppliers so the network is comprised of reliable, high quality brands.
Find the Best Shopping Cart Technology for You
Once you are committed to all the challenges (and excitements!) that come with drop shipping, it’s time to find a platform to start your e-commerce store. There are a lot of options out there, so find the one that best meets your needs. Do you have experience in designing and want something very customizable? Is this your first business and need something not too expensive? First, decide on your priorities and use a version of the checklist below to evaluate the different options.
- Website hosting
- Website design
- Customization options
- Payment gateways offered
- Marketing tools
- Access to additional integrations / apps
- Analytics and reporting
- Customer Service
There are also some great companies out there that will help you set up your store if you need assistance. Parkfield Commerce for example, is an ecommerce expert who will help you create a beautifully designed ecommerce store with full functionality to offer your customers a pixel perfect experience.
Decide on your Intended Customers
If you haven’t already, now is the time to decide on your audience. As much as you would like to target everybody on earth, the best place to start is with a niche group so you can focus your marketing efforts effectively. Once you know who you want to visit your store, you can apply better branding, messaging and find the best products for those particular customers.
Find Drop shipping Suppliers
Time to fill your store with products. The times of googling for cool new brands are over thanks to the many drop shipping marketplaces out there who will provide lists of suppliers for you to choose from. Depending on what you are looking to sell, there are platforms offering mass produced products at lower prices and some that are more curated with independents.
Modalyst, for example, offers fashion accessories, apparel and home goods from a selected group of suppliers interested in building relationships with e-boutiques all over the world. The Shopify app makes it easy for retailers to click to add products to their stores so where it used to take an average of 38 days to develop a drop shipping relationship, with new technology like this, it can literally take seconds.
Retailers can sign up for a 14 day free trial for full access to the marketplace and experience the app that automates not only sourcing, but ordering and inventory levels as well. As a new business owner with a million things to do, this means you can manage hundreds of suppliers in one central place.
Set up Social Media Accounts For Your Store
I should not need to convince you on the benefit of social media when building a brand. You’re store is indeed a brand. You want your customers to understand your personality and feel like you are a friend so they trust you and therefore purchase from you. Social media is crucial for this not only as a way of communicating your aesthetic but also as a channel for customer service.
Try not to be daunted by which channel to use. Find the one that you are most comfortable with and give it a try. You can expand to all channels later on but it is important to experiment to see which ones are going to be worth while spending time on (because it can be time consuming!). Instagram and Pinterest have worked well for our retailers so may want to start there.
Find Helpful Apps
In this day in age you don’t have to hire a team of people to customize your store. There are apps for that! Take advantage of all the apps out there that you can use to create things like better user flow, email capture, rewards programs etc. All these things can greatly increase your chances of sales and are typically relatively easy to set up. The Shopify App store is particularly amazing to explore.
The apps you want to focus on to start with are those that help you retain customers. This can include things like pop up boxes to learn more about the customer browsing your site so you can reach out with specific suggestions ; discount offers after certain user behavior like adding an item to the cart and then abandoning ; adding product reviews to encourage sales. There are over 500 apps in the Shopify marketplace so embrace plug ins as a way ton extend and improve your marketing.
One app we love is Kit which an automated marketing assistant that helps you post campaigns on Facebook. It will also suggest new products for you to add to your store so you can also offer fresh inventory.
Create Marketing Strategy
Every store must have a strategy. And it cannot be that you will offer better pricing. Almost everything can be found on Amazon or Ebay these days so that is a battle you will likely lose since they will always be able to offer lower prices.
Instead, try reaching your customers before the others do. If you can present a product to them through a marketing email or Instagram post and follow up with a seamless user experience, you will likely capture that sale. Focus on an audience that might not be looking for better pricing but more novelty, niche products and a personalized shopping experience. This is where you can win.
Lastly, be aware that retaining a customer is more cost effective than finding new users. Once you capture a sale, spend time on nurturing that relationship because in the end it is better for your bottom line.
Deploy Marketing Strategy (Learn and Adjust)
The best lessons can be learned from the mistakes you make so don’t be afraid to try different tactics. There are so many things to choose from like Pinterest boards, Facebook ads, SEO, Snapchat etc. Interestingly, studies show that email marketing is still the top way to drive traffic to your site. I would start there and slowly add on different channels. The most important thing is to study the results so you don’t keep wasting time on something that isn’t working. For example, if you post a product on Instagram, make sure you have a link to the product in your bio so that people can easily click through to your site. You can then look at Google Analytics to see how much traffic originated from Instagram. This is very valuable data. If there are a lot of clicks and no sales, maybe this product is not right for your audience.
Make your First Sale
Once you can get people to your site, it’s time to focus on how to encourage sales. This is when website design, particularly the check out experience, can greatly influence a purchase. Try studying other sites where you like to shop and take screen shots of each step in the check out process. The key is to eliminate friction points so one doesn’t feel distracted or worse, frustrated when trying to buy something.
For first time buyers this is an opportunity to capture their preferences. For example, if the customer is buying a swimsuit, you may want to offer a discount on a beach towel in a few days since you can assume they are in the market for summer gear. This doesn’t require anything high tech. Simply review your purchases every few weeks and look for ways to re-engage your customers in a personal way.
As long as you provide a favorable experience for a customer’s first purchase, spend more time on ways to get them to re-visit your site than finding new customers. The reality is that returning customers are likely to spend more money than a new user. If you can build up a loyal customer base you can use them to help gain new users. For example, provide discounts to your customers that invite their friends to shop. Think of your best customers as your sales force. This is an effective and efficient way to find new shoppers.
Analyze and Adjust
Running a business is an opportunity to learn. Consider the first few months a discovery phase when you are constantly trying new tactics, analyzing the results, and re-adjusting. While you might start with a specific vision for your store, always be prepared to pivot based on customer feedback. Early on illicit feedback from the users that successfully purchase but also those that abandon during checkout. Don’t be afraid to ask why they left the site, you may be surprised to hear their answer.
Most importantly, embrace that e-commerce is a tricky and competitive field. If you focus on measurable tactics, you will be able to hone in on what really works for your customer base and drive sales.