Do you want to start an online store and want to start with dropshipping? Then continue reading. Dropshipping is when you run a website with no inventory. You are not required to send the products that you sell yourself: your supplier sends them directly to your customers as soon as you have received an order. The suppliers often offer their products for bargain prices, leaving a larger profit margin for you. This revenue model sounds like music to the ears of starting entrepreneurs. Yet there are many obstacles to dropshipping.
What is Dropshipping?
As we mentioned above, dropshipping means that as an online retailer, you sell products via an e-commerce store. You never have those products in your own hands or in your own stock, because you sell them directly to your customers through wholesalers or suppliers. Because you outsource the logistics part of your online store, you do not need any storage space and you will never be left with a surplus. Packing and sending packages is also a thing of the past. So you have more time for running and promoting your eCommerce development business, which ultimately allows you to sell more products.
So far, starting dropshipping seems like an attractive option.
What is Magento 2 Dropshipping?
Magento 2 dropshipping is a business model in which an online store owner does not keep any physical inventory of products. Instead, the store owner acts as a middleman between the customer and the supplier, who ships the products directly to the customer.
In a Magento 2 dropshipping model, the store owner displays the products on their website, takes orders from customers, and forwards those orders to the supplier. The supplier then fulfills the order by shipping the product directly to the customer. The store owner earns a profit by charging a markup on the price charged by the supplier.
Magento 2 dropshipping is a popular business model for online store owners because it allows them to start selling products without the need to invest in inventory or warehouse space. This makes it a low-risk business model, especially for those who are just starting out in the e-commerce industry.
In Magento 2, there are several Magento 2 extensions available that can help store owners set up a dropshipping business model. These extensions automate the process of forwarding orders to the supplier, tracking shipments, and managing inventory levels. Some of these extensions also provide access to a network of suppliers, making it easier to find and work with reliable suppliers.
What are the pros and cons of dropshipping?
Do the benefits of dropshipping outweigh the drawbacks? That's the key question. To make a good decision before you start dropshipping, we've listed the pros and cons of dropshipping here.
The Disadvantages of Dropshipping
In recent years, the number of dropshipping online stores has increased rapidly. This has also increased the criticism of the popular revenue model and of the parties that promote it. You can read where this criticism comes from below.
1. You remain liable
Even if you do not ship your products yourself, you are still responsible for everything you sell. After all, the customer purchased the product through your e-commerce store, so you are responsible for the entire process, from ordering to delivery. When a package appears to be damaged upon receipt or is delivered late, problems arise quickly. You may think that you can easily recover this from your dropshipping supplier, but in practice, this turns out to be difficult. Especially if this supplier is located abroad.
2. The competition is fierce
You're not the only online entrepreneur who thinks he's struck gold by starting dropshipping. So there is a lot of competition in the market, so there is a good chance that other drop shippers will choose their products from the same suppliers. So it is becoming increasingly difficult to stand out as a drop shipper.
3. Complex import duties and VAT rules
Because the web store, the end customer, and the supplier are often not located in the same country, you will have to deal with complex VAT constructions and import duties. The Chamber of Commerce indicates that the VAT and customs obligations depend on a number of factors, such as the country of arrival and the rules that apply there. You also have to check which international delivery conditions ( ICC Incoterms® ) have been agreed upon and who imports the product: you as a drop shipper or the customer himself.
These rules are not only complicated for you as an online entrepreneur, but can also have a negative impact on the experience of your customers. Let's give an example: suppose a client buys a product for €25 via your web store. The supplier, who is located in China, sends the package to the customer. VAT must be paid on packages from outside the EU, and the postal company will advance the VAT of 21%. As soon as the carrier arrives at the customer's doorstep with the package, they recover the advanced VAT amount from the customer. If this package had a value of more than €150, the customer would have had to pay import duties in addition to VAT. That's not a pleasant surprise.
Knowing more? The tax authorities explain the different tax rules for EU countries and non-EU countries in great detail. Please note, since July 1, 2021, there is no longer a VAT exemption for products with a value of up to €22. This means that VAT must be paid on all packages from outside the EU, while this was not the case until recently.
4. You forfeit control
It's nice that you don't have to send packages yourself, but you do give up control over the shipments completely, and let this be part of the process where a lot of things can go wrong.
For example, during the onset of the COVID pandemic, this proved to be a problem for drop shippers working with suppliers from Asia. Many cargo flights were canceled, so that packages never arrived at the customer and for which the seller was considered responsible.
5. Warranty and returns are not that easy
Is a buyer not satisfied with a product from your webshop? Then, according to the rules of the European Union, the customer has the option to cancel the purchase within 14 days. But where should the customer send the package and who pays for the costs? Have you factored in an extra margin for that? As soon as the customer has to return the product to the supplier himself, problems arise. Often this is not even possible or there are high costs involved.
Also view the warranty conditions, especially if the supplier is outside the EU. These conditions are most likely different from the 2-year warranty that you get on a product from a supplier within the EU. So if something breaks, the question is whether you can still recover these costs from the supplier. This is one of the many 'horror stories' circulating about AliExpress.
Also, Read: Magento or OpenCart - which is better, what to choose?
6. It can be bad for your brand image
The above disadvantages and problems often lead to angry customers, resulting in a negative brand image. The credibility of your webshop is also compromised if people have to wait a long time for their package, have difficulty returning products, or cannot reach customer service.
The benefits of dropshipping
This article started with advantages: no own stock and no more worry about shipping. We explain these and other advantages in more detail here.
1. You need less capital and run less risk
If you are going to start dropshipping, you need less starting capital, because you do not need stock and therefore do not have to spend money on buying or renting storage space. You also run less risk if your products do not sell well. After all, you only pay the supplier once a product has been purchased by a customer.
2. You can offer a wide range
You can offer a wide range because you do not have to purchase products and you will never be left with dead stock. This way you can offer your customers much more choices, without having to physically have the products in stock. Do you first want to test whether a product is successful? That is also easy with dropshipping.
3. You don't need extra staff due to automation
Shipping products often takes a lot of time. With drop shipping, your e-commerce software is linked to the dropshipping supplier. This way you can ensure that incoming orders also arrive directly at the supplier. Because the supplier takes work off your hands, you can focus on other work, such as Digital marketing and customer service. Because of this automation and time savings, you often do not need extra staff.
Start dropshipping in 6 steps
1. Do extensive market research
Do you want to start dropshipping? Then it is always smart to start with market research, whether you are starting a dropshipping business or a webshop with products in stock. Is the thing you intend to offer in demand? Who is your target group and what is the competition doing? By mapping this out, you increase your chance of success.
One possible outcome of your market research is that many competitors offer standard dropshipping products, such as TVs, phone cases, and watches. If consumer demand has not increased, it may be smarter to specialize in a different product group or niche market. This way you differentiate yourself from the competition and you have a greater chance of success.
2. Register with the Chamber of Commerce
Congratulations! You are going to start dropshipping. Once you have decided on this, register your company with the Chamber of Commerce. As you have already read above, you also have to pay taxes as a drop shipper, and you cannot file a tax return without a Chamber of Commerce number.
3. Take care of your finances
With drop shipping, you do not need start-up capital or a loan for a store, but there are other costs that you have to take into account, such as the costs for your web store and marketing. To keep the overview, it is advisable to keep your personal and business accounts separate.
4. Choose your dropshipping suppliers
Choosing a reliable supplier is one of the most important steps. Check whether your suppliers run a stable business that cannot go bankrupt quickly. In addition, the service of your dropshipping supplier is also very important. Do packages arrive on time? Are the products of good quality? How do they deal with warranties and returns? Do this step carefully.
5. Start an online store
You can now start setting up your e-commerce store. With eCommerce development service you can choose from a wide range of custom designs so that your online storefront always looks professional. You can upgrade your store with the help of the Magento Upgrade service to stay up to date and utilize all the power for your store.
You can personalize these designs to your own liking so that your dropshipping web store does not look like anyone else's.
6 . Focus on your marketing
With drop shipping, you work a lot more efficiently, because you can fully focus on marketing your offer. You can invest all your money and time directly in marketing to grow your sales. Choose clear product photos, send email marketing campaigns, write catchy product descriptions, and publish relevant blogs.
Don't lose sight of SEO either. Do not copy the product information literally from your dropshipping supplier, because there is a good chance that other entrepreneurs will receive the same information. By doing careful keyword research and writing unique content yourself, you increase the chance of being found better on search engines such as Google.
How does dropshipping work?
Dropshipping is all about volume and our Advanced and Professional eCom packages are the best fit for that. We work with several partners who have designed apps specifically for dropshipping, such as Droppery, an application that specializes in finding and connecting webshops with suppliers and brands. In addition, Orderchamp provides online retailers with an international marketplace that uses machine learning to connect brands with the right resellers.
Dropshipping, do you dare?
Dropshipping is the ideal way to start a business for many starters due to its low threshold and lack of risk. However, dropshipping should not be seen as a way to make a quick buck. Just like with a normal webshop, where the products are purchased yourself, with a 'dropship webshop' you have the same responsibility, especially when running a store. Dropshipping is not an isolated magic formula. You outsource part of the work so that you can make your webshop a success.