The times in which almost every founder or entrepreneur in the e-commerce sector had to explain what DropShipping actually is are now over. However, despite the fact that the industry has now reached a level of expertise, the proportion of drop shipping companies is still low. This interesting approach is much more than just an alternative to trade settlement. We will tell you why DropShipping is associated with far-reaching advantages and give you tips on how to optimize your business model.
DropShipping: An often underestimated option for online merchants
In short, DropShipping means to operate an online trade without a warehouse. Many people are now familiar with the basic principle of this business model. Nevertheless, we would like to briefly summarize the central function and the associated advantages.
If it is said that DropShipping E-Commerce is without stock, then one can in principle already derive all characteristics and possibilities of the alternative trading model from this. No stock means that no products are purchased from stock. The omission of this form of procurement again leads to the fact that no capital must be used for the product purchase. At the same time, the dreaded commodity risk is eliminated.
This is always referred to when it turns out after the purchase that certain products arrive at the market much worse than originally thought. These develop from the classic online retailer to a shopkeeper or warehouse keeper, swallow up considerable space costs there and in the end either have to be sold off for small money or even disposed of.
Why doesn’t the DropShipping retailer purchase goods in advance? Quite simply: Because his suppliers, usually wholesalers or manufacturers, take over the task of keeping the products in stock and, if necessary, shipping them directly to the end customer. On the one hand, this leads to the advantages mentioned above. You don’t need capital for the purchase of goods, you don’t have to pay for a warehouse or its management and you don’t have to worry about logistical processes.
Not even packaging material or a contract with a parcel service is required. On the other hand, however, DropShipping is based on the retailer’s clear dependence on the performance and reliability of its suppliers. Every DropShipper must be aware of this, since such a construction inevitably leads to the business model not functioning without consistent control of the affiliated partners.
Certain products maximize the benefits of DropShipping
Once you have understood the DropShipping system, you can start to look at the existing advantages in a more differentiated way. In this way, one gets an idea of which products are particularly suitable for this trading model and which articles are of great benefit to the retailer.
We have established that the shipment of ordered goods takes place directly between the manufacturer or wholesaler and the respective end customer. This also means that we limit the entire shipping process of a product to a single station. We therefore reduce the number of logistics transactions per product. In the case of classic online trading, each item must be moved at least twice.
Once from the supplier to the online retailer and once from the online retailer to the end customer. With DropShipping, we make a direct contribution to reducing delivery traffic. Among other things, this is good for the environment. Of course, this move also has an effect on costs. If each item has to be transported twice, then the fees for this have to be paid by someone. And this is usually the dealer today.
DropShipping also offers advantages that are not visible at first glance
If we imagine a very small product, many of which are shipped in a single package, then these additional costs of the classic trade may not be particularly significant. But what about large and bulky products? These must be individually packaged and shipped individually. If, for example, it is a whirlpool, a garden house or a carport, it cannot even be shipped with a cheap parcel service. Instead, this can result in considerable shipping costs in some cases. The DropShipper bears these costs only once, while the classic online merchant is asked to pay twice.
You can quickly calculate how drastic these additional costs will be. Let’s start with a product that the retailer buys from his supplier for 300 euros. The shipping costs per route by forwarding 75 euros. So our dealer has to pay a total cost of 450 Euro. The DropShipper, on the other hand, only pays for one shipment and costs only 375 Euros.
The resulting difference to the selling price can now either be generated as additional profit, invested in the company or partially passed on to the customer. The possibilities here are considerable. As a DropShipping retailer, you should always think carefully about what kind of products have the most distinct benefits.
Much depends on the quality of the processing
If you gradually deal with the question of which factors actually decide whether your DropShipping company is successful or not, you will first come across topics such as product selection and assortment maintenance or checkout and user friendliness in the shop itself. These areas are of course very important and must be taken seriously and presented optimally.
In addition, in the DropShipping segment you also have to offer your customers an all-round high-quality service. Unfortunately, this includes some things that you as a DropShipping dealer can only partially control yourself. This applies above all to the quality of the products, the quality of the packaging and the punctuality of the shipment. You rely on your suppliers to believe you if they assure you that they will do the things listed optimally. After all, you cannot control the companies directly and locally.
However, you should select your manufacturers and wholesalers very carefully and critically on the one hand, and react immediately when complaints and criticism from your customers accumulate on the other. Investigate any criticisms immediately and confront your suppliers with the accusations immediately. Test order under a foreign name to test reliability and performance. And if in doubt, part with a supplier if the impression is confirmed that he lacks professionalism and reliability.
Our tips for ambitious founders and online traders
Even in its basic form, DropShipping is an advantageous system that can be used in a variety of ways by retailers. However, the business model only becomes really interesting when you optimally use various potentials to emphasize and increase existing advantages. We have developed a total of five practical tips for you, with which you can immediately improve the already very good possibilities of DropShipping. Work through our tips one by one and try to consider all recommendations equally. You will immediately see the results of this form of optimization.
Test DropShipping at least once in partial areas
If you already run a classic web shop or are about to start one, then nothing is lost with regard to DropShipping. Nobody will force you to align all your products with DropShipping or to change them over to DropShipping. If you simply want to test the trading model without obligation, you can offer individual articles on the basis of DropShipping at any time and concentrate, for example, on products that are associated with particularly pronounced advantages.
We have already shown you how advantageous large and bulky products can be in the DropShipping trade. Simply take the plunge into the cold water and unwind at least one of your items using DropShipping. The administrative effort is manageable and you do not need any special DropShipping software for this test. In this way, you can experience first-hand how DropShipping presents itself within your business model and thus find personal access to a very interesting trading model.
Use professional databases to find suppliers
For every DropShipping retailer, the question arises again and again how to succeed in reaching suppliers who are willing to adopt DropShipping structures. This means for the individual manufacturer or wholesaler on the one hand that he sends individual articles directly to end customers instead of selling his goods on pallets. He must pack products individually and hand them over individually to a transport company. In addition, he must be willing and able to accept and process returns.
And last but not least, the technical prerequisites must be in place to accept orders as automatically as possible and, in return, to transfer inventories independently into the system of the DropShipper. In order to find suppliers who are also professional and reliable and offer you access to many different products, we advise you to use special databases to search for suppliers. The search function on www.dropshipping.de is a successful example of this, with which a lot of time and effort can be saved.
Successively optimize assortments for DropShipping
DropShipping offers fantastic benefits and options if you as a merchant follow some rules and recommendations. The most important thing is that you offer your customers an appropriate and attractive range of products. One of the great advantages of DropShipping in this context is that you as a retailer can build up almost any size assortment. Since you do not have to finance an advance purchase, you do not need to restrict yourself. But keep in mind that it must still be easy for your customers to recognize which product area your shop actually stands for.
Make sure there is a red thread running through the entire range and avoid making a messy impression on the product range. In addition, you should meticulously ensure that your product range contains as few products as possible that are particularly susceptible to returns. Too high a return rate can ruin any e-commerce business model in the long run. You should always prevent this by intervening in the assortment in good time.
Permanent control of logistical processes in small steps
The satisfaction of your customers depends, among other things, significantly on how quickly and in what condition they receive the ordered goods. Every online retailer therefore knows exactly how important high-quality logistics are if they want to operate successfully in the long term. But now the problem arises that you as a DropShipper are not responsible for this crucial area. Your affiliated manufacturers and wholesalers are themselves responsible for picking the goods, packaging and shipping and initially you have no influence on whether these areas are handled optimally.
If something goes wrong here, of course it still falls back on you. Your customers will blame you, give you bad ratings and not buy back from you. It is therefore extremely important that you, as a DropShipping dealer, check very carefully whether your suppliers are working professionally and reliably. If this is not the case, you should not be afraid of bringing this up offensively and clarifying it with your suppliers.
Pass on some financial benefits to your own customers
As a DropShipping dealer, you benefit from a number of financial advantages, among others. They do not need any special seed capital and therefore do not have to refinance such a capital. You can dispense with warehousing and logistics and all associated obligations and save money as well. And you only have to pay for the one-time shipping of products, which can make a huge difference, especially with large and bulky goods. But what should you as an entrepreneur do with the surpluses generated in this way?
Of course, you can simply let them flow into your profits and be happy that business is going so well. It is also possible to reinvest part of the profits in the company and thereby increase the value of your shop over time. In addition, you can take money into your hands to drive more customers and higher sales through targeted marketing and advertising strategies. Or you can use the financial advantage to lower your sales prices and thus gain a competitive advantage. Our recommendation is to distribute the surpluses evenly over these four areas in order to maximise their benefits.
Have you decided to start with drop shipping? The right decision! Despite the simple start into the DropShipping business, risks and dangers are also hidden here, albeit a few. We’ll explain to you how you can drive around these potholes and become really successful in DropShipping.
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