This post is all about a way to make money online that you might not have heard of before. It involves selling physical products online, but without dealing with the inventory yourself. I am talking about dropshipping.
What is dropshipping?
Dropshipping is the practice of selling an item to a customer without actually owning it yourself. Once you get an order from a customer, you go to your supplier and buy the item for less than they have sold it and ask your supplier to send it straight to your customer.
Confused? Sounds a bit weird?
Well if you haven’t heard of dropshipping before it can sound a bit strange and it did to me. However, dropshipping is carried out by loads of different companies and I’m sure you’ve probably bought something that was dropshipped to you and you’d struggle to notice.
Why would the supplier sell to you, the dropshipper, instead of straight to the customer?
There are a few reasons for this and they will depend on the supplier. Suppliers might be more geared up as wholesalers, wanting to deal with other businesses as opposed to customers.
Also they would be really happy for you to drum up a load of business for them. Running a business can require different skills. Some wholesalers are not set up to market to and deal with lots of online customers.
Why should I start a dropshipping business?
There are loads of great advantages to dropshipping over buying and selling products in a more traditional way.
You don’t have to invest in a load of inventory you might not be able to shift or even have anywhere to store. The great thing about this is you can start selling and making money without much start up capital.
It also means you can be based anywhere and you can scale up easily. You don’t have to do any of the postage and packaging either.
No need for you to do any of this with dropshipping!
Dropshipping allows you to be more flexible. If you try to sell some iPhone cases and you can’t sell them for the price you want, you can just move on and try to sell something else.
OK, what’s the catch with dropshipping, it can’t be that easy?
One of the big problems with dropshipping is that it is so easy to get started. The low barrier of entry means there can be a lot of competition.
That also means there are profit margins are low. You want to avoid a ‘race to the bottom’ in terms of prices, but I will get on to strategies on how to overcome this.
There is a lack of control, especially with your suppliers. You are at their mercy that they will send on your products correctly and in a timely manner. And the kicker is, if something goes wrong – you take the blame for it!
What do I actually need to do as a dropshipper?
On the face of it, not too much.
However, you have to handle the interfaces between you and the supplier and customer and, most importantly, the customer service with your customer.
You need to keep in mind that the stock of your supplier will fluctuate. You could check they have a product in stock, start selling it, then a week or two later make a sale and find out that your product is now out of stock.
I would ask for an up to date stock list to be emailed to you, daily, if possible.
How do I become a great dropshipper?
You have to find a way to differentiate yourself from the competition and really own the aspects you have control of. This means;
- Excellent customer service
- Marketing skills
- Great relationship with your suppliers
How to find great dropshipping suppliers
Obviously, the way you make money from this, like anything else, is to sell for more than you buy. Whilst you might be keen to have your sales price quite high, it’s just as important to get the best wholesale price you can.
One thing to beware of is there are plenty of companies who offer to help provide you products for dropshipping. However, they may charge fees for the benefit of dropshipping with them and may offer you prices comfortably above wholesale.
These companies and services are to be avoided.
To find a great supplier, you’re going to have to dig a little deeper. Let’s say you want to dropship backpacks, then search in Google for something along the lines of, ‘backpack wholesale’.
Don’t just stop at this use all sorts of similar phrases and search extensively. It might sound like a bit of work but it will pay off in the long run.
You can also contact the manufacturer of the product and ask them for a list of suppliers to contact.
You could also try the following;
- Buy from the competition and check out the return address for the contact details of the supplier.
- Attend trade shows and go and meet these suppliers in person. A lot of people prefer to deal face to face, if given the opportunity, and you will get a lot of credit for taking the effort to meet them.
- Wholesalers directories that are lists of wholesalers, which can be very useful. However, you have to pay for them, so make sure you choose a good one!
Some of these wholesaler and suppliers are not likely to want to dropship for you, but some of them are and they are gold dust. I know this because I have found some myself.
What do I need to ask a wholesaler?
You should have at the forefront of your mind that you want to form a good, honest business relationship with the suppliers and wholesalers you want to work with when dropshipping.
Do not think of dropshipping as you ripping off your wholesaler and customer by acting as a middle man in all of this.
You are providing a legitimate service to your customer by sourcing a product they are interested in buying. You are also providing business for your dropshipping supplier.
With all this in mind, be up front with the wholesaler and ask them if they are willing to send a product you buy from them directly to your customer’s address.
You will also want to clarify that;
- There is no minimum order that will mean you have to order any additional items to reach this threshold.
- There is no large postage and packaging charge for smaller items i.e. paying £8 for postage and packaging for a USB cable you’re making a £2 profit on.
If you really want to use a supplier for your dropshipping and they won’t budge on a minimum order, you can offer to pay, say, £250 up front to build up some credit. This will be a show of faith that you are going to do some decent volume of business with them.
You’ll also want to make sure that the supplier doesn’t leave anything on the package or inside that would lead your customer to think someone else has sold them the item. For example, you don’t want an invoice with the supplier’s logo on it to be sent to your customer. Speak to your supplier about that.
What do I need to do before contacting potential suppliers?
Remember for your part, you should appear and, of course, be legitimate and professional. To buy from suppliers, they often ask you to open an account with them. They may also require information of your legally incorporated company.
Register with Companies House.
I’m not saying this is necessary to do right away, but you should do at some point. Not all suppliers will ask for this information anyway.
Another thing to consider is that suppliers are used to (read: sick and tired) of people with business plans that promise the world and then don’t set up any business for the suppliers. Don’t make too many special requests straight away, like asking for special discounts.
Don’t be too woolly and vague with what you are offering. Tell them you have launched or are going to launch and give a specific date. If you have any relevant experience, then let them know that as well.
The main point here is to build trust and credibility with the supplier and really get them on your side.
Just like I suggested, go to a trade fair and having face to face meetings is a good way to deal with suppliers, getting up from behind your keyboard and talking on the phone with suppliers is a good idea as well. This will certainly enhance your credibility.
How to find a product
First of all, product niches are important because they allow you to focus your energy on one type of product and more importantly, they enable you to be specific. You want to have in mind something specific that you are offering.
Prospective customers will see you as the ‘vintage bike part seller’ or the ‘leather iPhone case shop’. This will help you be an authority in your product range.
To pick a niche, you should look at the following;
- Who are your customers going to be?
Ideally you want to be targeting people’s hobbies not another area people are willing to spend a lot of money.
Just think about how much you spend on your favourite hobby compared to other things and it will probably be quite a lot. Think about how much money you spent on your last pair of football boots, dinner at your favourite restaurants or your beloved pet!
- How can you add value?
As competition can be really stiff with dropshipping, you want to be able to stand out. One way to achieve this is to provide some expertise alongside the product. Maybe you are selling magic trick kits and you know how to do a few yourself. You could put together a guide on how to do them. For someone wanting to learn magic tricks, this would be great.
- Are there additional components that are also needed?
Another example would be if you were selling cameras and accessories, you could provide some tips on how to take better photos if you’re great at photography.
- What sort of price range to sell your product for?
Cameras and their accessories could be good to sell, as someone who would by a camera, might also want to buy a tripod, a camera bag and a set of lenses. This gives you the chance to sell more than one product to the same customer.
As a rule of thumb, it is probably best to sell products that are between £20 and £150. These are only rough figures, but if you sell cheaper items, your profit margin isn’t going to be much for the same amount of work. Too high, and you might have issues convincing someone to trust to pay that much money to you online.
- How long will the product be relevant for?
It would be a nightmare to set up your dropshipping business around a product that will change every year. You want to stick to something that will be around for a few years. For example, if you sell phone cases for the latest phone models, then next year that phone model could be replaced for those phone cases aren’t going to sell as well.
- What sort of size is the packaging?
The bigger the product you are selling, the more it will cost to send. This cost will be passed on to your customer and add to how much they have to spend. If this gets too high, they may choose to buy it locally.
Measuring Demand and Competition
You want to work out if the product you want to sell actually has a high demand. One of the ways to do this is to check Google Trends. Google Trends will show you the interest for your product over time and is really great for showing seasonal trends.
You can see there appears to be a spike every August for the search term ‘laptop backpack’. Any ideas why…? 🙂
You can also see if products are trending upwards or not and where searches are concentrated geographically.
This website Trend Hunter is really good for thinking up loads of interesting ideas.
Here is a list of trends for smartphones, loads of great ideas for accessories and thoughts on how people use smartphones.
I would say measuring competition depends on where you are going to dropship your products. The easiest way would be to check would be eBay.
You want to see how many products similar to yours are being listed and also how many of them are being sold. eBay has a feature where you can see completed and sold listings. By comparing the sold listings to the total listings you can check out the strength of the competition.
Here are screenshots of listings on eBay for ‘spiderman backpack’ and then sold listings for the same search term.
If you’re selling on Amazon, you can see the selling rank of a product to have an idea of how well it sells and check out the prices other people are selling the same product for.
A quick look at the competition for this backpack on Amazon.
Amazon has a best sellers list for all its different departments, another way to see what sells well.
Amazon best sellers for Home and Kitchen – great way to see what sells.
If you’re going to sell on your own website, then you will need to go into a bit more depth for sure. One of the benefits of selling on eBay and Amazon is they are very well trusted and lots of people shop there anyway.
With your own website you need to find a way to get people to visit your online store. We will be looking at how to do this in coming posts.
It would be a really good idea to record all of this information, so you don’t have to try to remember all of this and you can compare what you find on different products.
Where to sell your items?
I have tried dropshipping a number of products on eBay, Amazon and my own website with differing levels of success.
There are different reasons why you might choose any of these three channels to sell your items.
I would say eBay is the easiest and is a great place to start. It is very easy to open an account and create a listing for your product.
If you haven’t sold anything on eBay before check out my beginner’s guide for eBay.
One of the problems with eBay is that the competition can be pretty fierce. It is worth being a bit creative with the products you want to sell and finding a way to stand out or choose something with less competition.
I have sold bike seats on there and found the ones that were vintage and a different style to the other ones on offer did the best. If you offer the same as everyone else you’re going to lose on price. Or because the other sellers are more established and have built up better trust.
Amazon is a great place to sell your products and I have found you can get a better price for the products I used to sell on there. I made a tidy profit a couple of Christmases ago selling preowned tablets on Amazon that I dropshipped.
One thing I found was that you get paid instantly with eBay, straight into your Paypal account, whereas you had to wait a couple of weeks. This can really hurt you cash flow wise once you start selling quite a bit.
On the whole, eBay and Amazon are great because so much of the transaction between buyer and seller is handled by them. You can just take the shipping address of your buyer, copy and paste it and then contact your supplier with the order.
They also attract so many buyers to your product listings. Just think of how often you go straight to one of their sites to buy something!
eBay, Amazon and other online marketplaces can be quite restrictive in the format you present your products and also their seller fees can cut into your profit margins. If you are not keen on online marketplaces because of this, you can set up your own online store.
The best place to do this is Shopify you can get a 14 day trial. Shopify is used by hundreds of thousands of online stores all over the world. I’m sure you’ve probably actually shopped at a few yourself.
I hope this guide has shown you that dropshipping can be a great side hustle or even full time job. Dropshipping is an excellent first business to start as it teaches you so much.
Dropshipping allows you to sell anything, without any inventory, any real start up money needed and you can do it anywhere.
What is does require is some work to find profitable products, build relationships with suppliers and customers.
There are different places to sell your products, eBay, Amazon or your own online store that you can set up with Shopify.
Having your own store is more involved, but offers more control over how you sell your products and build your brand.
eBay and Amazon are great for starting out, at the very least. They have loads of customers on their sites, but also lot of competition.
This guide shows you how to make money dropshipping, but there’s plenty more to discuss on different aspects of dropshipping. I’ll be talking about this soon, so watch this space!
Let me know what you think, if you have any questions and I would love to know how you get on if you try this!