Dropshipping is becoming a lucrative and convenient way to run a main (or side) business. More and more Australians have developed an interest in dropshipping given the relative ease of setting up the business and the possibilities of future high returns.
Want to learn whether it’s the right move for you?
First, let’s go over the basics…
What is dropshipping?
Shopify states that, “Dropshipping is a retail fulfillment method where a store doesn’t keep the products it sells in stock. Instead, when a store sells a product using the dropshipping model, it purchases the item from a third party and has it shipped directly to the customer. As a result, the seller doesn’t have to handle the product directly.”
So how exactly does dropshipping work? The nuts and bolts
Dropshipping has the advantage of being an online business model – ecommerce – with no actual investment in the usual sense, and hence minimal risk. The owner of the business is the seller/intermediary….that’s you! You, as the owner would simply have the product delivered to the customer from the supplier/wholesaler directly, without needing to buy or stock any inventory of your own. After getting an order from a customer for a product you advertised, you contact your supplier to ship it from their warehouse, directly to the customer’s address.. Simple.
With this type of distribution/supply chain model you decide on the price you want to set for the product, you charge the customer this price, you make a profit. You send your supplier/wholesaler the wholesale price. You already have your profit for this item.
Why start a Dropshipping Business in Australia?“There’s no time like the present”
From March 2020 when the COVID-19 pandemic was announced, over the following 6 months, Australia Post analysis of ecommerce trends showed that online shopping growth had topped 75.8% growth year on year. More than a million new households shopped online. Ecommerce purchases have stabilized, and are continuing at far greater levels than in 2019, and shoppers’ new or boosted habits are expected to stick,
enabling great opportunities for enterprising Aussies to get started in dropshipping.Australian sellers are already hopping on the bandwagon with this style of doing business. It’s true, “there’s no time like the present”!
Benefits and challenges of dropshipping. What can I expect?
Firstly, some benefits of dropshipping:
- Low startup cost: It is quite clear to see that there is minimal investment required in this ecommerce model compared to other business models where the seller has to stock the inventory. Here, the seller is mainly paying for creation and running of an online store, advertising/marketing and promotions, and other miscellaneous costs.
- Easy to get started: You need to start with an idea, identify your customer segment, collaborate with suppliers, advertise and then make sales. There aren’t any liability commitments to make as you don’t have to buy or rent large infrastructure/tangibles, hire employees, etc.
- Higher profit margins: The return-on-investment (ROI) is one of the highest, which is why dropshipping is a lucrative business model. Some sellers will make almost pure profit with bare investments.
- No overstock issue stages: The dropshipper is not manufacturing, warehousing, packaging or shipping orders. Hence, he/she never has to worry about stocktaking issues. The dropshipper will however track the delivery of the items, and will bear responsibility for supplier errors and product returns/refunds.
Possible challenges of dropshipping:
- Difficulties finding a reliable dropshipping partner (supplier):
- Your dropshipping partner plays an important role in the entire transaction. Your supplier should be someone who is reliable, possesses good quality products, communicates effectively and values customer satisfaction.
- Lack of direct control over quality:
- You can’t control the product quality directly and can be at risk of dissatisfied customers if you work with a poor quality supplier/wholesaler. Too many blunders over product quality or errors could potentially severely harm your brand.
- Processing orders can be complex:
- Dropshippers (eventually) work with multiple suppliers as an effective sales strategy. But each manufacturer has his/her own requirements for order processing, billing and shipping. This can be complex and shipping/delivery times can be slower.
- Extremely competitive market:
- With low risks and high benefits it can be a pretty competitive market. Unless you have a genuine niche market, the ecommerce market is packed with people offering deals on similar products which can make for thinner profit margins.
Nothing ventured, nothing gained!Start small and build
Despite a few challenges of dropshipping noted above, we hope this information has encouraged you to start working on your Dropshipping business!
Check out the Part 2 of our dropshipping info, where we’ll cover the practicalities of getting started – in a few clear steps!
If you need help in setting up your eCommerce store, you can book a video call here.