DropShipping is the first choice for founders who want to be active in e-commerce without taking on special risks. Optimally implemented, DropShipping offers a very good relationship between opportunities and risks. The following article explains why this is so and how the positive features of the business model can be further enhanced. Here we not only present sustainable strategies, but also provide you with proven practical tips.
DropShipping is ideal for cautious founders
The desire for self-employment is widespread and with e-commerce there is also a field of employment that enables everyone to enter entrepreneurship without any problems. However, many interested people still shy away because they fear that they are taking too high a risk when setting up a company.
Here it is above all the financial dangers that are associated with most fears. After all, you first invest good money in the foundation and if something goes wrong in the end, you have to live with a correspondingly high loss. If one has even borrowed money for this purpose, then following the experiment of independence, personal indebtedness threatens for years to come.
Financing in DropShipping – a piece of cake
With the DropShipping trading model, however, precisely this situation presents itself differently. No significant seed capital is required here, nor are there any high running costs. Since the overall financial commitment is therefore rather manageable, the risk of loss also remains in the non-hazardous area. This makes DropShipping a suitable alternative even for very cautious founders.
In addition, this form of self-employment requires little time and effort. DropShipping shop operators can pursue this activity even if they want to retain their previous job even further. This part-time entry into self-employment naturally offers even fewer risks, as the accustomed income and social security are still available for the time being. Once everything has gone according to plan, you can still work full-time with your own company.
Exploiting opportunities and minimizing risks
Of course DropShipping is also not a wonderful money printing machine for everyone. If this were the case, then considerably more people would probably aim for self-employment in this area. Although this business model is very positive overall, it is nevertheless associated with both opportunities and risks.
The success concept in this area is now based on the fact that, on the one hand, one is in a position to take full advantage of the opportunities it offers and to minimise the few risks once again. By doing this, you further improve the basic risk-reward profile of DropShipping and gain even more security.
In this context, it is important to know both the advantages and disadvantages as well as possible before starting a business. And it is precisely this expertise that we will pass on to you in the following sections.
Overview of opportunities and risks
We have already expressed it: Overall, the DropShipping trading model is characterised by a good balance between opportunities and risks. Let’s take a closer look at both potentials to get a concrete picture.
Opportunities are clearly in the foreground with drop shipping. In detail the following possibilities are offered to the founder and operator:
-• Low start-up costs
-• Low running costs
-• Low complexity
-• Low time expenditure
-• Optimal for part-time entry
One of the main advantages of DropShipping is of course the extremely low start-up costs. The rule here is: If you don’t invest a lot of money in the first place, you can’t suffer high losses. Low running costs also actively contribute to reducing business risks. Even in the event of poor business performance, the low fixed costs mean that no large amounts of debt can accumulate, at least within a short period of time.
The low complexity also facilitates entry and long-term operation. You don’t need to build a real empire to be a successful DropShipping merchant and earn good money. A very manageable company structure, which does not overwhelm anyone and which can always be kept in view, is sufficient.
Added to this is the comparatively short time required to run a drop shipping company. Depending on your personal requirements, a few hours per week are enough to achieve good results. This is also very interesting for a part-time entry. If you want to keep your main job for the time being, you can run the DropShipping shop after work, on weekends and during holidays without any problems.
Despite all the advantages, of course, the risks should not be underestimated. Those who recognize dangers in the business model early enough have optimal opportunities to successfully combat them from the outset:
-• Underestimated effort
-• Underestimated need for money
-• Weaknesses in the assortment
-• High return rate
-• Higher purchasing costs
DropShipping is in fact associated with a comparatively low effort, which can be successfully completed by almost every founder. However, this effort must be realistically assessed and must not be underestimated. It doesn’t take too many hours to run the business, but the effort is not zero either. The situation is similar with regard to money requirements: Of course, there are no high start-up costs. However, there are of course some smaller cost potentials that must be taken into account.
Weaknesses in the assortment are a major problem for drop shipping shops. It is and remains a fact that, of course, not every manufacturer or wholesaler is willing to supply its dealer clientele on the basis of DropShipping. Against this background, it is still necessary to look for suitable suppliers. Under certain circumstances, this can lead to one-sided and unattractive assortments. In this context we advise you to use the database of DropShipping.com. Discover thousands of suppliers with millions of products for your DropShipping shop.
Drop shipping dealers must be careful with the returns quota. This may disrupt your business model more than is the case with traditional online retailers. After all, you do not operate a warehouse and do not have logistics personnel. You must therefore find an individual way to deal with returns. Last but not least, you should also consider that you sometimes have to pay higher purchase prices for your goods than traditional merchants. After all, you only ever purchase individual items, while other shop operators buy large quantities at the same time.
Strategically ensuring significantly improved opportunities
If you decide to start a business based on DropShipping, your primary goal should always be to increase opportunities and mitigate risks. The best way to achieve this is to deal with the business model in a strictly strategic way. We introduce you to a total of 5 proven concepts with which you can make your DropShipping business much more successful. We wish you every success with the implementation.
Strategy 1: Always work with a business plan
DropShipping is simple, little complex and easy to manage. This tempts many founders to build up their business without thorough preparation. However, this is a serious error. If you want to benefit from the numerous DropShipping advantages to the maximum, you have to strive for a thorough and complete design.
The best way to plan this is with a business plan. This is a valuable instrument with which the business development of a company can be mapped very precisely. In the business plan, you compare future revenues with the forecast costs in such detail that you can easily read off the later business result. Make sure you use such a planning instrument before you start the actual foundation.
Our tip: Keeping costs low over the long term
DropShipping offers you the chance of very low running costs. However, it is entirely your responsibility to ensure that this advantage is maintained for a long time. If you are not disciplined in this area, there is a risk that your fixed costs will steadily increase over time. You should therefore be particularly careful with longer-term financial obligations, such as those arising from employment and rental agreements, leasing agreements or credit agreements.
Strategy 2: Consistent product selection
Every web shop is only as attractive as the products it offers its visitors and customers. In this respect DropShipping is absolutely no exception. That’s why you should take a very detailed and thorough look at the assortment structure for your new shop and always keep in mind that the delivery program for your future customers must be particularly seductive and interesting.
By the way, drop shipping in many cases causes the problem of too extensive assortments. After all, you can add any number of products from your suppliers to the shop at no cost. However, this quickly results in random delivery programs that can no longer be clearly defined and recognized by the individual consumer. This risk must always be countered with drop shipping.
Our tip: Work with a concrete business idea
DropShipping offers online merchants the opportunity to build really huge assortments. In order not to destroy the recognisable thematic contour of the shop, one should work from the outset with as concrete a business idea as possible. Determine exactly which types of products you want to sell to which target group and think about the reasons you can offer your customers to choose your products.
Strategy 3: Low returns rate
Returns are a dangerous nuisance for any online retailer. Every return by a customer leads to additional work and high costs. Especially for drop shipping dealers the problem is a little bigger. Since you do not have your own warehouse, you must develop completely independent processes and workflows for dealing with returns.
Your primary goal as a shop operator on the basis of DropShipping must be to keep the return rate as low as possible. You can achieve this above all by removing products that stand out due to a high return rate from the range as quickly as possible. If this is not possible, you must search for the causes. These are often due to inadequate or incorrect product descriptions or poor product quality.
Our tip: consider important key figures
The return rate on specific products is just one of several metrics that can help you make the right decisions and keep your business on track. Think about which figures and values are meaningful and useful for an assessment of the current situation of business operations. You can then provide systems that automatically make these key figures available to you. In this way, you always retain control over your company.
Strategy 4: Strong customer service
Many online retailers still assume that the prices in the shop are primarily responsible for the success of an e-commerce business. Of course, prices on the Internet play an important role due to the great transparency. But you are not the only yardstick when it comes to whether a customer decides for or against your offers. In recent years, service has become increasingly important here.
For this reason, it is indispensable for a drop shipping retailer to be constantly engaged in optimising customer service. This already starts with an optimal usability, goes over the answering of customer questions and an active purchase consultation up to payment options and shipping options. Ask yourself again and again how you can improve the shopping experience for your customers and implement corresponding ideas at short notice.
Our tip: Innovative in the service sector
Good customer service in e-commerce is characterized by constant development. In fact, new ideas are constantly being developed in this area and consumers are quickly getting used to the constantly increasing service level. In order to stay up-to-date, you should carefully observe and follow the developments and trends in the industry. Review all emerging customer service innovations and incorporate key developments into your own business model.
Strategy 5: Current assortment
When you reopen your shop, your motivation to offer your customers a particularly attractive assortment is very high. They make a lot of effort to find suitable products, deal with interesting novelties, examine possible articles very carefully and stand at the end fully behind your delivery program. However, this changes with increasing routine. You are becoming more negligent with regard to product range maintenance and your customers are feeling this very clearly.
One of the biggest challenges for online retailers is to keep the product range up to date and interesting at all times. We have already said how this works: You simply have to proceed in the same way as with the original equipment of the shop. If you discipline yourself to do this, then you have good prospects of always offering an attractive and contemporary range to many new customers as well as loyal regular customers and of being successful accordingly.
Our tip: Always keeping up with the times
As an entrepreneur and above all as a shop operator, you lose sight of the outside world relatively quickly. One begins by looking at one’s own company as a complete universe and refrains from keeping track of what else is changing in the world. Work consciously against this form of operational blindness. Keep up to date with new developments, trends and innovations in your and other product areas on a regular basis to keep up to date.
The DropShipping trading model has been on the upswing for a long time. The reasons for this are clear – low foundation costs, little time expenditure and it is ideally suited for part-time entry. Conventional retailing has long ceased to attract as many potential customers as drop-shipping business..
Check out Drop It Studio free product research tool to find Winning Products for your E-Commerce Shop now