THE DROPSHIPPING FORECAST
LILY CANTER LOOKS AT HOW THE BUSINESS MODEL IS HELPING ENTREPRENEURS WEATHER THE COVID STORM
DROPSHIPPING has seen exponential growth in recent years, particularly during lockdown as searches for the term rose 319 per cent globally on gig economy platform Fiverr. But just what is dropshipping and how do you do it?
The term refers to a commercial model where a business takes orders but does not hold any stock.
Instead the orders are sent to the manufacturer, who then ships the goods direct to the customer.
E-commerce platforms such as Shopify and supplier directories such as Alibaba have made the process quicker and easier, allowing businesses to pivot to this model with limited investment and time.
As customers’ buying habits change, dropshipping can be an effective way to quickly set up a new business to meet growing demand.
‘As people have been confined to their homes for long periods of time, they are looking for new ways to spend money. Within this, longer delivery times have become more understood, due to the effects of the pandemic,’ says Liron Smadja, VP of international expansion marketing at Fiverr.
There is a lower entry barrier in comparison to traditional sales because a business does not need to invest in stock or have to hire space to store it. In dropshipping, a business is not required to handle the product, manage inventory, or build a storefront.
‘It has become so popular this year because you can do it from home with next to no initial investment.
With little or no experience you can get it off the ground. You also don’t have to worry about packaging and posting, which is very time consuming,’ says Rupert Brown, of online dog accessory store Dogs, Dogs, Dogs.
The company, which operates the dropshipping model, has been running for two years but revenue has surged 100 per cent in the past six months due to the rise in online shopping.
‘There are so many apps you can add onto your website, like live chat and returns, which makes everything so easy,’ adds Rupert. Of course, the margins are much smaller when dropshipping, so success is dependent on shifting a large quantity of goods.
‘If you hold stock, your margins are 40-50 per cent, but on dropshipping it is 10-20 per cent. But with stock you have warehouse and posting and packaging costs,’ explains Rupert.
In the initial stages, a business is likely to pay the standard price for products because they have no relationship with suppliers and are buying singularly rather than in bulk.
‘Many would consider the higher supplier costs and competition as notable disadvantages.
‘However, the cost of the products can be negotiated as you build up your relationships with suppliers and the nature of competition means you are forced to find your niche and experiment with new ways of separating yourself from the pack,’ says e-commerce entrepreneur Gregory Cooke.
Another disadvantage can be the lack of quality control. ‘Whether it’s product testing ahead of offering the product or adding in an additional stop so as to check the products, this is a problem that can be overcome with perseverance,’ says Gregory.