A dropshipping investment is profitable when you choose the right products for your target market and the best suppliers. It also depends on your marketing skills and how you treat customers.
As we discuss these factors, we’ll tell you how you can make your dropshipping business work for you. This article includes:
- An overview of dropshipping investment
- Types of dropshipping investment
- How to earn more from your dropshipping business
What Do We Mean by a Dropshipping Investment?
In a traditional eCommerce store, a customer places an order, and the vendor fulfills it by shipping the item from their warehouse or store.
A dropshipping model is different as it’s an order fulfillment strategy where you don’t hold or ship the items a customer adds to the cart. Instead, once a customer places an order, you connect them to the product supplier or manufacturer who fulfills the shipment.
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So, generally, there are three people in this business model: You, the product supplier, and the customer. Many prefer this business model because it’s a passive income stream without the hassles of logistics and inventory. However, it takes time to build a dropshipping business.
Types of Dropshipping Investments
These are some of the popular categories of dropshipping investment businesses, and this variety makes it a worthwhile investment because you choose what works for you.
Product reselling
Most dropshippers look for suppliers and create product reviews and curated content to persuade the target market to place orders, which the suppliers fulfill. This type of business is suitable when you’re an industry expert or have a passion for the products you’re promoting so you can create content that converts that audience.
Business extensions
It’s for suppliers without an online presence, and they give exclusive inventory access to dropshippers with such a marketing platform. As such, the dropshipper does all the work, from writing product descriptions to product photography. Such a relationship is beneficial because you don’t have to worry about competition. You enjoy exclusive rights to sell the products online.
Print-on-demand (POD)
This POD strategy is more exciting if you’re creative as you design the image to print on products like t-shirts, mugs, cups, and shower curtains. The printing service fulfills orders as you focus on creating more items for your customers.
Reverse dropshipping
We said that dropshipping investment involves you getting customers and having the manufacturer handle order fulfillment. Well, reverse dropshipping uses the same model. But, instead of targeting a market in the West, you become the voice of Western manufacturers looking to sell to export-oriented countries like China.
It works because some people in the East prefer the quality of products made in the West. Hence, it has a higher profit margin as you’ll be dealing with high-quality products, selling them to a market that doesn’t worry about the price.
How You Can Earn More from Your Dropshipping Business
If you’ve invested already, but it’s not giving you great returns, don’t give up yet. Let’s see how you can turn your business around and rake in more profits. Try the following.
#1. Use a competitive pricing strategy
A good pricing strategy gives you a substantial profit margin.
When the price is too high for your market, sales decrease, and when it’s too low, you make a loss. Therefore, when pricing, take the following into account.
Perceived value
If your product is more desirable than competitors, it can sell at a higher price.
Price elasticity
If the price change affects consumption considerably, be careful how and when you change it.
Business expenses
You are lucky because dropshipping investment cuts company overheads considerably, but you’ll spend on marketing, such as email marketing and website development.
Taxes & fees
The higher the taxation, the lower the profit margin. Fees paid to the supplier include a per-order fee and an account set-up fee when you start working with them. You’ll also pay a membership fee. However, these fees vary from one supplier or platform to the other.
The target audience
If it’s a high-end market, you can price your products higher than when dealing with the middle-income market.
#2. Join several marketplaces
Dropshipping platforms include eBay, Shopify, Facebook Marketplace, Walmart, and Amazon. Many dropshippers prefer marketplaces because they already have an audience, which gets you started faster.
Let’s discuss the advantages of at least two of these platforms. We’ll discuss Facebook Marketplace as it’s an eCommerce platform built on the popularity of a social network, and Amazon, a top online retailer with over 2 billion monthly visits, about three times the traffic on eBay.
Amazon dropshipping
Amazon charges a per-item fee you can pay as a monthly subscription for dropshipping. It requires you to identify as the seller of record (SoR), so you’re responsible for setting the price, receiving the revenue, and paying the sales tax.
Dropshipping investment here isn’t the same as the Fulfillment By Amazon (FBA) program, where you have actual products in an Amazon warehouse ready for shipping after a sale.
This eCommerce giant has more than 142 million people in the U.S. registered as Amazon Prime Members with benefits like diverse shipping options and unlimited video streaming. Its influence on online retailing is commendable and is perhaps one of the reasons many stock traders put Amazon shares before other investments to look at.
Facebook Marketplace
The seller fees of this marketplace are lower than on Amazon, and it generates free organic traffic to your store. You can also influence the audience in the social network’s groups and pages.
Since it’s not a flooded market, you may enjoy dominance for a while before dropshippers flood it too. The only disadvantage is that the algorithm may show local product offers first; hence, it reduces the visibility of your dropshipping products.
Once you decide on the marketplace or eCommerce platforms to use, search for suppliers there to make the best dropshipping investment.
#3. Get an efficient, honest supplier
Check their reviews and ratings. Since this business model gives you less control over quality as you don’t own or manufacture the product, you can’t afford to work with a supplier whose customers complain of poor quality and defective shipments. Also, see how the supplier treats customers and the support available to dropshippers.
#4. The dropshipping niche matters
To keep up with market trends, try product search tools like Google Trends, where you can narrow your search to a particular region. The other platform that can give executable insights is social media. For instance, hashtags on Twitter and TikTok tell you what’s trending.
They capture real-time trends, while keyword analysis tools like the Google Keyword Planner and Keywords Anywhere show you popular searches and related terms over time. However, the product search tool that’ll show you what everyone is buying or putting on the wishlist is the search results in marketplaces like Amazon.
When it comes to dropshipping investment, these eCommerce brands invest heavily in data analysis, so you’ll be tapping into customer information that’s filtered and easy to consume.
On such platforms, you also have customer reviews to prove how and what customers feel about particular products and suppliers. Product categories popular with dropshippers are beauty, clothing, gaming accessories, eco-friendly products, sports goods, pet supplies, and home decor.
When dealing with overseas manufacturers, avoid furniture and glassware because furniture attracts high shipping rates, while glassware is fragile.
#5 – Take care of your customers
Running a 24/7 customer service is the least you can do to take care of your customers. It might even be your competitive advantage. Another way to boost interactions and sales is automating your store to confirm orders and send shipping details in real-time.
Many dropshippers fail because they use platforms that make inventory management difficult. Simplify the process, and use an integrated system that brings all your orders and product lists to one place. For example, LitCommerce lets you connect and manage inventory from multiple channels on one dashboard so you can integrate orders and manage product details like prices in one place.
Dropshipping Investment: Conclusion
Do you know what makes dropping lucrative? It has minimal risk, you don’t need storage, and your overheads are low. Plus, it has such a low barrier to entry that you can start your business after reading this article.
But, to make your dropshipping business profitable in a saturated market, spend more time on testing which products sell better so that you focus on them.
Lastly, learn pricing strategies and search for suppliers with efficient order fulfillment processes. You don’t want your storefront to have a steady stream of sales but poor shipment handling by your supplier.
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