Starting an online business seems quite easier in the modern, Internet-connected business world. If you have plans to start an online business this year, you might have thought of ways to get access to the product inventory and store them until they are sold. This is how a traditional business model works and often requires leasing warehouses to store products, handling supply chains, managing inventory, and ensuring last-mile delivery.
But in the Indian business ecosystem which is 80,152 startups strong, both time and money are in short supply. Most startups make a profit in later stages only, which is why time is stretched thin to make way for funds to pay employee salaries.
Wondering if you can still continue with your plan to start an online business in 2023? There’s an alternative available, named dropshipping.
Dropshipping, as a reliable business model for first-time entrepreneurs, involves outsourcing various facets of the business, including manufacturing, warehousing, and even logistics. As a whole, it allows business owners to start an online business with less money.
If you want to know more about how dropshipping works, its benefits, and the steps to get started – keep reading.
What is Dropshipping?
Dropshipping is a type of business model that allows entrepreneurs or aspiring business owners to sell the products manufactured, stored, and shipped by a third party from your online store. It can also be considered an order fulfillment method using which you do not need to keep the products in stock. Instead, you purchase inventory as needed from a wholesaler or manufacturer to fulfill the orders received.
The major difference between the traditional retail business model and dropshipping is that you do not stock or own the inventory but act as a middleman. It frees up your time and provides a less risky way to test innovative business ideas on a small scale without having to invest in the product upfront.
How Does the Dropshipping Business Model Work?
The dropshipping business model is basically a bridge between your customer-facing online store and the supplier. Here’s how it works –
Firstly, you need to seek out the wholesale supplier(s) or manufacturer(s) of the products you want to sell online using a supplier database like Worldwide Brands, AliExpress, etc. Here, the suppliers can be located anywhere in the world. Once you have made a list of suppliers, you need to reach out to them and ask for a quote for different kinds of products. After both parties agree on a certain price of products, you need to import their product inventory on your online store. The level of automation and functionalities of your store should be developed in a way whenever an order is received, the supplier takes it up, manages product packaging, and ships it directly to the customer. After the successful delivery of the product, you can pay the supplier for the product sold.
These days, you can benefit from dropshipping apps that are designed to automate the operations based on this model. All you need to do is select suppliers, import their inventory to your online store with a click of a button, and get your business up and running.
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Dropshipping Business Model Explained in 3 Easy Steps
- A customer places an order on your online store
- The store sends the order directly to the dropshipping supplier
- The supplier prepares the order and then ships it to the customer
Before we take you through the stepwise guide to starting a dropshipping business, let’s look at the benefits of this business model.
Why Should You Start with Dropshipping?
Dropshipping business model is quite lucrative for both small and large businesses because:
- You do not need to invest significant upfront capital to purchase inventory unless you receive an order that is already paid for by the customer.
- You do not have to worry about renting a warehouse, tracking inventory, packing/shipping ordered items, or handling returns.
- You can easily deal with low overhead expenses.
- You can run your dropshipping business from anywhere using a smart device and an Internet connection. The major tasks for you will be communicating with suppliers and providing timely customer support.
- Since you do not need to pre-purchase items to be sold through your online store, you can sell a wide range of trending products in your niche. Also, you do not have to worry about unsold items in the stock with dropshipping.
- You can test customer appetite for the kind of products you want to sell under this business model.
- Expanding a dropshipping business is comparatively easier than the traditional retail business model. It is because even if you receive a significant number of orders within a period, the task of processing these orders will be handled by the suppliers.
5 Steps to Start a Dropshipping Business
Find a profitable dropshipping niche
There’s a good chance that what you want to sell is already sold online by existing merchants. To differentiate your products in a highly competitive, crowded marketplace, it is important to select a dropshipping niche.
Think of a niche market as a subset of a larger market known by its unique needs, preferences, and interests. While widely available products face a lot of competition, you can reduce that level of competition through niching.
For example, if you want to sell women’s clothing online, your brand is going to face a ton of competition. But if you choose to sell women’s clothing under Rs. 1000, the number of competitors gets reduced greatly. Were you to niche down further and say, sell clothing for working women under Rs. 1000, competition becomes even more scarce.
That being said, it is also important to ensure that there’s an audience for your narrowly defined idea.
Interesting Read: How to Make Your First Sale Online in One Month?
Specify your target audience
Once you have selected a niche for your dropshipping store, you must learn more about them to understand their behavior, preferences, needs, and more. Having an adequate understanding of your target audience will help you with:
- Selecting the right sales channels
- Selecting primary product categories to focus on
- Deciding how to market your brand to the chosen audience
While defining your target audience, you can ask yourself the following questions:
- Who will benefit the most from using my products?
- What makes my product different from the ones already available in the market?
- Who is looking for my products and where?
Find dropshipping suppliers
For this, you can either contact the manufacturer if he is willing to sell through your store under the dropshipping model. Otherwise, you can ask him about the list of wholesale distributors in different regions around you. Once you have that list handy, you can contact the wholesalers to check if they are ready to dropship from your store.
You can also find these suppliers by:
- Searching Google using search queries like ‘Wholesale suppliers of product X or Y’
- Attending trade shows where manufacturers and suppliers gather for networking purposes
- Checking supplier directories
Build your online store
Once you have one or more dropshipping suppliers by your side, it’s time to build your e-commerce store. You can use a CMS, e-commerce platforms like Shopify, or programming languages for completely-customized store development. It will also involve:
- Finalizing the brand name and then buying the corresponding domain name based on their availability
- Deciding on the unique domain extension, which can be .com, .in, .shop, etc.
- Importing products from your supplier’s inventory to your online store
- Checking the shipping costs to calculate the profit margin
Market your online business carefully
Once your store is up and running, it’s time to plan for a marketing strategy to make the target audience know about it and buy from you. One of the biggest advantages of the dropshipping business model is that it allows you to focus more on marketing the store while the order processing and shipping part is automated.
The key to growing your dropshipping business is to differentiate your offerings in a way that they resonate well with the target audience. To market your products, you can:
- Use social media channels
- Optimize your store in terms of SEO best practices to generate organic traffic and leads
- Benefit from email marketing to nurture existing customers
How profitable is dropshipping business model?
The actual profitability of this model depends on several factors, including the type of products you sell, profit margin per product, the scale at which you operate the business, and others.
How do I start dropshipping?
You can start by finding a profitable niche first and then proceed with defining the target audience. The next step is to find the suppliers selling what you want to offer to your customers.
Is it easy to start dropshipping?
In comparison to the traditional business models, dropshipping is easier. Individuals having limited experience and funds can start a dropshipping business.
Support payments on your dropshipping store with Paytm for Business
Dropshipping can be a good start for individuals who are willing to start their own businesses while keeping the costs low. Particularly in terms of payments, you can join hands with Paytm for Business for our exclusive range of payment products meant for online businesses.