The methods of doing business are constantly changing, and entrepreneurs need to keep abreast so as not to lose touch with customers and not give way to competitors in the market. Not so long ago, a retail system called dropshipping was invented. What is it, what are the pros and cons compared to the already known models of distribution of goods, described in detail in the article. So, what is a new way of implementation?
Dropshipping - what is it?
Dropshipping literally means “drop ship”. It means that the manufacturer agrees with his representatives on the sale of their goods. But there is a significant difference between wholesale customers and dropshippers. In this case, payment is made for each individual name of the goods only when there is a real buyer. The sales chain is as follows: the buyer purchases the goods from the dropshipper - he buys the goods from the manufacturer - the manufacturer sends the goods directly to the buyer. Sometimes you can arrange for the shipment of goods by the manufacturer with the seller’s logo. For many sellers, cooperation on the dropshipping system has a lot of advantages.
When did dropshipping appear?
The term “dropshipping” appeared in Russia only a few years ago. In our country, the first sales using this system began about 6 years ago. At first, both manufacturers and sellers reacted to it with some distrust, as they were used to wholesale deliveries and large volumes of goods purchased at a time. At first, many raised eyebrows in surprise: dropshipping - what is it? Innovation did not immediately take root. But the pioneers with their success proved the effectiveness of work on a system such as dropshipping. Reviews of sellers and manufacturers note this fact. But, as with any promotion tool, it is necessary to clearly understand its features. Otherwise, there will be little or no benefit.
Benefits
Over time, many manufacturers and retailers who decided to work on this system, realized that it has significant advantages compared to just wholesale and distribution of goods.
Firstly, there is no need to pay for a shipment at once. The seller orders only those items that he has already paid for by real buyers. That is, he sells something that he does not yet have on hand, and that he will subsequently buy from his supplier.
Secondly, the issue of logistics is being addressed. All goods are sent directly to the buyer, bypassing the intermediary in the form of a seller. He does not need to have a staff of couriers and drivers to deliver goods to his customers. These processes are regulated by the manufacturer.
Thirdly, the task of storing large volumes of goods is removed. Not all stores have large free areas and their own warehouses in order to safely store goods that have not been sold for a long time. This is especially true when it comes to perishable goods or items that quickly go out of fashion and cease to be in demand among consumers.
Many entrepreneurs have already appreciated the convenience of using a system such as dropshipping. Collaboration with manufacturers is becoming much more comfortable in terms of finances.
The seller’s earnings consist of the difference between the funds received from the client and the paid goods from the manufacturer.
The seller can even send customers goods under his own brand, and this gives additional opportunities to increase sales and grow the business. Dropshipping allows you to distribute more financial resources for advertising and promotion of the trading platform.
When working on this system, you can change the assortment of goods in the store much faster if there is a decline in customer flow and a decrease in the number of orders. The risk of staying with a huge amount of unsold goods is reduced to zero. Also, in the case of a decision to close the business, there will be no question of how and to whom to sell the remaining goods. In this case, many businessmen are forced to sell the goods at the expense of themselves, at a price lower than the purchase price, in order to somehow minimize losses.
disadvantages
But, as in life, in addition to the positive aspects, there is a flip side to the coin. Dropshipping is no exception, unfortunately. Working under such a scheme, the seller may encounter a situation where he received money from a client, and the goods are not in stock at the manufacturer. Then you have to deal with the return of funds, as well as lose your image in the eyes of customers.
Also, it is the seller who has to deal with the client if he received defective or defective goods that he wants to return or exchange.
As part of the dropshipping system, the delivery time for the goods to the customer is longer than when ordering in a regular store. This is especially felt if sales are carried out in large cities, and the manufacturer is located in a remote region or even abroad. Not all customers are ready to wait. Residents of megacities are spoiled for delivery on the day of order. However, the expectation is offset by a better price compared to competitors, since the percentage of the seller in this scheme is much lower than that of wholesale buyers.
What do you need to start?
To start working on the dropshipping system, several important conditions must be met.
- First, you need to study the market for goods and understand which of them are in demand on the market and will be in demand among customers. To enter the market with a product that almost everyone has, means the need to invest a large amount of money in advertising. Otherwise, the flow of customers will be so low that such trading will lose all meaning.
- Secondly, you need to decide on the target audience of the selected product in order to find out the development strategy of the new project.
- Thirdly, it is important to choose a reliable supplier who will send the ordered goods to your customers on time. You need to find not just a factory with the sign "We are working on dropshipping", but make sure the quality of its goods and the delivery conditions.
- Fourth, you need a trading platform. As a rule, this is a separate online store, which presents the entire range of products with photos, descriptions and customer reviews. To promote the site, you will need the services of competent specialists who will tell you the legal possibilities for promoting it in search engines and in terms of the amount of necessary advertising.
Dropshipping in Russia
A local business with a similar implementation method has not yet mastered. Entrepreneurs in Russia do not yet know that dropshipping is very beneficial, that it is convenient and practical. Especially with a small starting capital. So far, dropshipping trade in our country is not very popular for several reasons. Partly due to the need to pay in advance for the purchased goods. Most buyers prefer a cash payment method to a courier. Unfortunately, due to many fraudulent schemes, not everyone is ready to pay for the purchase in advance. It is not always possible to understand this from the store’s description, but if the manager says that it is necessary to wait for delivery for several days, or even weeks, it’s almost like a huge poster with the inscription “We work according to the dropshipping system”, and some customers are worried.
Dropshipping Risks
All investments of an entrepreneur are limited by the costs of registering a legal entity for the correct preparation of tax and other types of reporting and the costs of promoting a trading platform on the Internet. Of course, the cost of creating a site can differ several times, or even several dozen times. It all depends on the requirements for design, functionality and management capabilities. Naturally, the potential of the "expensive" online store is much higher than that of a homemade amateur one.
In general, this is a very promising option for those who do not have the opportunity to invest a large amount in business development, but who have a great desire to try themselves in a new business, since the risks of losing large amounts of money are minimized.
How to find a supplier?
One of the key tasks on the path to success is to find a reliable supplier to work on a system such as dropshipping. Collaboration should be beneficial to both parties. At the moment, the number of manufacturers who agree to this option is constantly growing, despite initial skepticism regarding the volume and regularity of procurement, in which factories are very interested. Before starting work, it is highly advisable to check the quality of the delivered goods. This is especially necessary when working with factories from China. It is important to maintain a healthy balance of price and quality.
Dropshipping Prospects
This type of product sales has very great development prospects in the face of constantly changing market trends. More and more entrepreneurs are choosing manufacturers according to the dropshipping system in order to minimize risks in the event of a drop in demand for a particular type of product. Dropshipping system allows you to quickly respond to all market requirements without harming the business.
Despite the fact that this is a completely new trading model, it is already in great demand, therefore factories and manufacturers cannot ignore it when building their own development strategies and working with sales partners.
