Find out what the popular dropshipping business model is all about and how you can get into it.
According to the statistics site Statista, in 2020 it was estimated that more than 39% of the population in Mexico bought goods and services online, so having an eCommerce has become the aspiration of many entrepreneurs. If you are also interested in opening your own online business, but do not have the capital to start, stay with us because in this post we will tell you what dropshipping is and how it works.
Dropshipping is a form of online commerce that does not require a large investment or a very large infrastructure, because you sell products from a wholesaler or producer directly to the end customer and the wholesaler or producer is responsible for delivering the goods directly to the end buyer.
As you can imagine this business model is perfect if you are looking for something with low investment and low risk, because you do not need to spend thousands of pesos to buy the products you plan to sell nor do you need to have an infrastructure to store your stock. If you are interested in dropshipping, here we will explain how it works.
How it works
The biggest difference in the dropshipping business model with the traditional sale is that the merchant does not have an inventory; the merchant doesn’t even touch or see at any time the product or service, but this is not all, because the traditional logistics of an e-commerce changes completely in a dropshipping.
Basically, the dropshipping online store is only responsible for managing the purchase orders from end consumers; generating purchase orders, invoices and a database, so that the wholesaler or manufacturer packs and ships the product directly to the end consumer, therefore the storage, packaging and shipping are the sole responsibility of the wholesale company.
This business model has enormous advantages over traditional models, that is why 30% of eCommerce in the world are dropshipping. The obvious advantage is that you don’t need to invest in an upfront inventory of goods to start your business, which means that you can start your own business with little money.
Of course, another great advantage is that you can start a business easily, or at least more easily than with other types of eCommerce, because you don’t have to worry about manufacturing your merchandise, hiring or managing a warehouse, creating packaging and shipping logistics.
In addition to how economical and fast it is to start a business with this model, dropshipping has the advantage that maintenance costs are low and fixed. In fact, you can do all the work from home with your personal computer, without paying office rents, the only ongoing expenses you will have to make are those related to the maintenance of the online store, such as the host, domain payment, or advertising campaigns. This brings us to the question we will answer below: How do I start with my own dropshipping business?
Steps to get started with dropshipping
Despite how simple it seems to start a dropshipping business, you need previous planning to get started. The first thing is to find out what product or products you want to sell and know everything about them, from who are your consumers to who are the wholesalers you can approach to make purchases, of course also investigate how much competition you have in that market niche; having this data will help you to better design a winning strategy.
The second thing you have to do is to contact suppliers, many distributors and manufacturers are approaching this form of business, so they will agree to partner with you easily. You can even go to conventions or exhibitions of the products you want to sell to get to know the suppliers and manufacturers to achieve the best working conditions.
The last thing you have to do is to design and publish your online store, this will be the window to start your business, so as with any online store you have to get your own domain, hire a host and design a professional and attractive store, remember that it will depend on it that people will buy from you.
The dropshipping work does not end with the online store, because the success and growth lies in staying active on the Internet and reaching more and more people, so part of your job will be to implement SEO and SEM strategies to rank better in search results and, very importantly, promote yourself in social networks.
As it happens with conventional eCommerce sites, for dropshipping there are platforms that will help you design your store, among the most famous and complete are:
These platforms will help you in the tasks of managing your products and integration to automate orders. Of course, they will allow you to add or remove products as they become available.
Keys to choosing a wholesaler
Choosing the right wholesaler is the most important thing to succeed with your business, because if the delivery process is slow or inefficient, your store’s reputation will be affected, which will result in less sales. If you are not sure how to choose your suppliers you can follow these tips that will help you choose the best.
Manufacturer or distributor is one of the choices you will have to make, it is usually best to buy directly from the manufacturer because you can get better prices by eliminating middleman fees or commissions. Having direct contact with the producer of your merchandise can help you make changes to it if required, however these advantages may be outweighed if you do not guarantee the delivery process to the final buyer, in this case it is best to choose a distributor.
National or international maybe you are thinking of selling foreign products from your website, but before deciding on this it is best to consider having a Mexican manufacturer or distributor, because with this you make sure you do not have extra fees in the final price of your product, because you avoid currency exchange and customs costs, also with a Mexican distributor is easier to guarantee a more efficient and faster delivery.
Packaging and delivery are two crucial aspects in which you must pay all your attention, if the wholesaler you choose does not guarantee that the product arrives in excellent condition and in good time to the final consumer, it does not make much sense to hire him, because in this is playing the reputation of your business; so it is best that you choose the one who has an impeccable packaging and storage service to ensure the integrity of the merchandise.
As for the delivery time, it is best to choose the one who offers the minimum, about 72 hours is the acceptable average, because remember that you are in a market that although it is new is very competitive and the time for the reception of the products is a key element for the final consumers to prefer you over your competition.
We have already listed the advantages of this way of selling on the Internet, but it is also important for you to know some of the most important disadvantages so that you can evaluate your incursion into it.
The most important disadvantage is that this type of business has, generally, very little profit margin for the final seller, because there is a lot of competition which forces you to lower your prices more and more, leading you to reduce your profit. Although there are not the same expenses, you do have to invest in the design of your online store, SEO and SEM positioning and marketing, expenses that in the end will decrease your profits.
Another of the most notable advantages is that you are totally dependent on the supplier, which means that you will not have much control over what is or is not in stock or the quality of them; you may even sell products that are no longer available or of poor quality and unfortunately the end customer will end up blaming you.
Knowing these drawbacks is not intended to make you give up dropshipping, but rather to plan strategies so that these problems are reduced to a minimum.
As you see the dropshipping business model is very tempting for those who want to dabble with an eCommerce, because it is a business that you can start more or less quickly and does not require large investments.
Tell us, do you think dropshipping is still a good business model despite the short profit margins?