The world of e-commerce and online shopping has greatly changed.
Dropshipping is a method where the retailers transfer the possession of the goods to another retailer who ships the product to the customers.
Many companies are moving towards a more sophisticated yet reliable way of providing goods and services to their customers.
Dropshipping is useful for both B2B ecommerce platforms and B2C ecommerce platforms. Several ecommerce platforms in India have already taken advantage of dropshipping as it a cost-effective way to ship the goods to the customers.
Small businesses and large cooperatives have all set up online platforms where individuals can access their services right in the comfort of their homes.
According to Shopify Plus, retail e-commerce sales are expected to hit $4.90 Trillion by the end of 2021.
Today, a consumer can just visit an online store and shop for food, clothing, or furniture and have their orders shipped to their doors in the shortest time possible.
Thanks to the advancing technology, businesses are now able to expand their markets and sell even more.
Dropshipping is one of the emerging trends in the online retail business, and on this post, we look forward to explaining it in detail.
Continue reading to find out more about dropshipping and take your online business to the next level.
What is Dropshipping?
Dropshipping is a type of retail fulfillment where the retailer does not have a physical stock of what they are offering for sale but instead places the order from a supplier and delivers to the customer. In this type of business, the seller does not have to own the inventory or purchase any stock to sell.
The seller simply acts as an intermediary between the buyer and a supplier that owns the goods and services they are willing to offer.
In most cases, the third-party seller is the primary producer of the products or a wholesaler with a more extensive inventory.
By purchasing the products from the manufacturer directly, the seller can make some significant profit when they sell to the online shopper at a higher price.
Ideally, the only difference between the traditional retail business and dropshipping is the ownership rights of the inventory.
In the conventional retailing, the selling merchant must buy the stock from the wholesaler before they can trade them with a final consumer or customer.
Dropshipping may be a new phrase for most people. It came into existence in early 2006 when AliExpress was very popular in the US.
Most retailers took advantage of the cheap products that AliExpress was offering and started opening their own stores to sell products from the online store directly to customers.
The need for a zero investment has made dropshipping become the order of the day for most aspiring entrepreneurs.
In 2017, online retailers made up to $55.1 billion worth of sales through dropshipping. This accounts for approximately 23.0% of the total online sales made that year. Yes, that is how significant drop shipping has been since its emergence in 2006.
Ultimately, there is a lot that you should learn about dropshipping before you can venture into it.
In this part of the article, I will let you know some of the benefits and disadvantages of dropshipping that you must always watch out for:
The Benefits of Dropshipping
The major benefits of dropshipping are:
#1- Zero Investment and Startup Cost
When starting a dropshipping business, you will not need any cash to buy the inventory. Unlike the traditional retail model, in dropshipping, you only need to keep a ‘virtual’ online inventory and market it to the consumers.
Once the customer places the order, then you can ask the supplier to deliver the merchandise. In fact, you don’t need a chunk of capital from the bank to start up an online dropshipping business.
#2- Reduced Risk of Doing Business
Dropshipping reduces the risk of having to store goods and invest your money in unsold stock. If you are dealing with perishable products, it helps you avoid the loss you may make when there is a low demand for such products.
With dropshipping, you will be supplying the products directly from the manufacturer or retailer’s warehouse, thereby eliminating the risk of acquiring the stock and selling them when there is low demand.
#3- It Enables You to Offer a Wide Variety of Products
Ideally, the central role of retailing is to provide the final consumer with a wide range of products and services to choose from.
Dropshipping makes this process less daunting for the retailer. All you have to do is avail an online inventory for the customer to view and wait for them to place their orders. You can stock a wide variety of products without worrying about the storage space.
#4- Convenient – No Time Wasting
Packaging, sorting, and labeling products can take a lot of your time as a retailer. In dropshipping, you live all these tasks to the supplier or manufacture to do.
The supplier will be responsible for shipping the order to the final buyer, which also saves you time. You can use the extra time to focus more on how to improve your business and gain a competitive edge in the industry.
The Drawbacks of Dropshipping
The major drawbacks of dropshipping are:
#1- Stiff Competition
Competition is a drawback that every business faces. There are millions of online businesses all struggling to capture the attention of online shoppers. Online store owners are forced to invest big in digital marketing to attract more buyers to their shops.
Because starting a dropshipping business is very easy, every day, you can expect an individual to launch a new business and begin selling. That means that you must always be on the watch to improve your online store and make it more attractive and secure to the customer.
#2- Low-Profit Margins
With millions of drop shippers in existence, it takes a lot for online store owners to make some significant profits.
Only those who can stay in the dropshipping business for long can build their business, stay ahead of the park, and begin growing the profit margins slowly.
It takes a while before you can start making some good money out of dropshipping because of the stiff competition in the industry.
#3- Product Liability
In dropshipping, you will be selling products that you have not touched or seen to gauge their quality.
It is very common for the products to fail. If you have a clear return policy on your online store, then you must refund the customer their payment or liaise with the supplier to deliver another order to the customer.
#4- The Problem of Managing Orders
It is a daunting task to meet all the orders from hundreds of customers once the products you are offering go viral. In most cases, when online shoppers find out that you are selling quality and affordable products, you are likely to get more orders that are strenuous to manage.
However, with the emergence of dropshipping plugins like WooDropshipping and AliDropshipping, it is now hassle-free for online businesses to manage their orders with a single click of the button.
How Dropshipping Works
Dropshipping is a straightforward business model that you don’t need to scratch your head to grasp. In this model, the supplier (who is either wholesaler or manufacturer) will produce the product, store it, and deliver it to the final customer once you place your order. Below is a simple breakdown of what happens in dropshipping:
- You get an order from a customer
- You notify the supplier of the order
- The supplier delivers or fulfills the order from the customer
On this breakdown, there are three main factors to consider when you think about dropshipping, that is a supplier, your store, and the customer.
Supplier: This is a wholesaler or manufacturer of the products that your customers will be buying. The supplier holds the physical inventory and fulfills all the customer orders on time. When you opt for the dropshipping business, you must first find a more reliable supplier, one who can offer a reasonable price and ship the merchandise to your customer on time.
Your store: A dropshipping business survives on an online e-commerce store. You must have an online store where the customer can access your inventory and place their orders remotely. You have to make your online store attractive to the customer. Include detailed descriptions of the products on your online catalog, use HD images, and set a price tag on each product. You are likely to increase your conversion rate if you have an online store that works well for the visitors.
Customer: A customer is an individual who visits your online store intending to buy. Once the customer pays for the products they order on your site, you can then send the payment to the supplier and earn your commission in return.
Best Dropshipping Suppliers
Finding the best dropshipping supplier for your online store can be a bit hectic if you are just starting an online business.
Well, you don’t have to panic because, in this section, we highlight some of the best dropshipping companies that you can always count on for on-time order fulfillment.
#1- AliExpress
AliExpress is one of the top-ranking drop shipping companies you can rely on for your online store. The drop shipper connects you to the product and suppliers that you need to make your dropshipping business successful.
It is free to sign up and begin using AliExpress services. The company provides over forty categories of products from clothing, electronics, footwear, and automobiles that you can offer to your customers. It also offers worldwide delivery and free customer feedback report.
#2- Wholesale 2B
Wholesale 2B is another fantastic dropshipping supplier that allows you to do a lot of things. First, you can become one of the company’s resellers and offer their products to customers that visit your online shop.
The company offers over a million products that you can sell to your customers. With over 100 suppliers registered on the platform, you can be confident that your customer’s order will ship on time. Also, it offers different pricing plans that you can choose based on your budget.
#3- Inventory source
Inventory Source makes your life simple as a drop shipper. It has a direct link to e-commerce platforms such as eBay, BigCommerce, and Shopify. The company is home to over 150 suppliers that are willing and able to fulfill orders on time.
This company allows you to automate your e-catalog and update the product data, making your online store more attractive for the online shopper. You can use their services by subscribing to the affordable plans with as little as USD 50.0 per month.
#4- Mega Goods
Mega Goods is a US-based dropshipping supplier. It has an affordable pricing plan that begins at $14.99 a month. It is probably one of the most affordable drop shipping companies that you can subscribe to now.
The company has specialized in the provision of products such as electronics, kitchenware, clock, and cameras. They give you a 30-day free trial when you subscribe to their services.
#5- Sunrise Wholesale
Sunrise Wholesale is a reliable drop shipper company specializing in over 15,000 products. When you subscribe to their services, you can connect your online store to other platforms like Shopify, BigCommerce, eBay, and Amazon.
As a wholesaler, the company allows you to sell their products and earn some commission. You can subscribe to their services by paying USD 99.00 annually or USD 29.95 monthly.
#6- Dropshipper.com
Dropshipper.com is a famous dropshipping company with over 890 suppliers and an extensive product range. You can sell over 1 Million products available on this dropshipping company.
The company offers products such as electronics, jewelry, and clothing. For only $69.00, you can access all the products the company is offering. The company also charges a one-time fee of $99.00 for those intending to access their drop shipper list.
#7- OfficeCrave.com
You can build a profitable dropshipping business with OfficeCrave.com. The company avails over 100,000 products that you can access and sell to your customers. Some of their products include industrial supplies, business products, and electronics.
It is free to join the company and begin dropshipping in the US. All you need is to visit their official website, sign up their registration form, and start selling.
#8- Spocket
Anyone can start and grow an online dropshipping business with Spocket. The company has a direct connection to thousands of suppliers based in the EU and the US. You can subscribe to the company’s free dropshipping package and begin selling their extensive list of products on your online store.
Tips For Choosing The Best Dropshipping Supplier
Ideally, there are many dropshipping suppliers that you can always reach out to fulfill your customers’ orders. However, there are some factors that you must consider before choosing the supplier if you intend to make a living out of your dropshipping business. Here is a quick checklist for picking the best dropshipping company for your business:
- Find out if the company has a clear return policy for damaged products
- How long have they been in full operation?
- Is the company licensed?
- Does the company insure all the orders from customers?
- Can they protect the customer from fraud?
- Does the company have positive customer reviews online?
- How long does the company take to process an order and have the customer merchandise delivered to their doorstep?
Dropshipping and Taxes
Dropshipping business may sound a bit simple for anyone to venture into. However, the hard and strenuous part of the business emerges when the authorities ask you to meet your tax obligations. Ideally, businesses all over the world are entitled to GST, VAT, or sales tax.
The choice of the tax system to use will normally depend on the governing system in the country. VAT and sales tax is very common in most of the capitalist countries. Tax can come as a fixed or flat rate on each transaction you make or a percentage of the total sales value.
Ideally, every form of tax paid on dropshipping business confirms to consumption tax. Retailers and suppliers leave the whole tax burden to the final consumer.
The only question that most drop shippers will ask is how they pay their sales tax.
Who is responsible for collecting the tax from the final consumer, is it the supplier or the store owner? To help you understand more about tax obligations in dropshipping, we answer some of the frequently asked questions below:
#1. Should I be paying sales tax to my supplier?
In the United States, the government exempts you from paying sales tax to your suppliers if you are reselling your merchandise. All purchases intended for a resale are tax exempted. The only way to ensure you don’t pay the sales tax to the supplier is getting a sales exemption certificate or a resale certificate for your business.
Once you present your certificate to the supplier on placing your orders, they are not going to charge you any sales tax.
#2. Are you supposed to charge sales tax to your customers?
The answer to this question will depend on which state your customer is and whether you have a sales tax nexus or not. If you have a sales tax nexus for a given state, you will have to remit the sales tax to all the states that your customers’ order ships. The tax may be calculated based on the retail or wholesale price of the products you are selling.
Additionally, you will have to pay sales tax if the customer placing the order and the supplier both reside in the same state. The most important thing is that you should be aware of all the tax policies in every state and country that your customers are coming from if you intend to remain on the safe side of the law. The tax policies in New York may be quite different from those in California or Chicago.
#3. What is income tax?
This is the tax that your business pays for the amount of income or profits it makes every year. Just like when you are employed, you will have to pay an income tax to the government every time you get a salary or a wage.
In the dropshipping business, the ‘salary’ is the total profit you make every year. In the event where you make zero profits or a loss, then you are free to claim a tax credit. However, this will depend highly on the tax policies in your country. In the US, the government, through the Internal Revenue Service (IRS), is responsible for the collection of all income tax from its citizens.
Dropshipping Business in 2020
The future of dropshipping may seem bright if the currents statistics on e-commerce are anything to believe.
For instance, Nasdaq (2017) states that e-commerce will be in a position o facilitate at least 95.0% of shopping by the year 2040.
In 2020, most online businesses are already looking for a better way to sell their products online with the least capital, and drop shipping gives them the best platform to do that.
In 2020, we can expect more and more individuals to venture into dropshipping. Already there are hundreds of drop shipping companies that are willing to connect retailers to thousands of suppliers all over the world.
With dropshipping, online stores have a better chance to market themselves and sell to a global market. It seems to add more definition to e-commerce, and as more online stores continue to embrace this business model, we can say that dropshipping is here to stay.
Conclusion
Incorporating dropshipping into your business may be a bit tricky if you don’t know how to do it right. In fact, it is advisable that you first conduct thorough market research before you can opt for dropshipping.
The hidden truth about this new business model is that the profit margin may be quite low because of low investment. To stay ahead of the park, you must find the best supplier and follow all the tips we have given on this guide.
With the stable growth in e-commerce, we can anticipate that the future is bright for dropshipping, and there is never a good time to start the business if not now. With this guide at your reach, you don’t have to hesitate.
