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What is dropshipping?

August 16, 2020

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What is dropshipping?


In layman's terms, dropshipping is a business model that allows you to sell products, without keeping inventory.


Over the last five years, dropshipping has become one of the more popular online business opportunities, and it's easy to see why.


Why is dropshipping so popular?

  • It is possible to make money selling physical products without buying inventory. You never have to touch any of the products you sell.
  • You can start making money straight away, depending on whether you have the money to buy traffic with FB ads.
  • Shopify makes it super easy for ANYONE to create an online e-commerce store within a VERY short space of time. Even if you're a beginner and have no technical web building skills!
  • You can scale your business at warp-speed because increasing traffic is as simple as increasing FB ad spends...
  • You can capitalize on current trends!
  • Dropship millionaires! All the poster boys of dropshipping, the gurus, drive supercars. Success grabs anyone's attention, right? We also want to be like them!

How does dropshipping work?

We all know what brick and mortar retail stores are. We see them on busy roads, in malls and shopping centers.


What's the difference between eCommerce and traditional retail stores?

Ecommerce stores are online retail stores. Shoppers can't touch (try on/physically inspect) the items they buy before purchase. They also don't have the item immediately after purchase, as products get shipped to the customer


So why do people make use of eCommerce?

Convenience. It's easier buying something off your phone than going into a store. You save time and hassle. 


How does dropshipping (as a form of eCommerce), work?

Dropshipping is merely a form of supply chain management. 


Supply chain management (SCM) is the management of the flow of goods and services from production to consumption


It involves the movement and storage of raw materials, of the work-in-process inventory, and the finished goods from the point of origin to the point of consumption.


That's the big difference between dropshipping and other forms of online retailing.  


Instead of keeping stock, a dropshipper merely passes on the order received from the customer, to the supplier. The supplier fulfills the order by shipping the product to the customer.

Traditional brick and mortar retail stores face a lot of challenges today, which is why dropshipping has risen in popularity

For many budding entrepreneurs, dropshipping sounds like a viable option, especially when compared to traditional retail stores

Some major challenges for brick-and-mortar stores are :

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Cost 

  • You need to put up shop (buy inventory, do shopfitting, branding etc.)
  • Pay rent and utility deposits.
  • Have cash reserves to pay employees, marketing, etc.

Starting your own retail store is very costly!

Premises  

  • Location, location, location! Your shop needs to visible, accessible and in an area frequented by shoppers.
  • Rent is extremely expensive in prime spots.
  • You need to find the right premises that will ensure a lot of feet. 
  • You might have direct competition next door or across from you.
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Staff

  • You need to hire people to tackle the many facets of a retail store: 
  • You need staff to sell your products. 
  • Staff to handle merchandise/inventory.
  • Someone to handle finances, marketing, etc. 
  • And then you also have to deal with staff problems. 

Dropshipping definitely has more alluring benefits if you compare the two business models.


With dropshipping you 

  • Need much less start-up cash. You only need about 10% of what you would need for a traditional retail start-up.
  • There's no need to worry about premises, stock or even staff.

Is dropshipping a scam or legit?

It seems like everyone has an opinion on dropshipping these days.


Some get lyrical about it, pointing out the amount of (dare I say "instant"?) millionaires that dropshipping has created.

Then there are those who believe it to be a terrible business model. Some even call dropshipping a scam.


If you go to trustpilot, you'll see that Shopify itself has a 1.5 Star rating. Read the reviews and you'll quickly learn that it's not the platform that's getting the bad rating, but rather the scam artists that create .shopify.com stores. 

Reviews on trustpilot.com for Shopify

To quote from Dropshipping 101 by Daniel Threlfall:

"Dropshipping has gained a somewhat bad reputation because many dropshipping retailers are just trying to outsell their competitors by offering cheaply made products, often of poor quality.

To make matters worse, dropshippers will sometimes resort to shady tactics to sell and one-up the competition. All of this has led people to believe that it’s a scammy practice." 


(You can download a free copy of the e-book by clicking on the eBook cover below.)

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