Google Trends show that “drop shipping” and its related search terms are on a steeply rising curve. Is it a ticket to paradise? Or are punters gullible for handing over cash to access “drop shipping directories” with “exclusive” deals? Is there any real money to be made? Are services like Oberlo the future and which eCommerce platform has the best options for anyone wanting to use drop shipping as a business model?
The UK eCommerce industry is worth an estimated $150 billion and is the third largest eCommerce market in the world (Source. Statista) But drop shipping as a business model is a small part of that economy. Individuals who sell online, make up about 15% of the total.
In this guide, I'll take you through all the steps required to build a successful, thriving, drop shipping business.
What Is Drop Shipping?
Drop shipping is a way to sell products on your website that you don't pay for until they have been purchased, doing away with costly inventory and giving you massive flexibility over which products you sell. The drop shipper then fulfils the order on your behalf, so you don't have any packaging or transport costs.
On the face of it, drop shipping seems like a genuine low-risk business opportunity.
The internet marketing business model with the lowest barrier to entry is Affiliate Marketing
In reality, it puts you, the store owner, in the position of being a middleman with little or no control over product quality, stock levels, delivery dates and the inevitable returns. On the positive side with some hard work, you'll hopefully be able to escape the “me too” crowd and build a brand before the market becomes saturated with third rate drop shipping wannabees.
Keep in mind that because your supplier will be sending single items to multiple customers on your behalf, you'll never achieve the economies of scale that someone purchasing an actual physical stock at true wholesale rates can attain. So if you are heading into a hotly contested marketplace, you will most likely not be able to compete on price using drop shipping.
Competing on price alone though is a terrible business model. To build a profitable and lasting business, you need to find untapped niche markets. Once you are established (and profitable), you can begin purchasing the physical stock at lower prices to increase your margin. Seasonal trends are perfect for the drop shipping model because you won't be left with a lot of stock when the trend is over.
What Are The Benefits Of Drop Shipping?
Less Money Required To Get Started
I've discussed the costs of setting up an eCommerce store in this post. The summary is that if you were to employ a digital agency to set up the store for you and do the initial SEO and marketing on your behalf, you are looking at a £10,000 investment. You can subtract from that figure by doing some of the work yourself, and it's feasible to shoestring it for as little as £500 if you have the technical skills.
The drawback of doing it all yourself is that unless you are in the trade then your store probably won't look good, or it will look the same as all the other templated stores out there. With so many people jumping on the drop shipping bandwagon your store will be a little drop lost in the big bad wide ocean.
There is nothing wrong with building a site and learning as you go. I'm a big fan of just jumping in and trying things out. As long as you don't expect to make money from day one, this could be a significant second income for you.
Here are some simple maths to understand why drop shipping is such an attractive proposition:
I'm going to start up a shop selling t-shirts. I have ten product lines, and I want to offer four colours in four sizes. I'll start off with five of each in stock. The cost price of each t-shirt is £5.
It doesn't sound like a lot of stock to get started, and it isn't. However:
10x5x4x4x5 = £4,000!
By swapping to a drop shipping business model, you free up cash otherwise tied up in stock to spend on marketing your site and making sure it gets found. Web sites fail because of a lack of traffic and nothing else. Even the most poorly designed website can be successful if it has a lot of traffic. A brilliant side product of website traffic is feedback and the opportunity to improve.
Because you won't be carrying any real stock, you won't have to pay any storage or container fees until your business gets bigger and becomes profitable. All you need is a computer, an internet connection and a phone to get started. You could also be a coffee shop warrior, but in reality, a comfortable office to work from would be ideal. Convert that spare bedroom into somewhere nice to work.
Drop shipping is one of the very few business opportunities where you don't have to pay for stock until the customer has paid you, so it takes a lot of the risk away from your position. It has to beat learning to day trade the stock market for a living!
Being able to switch out products quickly and easily is one of the big advantages of the drop shipping model. You are free to test different products to see what works best on your website without incurring expensive stock charges. It's also possible to find out what the best sellers are and then physically purchase them at cheaper rates in the future.
What Are The Drawbacks Of Drop Shipping?
Unknown Business Model In The UK
In the USA, drop shipping is a very well-developed business model, but it's still in an early growth stage in the UK. Suppliers are thin on the ground, but it is a market set for rapid expansion over the next few years.
If being able to start up on a shoestring sounds like just the thing for you, the flip side is that there will be thousands of people doing the same thing. Being able to make your products visible in the huge crowd is going to be a massive challenge.
High Delivery Charges
You'll be at the mercy of drop shipper rates for packaging and distribution so expect rates to be slightly greater than regular UK Royal Mail prices.
High Product Costs
Buying single items at trade prices to be packaged up and sent out on your behalf is less efficient than bulk buying. This extra work means you will be paying higher prices than if you purchased multiple items in one go in true wholesale fashion.
Lack Of Quality Control
If you don't see the products before they are sent out then how can you vouch for their quality or authenticity?
Complicated Inventory Management
You'll have to be vigilant and check supplier stock levels regularly to make sure that you don't have products on display with zero inventory at the provider level.
Blank Un-Personalised Packaging
Being able to enclose coupons, offers, trial products and other paraphernalia in the product packaging is out of the question because you won't be handling the product. It's a big opportunity missed for cross-selling and building brand awareness.
Dealing with returns and sorting out refunds can be a difficult process. If you haven't seen the product before it is delivered and have no quality control, then you'll have no idea of the number of returns to expect. Suppliers may request that returns are handled by you, and so you'll have to be adept at handling customer complaints.
Pros & Cons Summary
The drop shipping business models' major benefit is that you can start a business very cheaply, but there are so many drawbacks that even if you make it work successfully, moving to a model where you physically purchase, inspect and deliver your stock is the ultimate goal. Drop shipping is a stepping stone to a full-fledged eCommerce business or to supplement and test your existing product lines.
Relying solely on drop shipping as a business model is not sustainable in the long term because competition in the future will be so fierce. We are already at the stage in eBay and Amazon marketplaces where price wars in some product areas are so cut throat that merchants already sell for a loss.
Look for new opportunities, for example combining the drop shipping model with Facebook advertising is currently reaping benefits, there are opportunities to target impulse buyers with beauty and weight loss products, and that market sees new players on a daily basis.
For example, my wife has suddenly started making random purchases on Facebook, and I see anti ageing creams, makeup brushes and other beauty products appearing in the mail, so that's how I know it is working for some creative merchants.
Finding A Drop Shipping Niche
The way to begin building a viable drop shipping business is the same as any other affiliate marketing or website idea - find untapped niches where there is lots of demand and limited supply. With so many people rushing to take advantage of the drop shipping model this is going to be harder than it sounds.
For the first timer, there is an awful lot to learn. From building out your website to devising an advertising plan and gaining that all important feedback to improve your service, you are going to come up against old hands who have been doing this for a long time and will have a head start on you.
They will have a better understanding of the marketplace and the customer demographic. They will understand where to focus their eCommerce marketing effort much better than you.
The major consideration you need to address for your website is attracting website traffic. How will you drive hordes of eager buyers through your sales funnels? Buying advertising through Google Adwords or Facebook is one possibility, but you'll also need to be prepared for high advertising rates. Check those rates out first before you commit to your niche.
To try and level up the playing field you need to pick a niche that you understand well. If you are the type of person that buys the products you have in mind, then you'll have a good idea of what it's going to take to build a successful business in that niche.
Don't get suckered into paying fees for a website that will give you a t-shirt or sex toy drop shipping business. They are website design agencies posing as something they are not. Do not buy "off the peg", or "turnkey" drop shipping businesses".
One good idea for niche selection is picking a product you've recently purchased that didn't come up to your expectations. Using your knowledge of the marketplace, you can offer a better product and write better descriptions that help the customer make an informed buying decision.
In any business, to be successful, you must offer a better product and customer experience than the competition. You must add value to the proposition. Building an eCommerce business by competing on price alone is a race to the bottom of the marketplace and unsustainable.
Building a discount store that offers nothing but cost as a benefit will fail. The global marketplace is shrinking; it is becoming easier to buy products from countries like China and get them shipped to Amazon distribution centres. The Fulfillment By Amazon service accelerates this process. In the end, the only eCommerce businesses that will succeed are those that offer something unique and original. Your knowledge of the product area could be the advantage you need to succeed.
Some of the best niches for drop shipping are those that have specialist magazines dedicated to them. Many years ago I worked at a wholesale newsagent, and the array of independent magazine titles was staggering. If you want to find great niches, then go through the specialist magazine titles. They have a following big enough which warrants producing a magazine. Wikipedia has a complete list of all the current and defunct titles which would make an excellent starting point for research
Here's another useful resource for independent magazine titles
This storebuilder article (how to research and find an eCommerce idea) has resources for finding and following trends and trend watching
How to implement A Drop Shipping Business
One way to approach building a drop shipping business is to find products or niches where the current product suppliers lack a marketing edge because that's going to be your job.
If you don't have any internet marketing skills, diving into building a site in the hope that you'll make money is most likely to fail. Drop shipping is effectively an extension of affiliate marketing, and you need to be able to offer something different to be successful. It's not easy considering the number of people that think they can give it a shot and give up the day job.
One area where it is possible to put an advantage to work is by using a cloud-based website builder. In my research for this article, I came across several Magento websites that will have easily cost 10k+ to develop, and they have expensive maintenance costs. By using a next generation eCommerce website builder, you can drastically reduce the initial outlay and maintenance costs of building your drop shipping website.
The goal is to market your chosen product better than any existing provider is doing it. Don't create a website and fill it with a product just because you can. You'll be underestimating the amount of work that goes into maintaining a website presence. It is very labour intensive.
You can use this Chrome app Wappalyser to spy on a website and see what technology it uses.
Companies like Oberlo and Ecomdash who use API technology to integrate their App's with existing eCommerce software are revolutionising the industry.
I've recently added Oberlo to the directory. See my Oberlo Review
The App is an interface between the eCommerce store (Shopify for example) and popular eCommerce marketplaces like AliExpress or the Oberlo Supply market. These third party apps take away a lot of the drudgery of having to research and find products.
How Drop Shipping With Oberlo Works:
A customer places an order in your Shopify store, and you receive money to your payment gateway account (PayPal for example). Then, you have to use your credit card and purchase an item for your customer from the supplier, to be shipped directly to your client.
Your profit will be the difference between the amount of money a customer paid in your Shopify store and the cost of the product you paid for the supplier after subtracting any advertising costs.
I would advise anyone that wants to get started with drop shipping to build a Shopify store and install Oberlo. It's by far the easiest method possible, and it will save you hours if not days of research. See my Shopify review
Shopify also has built-in support for selling on Facebook, and that is a hot new market at the moment.
The other method for UK users is to use EKM or Shopwired to build your eCommerce store and then manually integrate your drop shipped products. Many companies offer XML data feeds of their products that you can use or in the case of a few products you can add them piecemeal to your store.
The drawback with this method is the time taken to do it and also compared to Shopify, UK eCommerce software simply doesn't have the cutting-edge features required to sell on social media marketplaces or integrate third party drop shipping Apps.
Here's A List Of Drop Shipping Ideas For Inspiration:
I spoke to both UK companies about their drop shipping options, and they agreed that there is room for massive improvement in this area. Shopwired says they have considered making an alternative to Oberlo, but that would mean duplicating development effort to achieve the same result and for a much smaller UK audience.
What's needed is an App that can integrate and pull together all your eBay and Amazon listings and keep track of your Facebook and other social media campaigns as well as utilise a drop shipping directory. That's quite a task list and a job for a startup.
Meantime we are waiting for Oberlo to open up its doors to other eCommerce platforms. Or for other competitors to enter the marketplace. For new UK drop shippers, there is no quicker way to get started in the business than by using a combination of Shopify and Oberlo.
However, before you go rushing off to build your Shopify drop shipping store, there are several things you need to know about Oberlo and AliExpress which is the marketplace with which Oberlo interfaces.
Things To Know About AliExpress
1. AliExpress is a massive online retailer owned by Alibaba Group Holding, a Chinese eCommerce company that provides consumer to consumer, business to consumer and business to business sales via web portals. It allows small companies based in China to sell to customers all over the world via the AliExpress website.
2. Low prices often but not always mean poor quality or inferior goods. Production costs in China are far cheaper than most of the rest of the world so buying directly from a manufacturer can mean significant savings. However fraudulent and counterfeit goods proliferate due to poor control over trademarks.
3. Delivery times can range from 7 days to three weeks, so you'll have to balance up whether a customer will wait longer for a product at a lower price or whether offering faster delivery and dealing directly with manufacturers or suppliers is a better option.
Read My Shopify Review
Read My Oberlo Review
UKLocalWholesalers.com is a directory of UK Wholesalers who pay a fee to be listed on the site. Browsing the listings is free for users. Most wholesalers have minimum order fees of £100.
Some of these wholesalers specialise in drop shipping and provide data feeds and images, but most do not. If you know exactly what niche you are going to be working in, then you might find some useful sources here.
Esources.co.uk is another wholesale trade directory with over 395,000 listings of which 171,000 claim to be drop shippers. However, in reality, a fraction of that total will be genuinely geared up for drop shipping.
Ideally, you'll know your niche before starting to look through the listings because you could easily spend a couple of weeks browsing! There is a separate dropshipping section so start there. If you want to view many listings, you'll need to pay the £20 registration fee.
Duplay specialises in kids and garden toys. They have a vast range of bouncy castles as well as electric cars, bikes, garden trampolines and waterslides. They offer both affiliate and drop shipping partner programmes.
To open a drop shipping account, you fill in the registration forms, and you'll get access to the trade account website where you place your orders. You take the order and process the customer payment on your eCommerce site and then log in to the Duplay trade website to set the same order again to be delivered to the customer. This will work well until you start getting a lot of requests!
Building a mailing list out of children's birthdays has to be one of the best business tactics ever! Every year their birthday comes around, and every year you'll be there to prime them up a few weeks beforehand with birthday party ideas like a bouncy castle.
The beauty of this would be integrating a form into your site which asks for the child's age. Once you have this, you can hit them up with offers for the rest of their life!
Do you know how much a bouncy castle costs to rent? It's typically close to £100 so build a website that captures traffic for these search keywords and then offers them a longer-term solution by buying one outright.
Wholesalers who develop friendly easy to use websites are few and far between, but I came across this excellent site wholesaling children's furniture, toys and accessories. In the esources directory, it says they are a drop shipper, but on the website, there is no mention of it, so you'll need to contact them directly to get the details.
One of your most time-consuming tasks as an eCommerce store owner is going to be writing product descriptions and sourcing images for your products. If you find a wholesaler that has already done that for you, then it will save you a lot of time.
A note on companies offering turn-key websites:
As you research your drop shipping market, you may come across companies proposing to build you a turnkey website complete with everything you need to operate a drop shipping business from day one. These types of site are worthless and nowhere near worth the £399 fee they want to charge you for them. In many cases, they are website design companies who have turned their hand to drop shipping and offer turn-key websites as a sideline.
If you purchase a subscription to a cloud-based eCommerce website builder, then it doesn't matter how many times you change the store name or add different products, and you won't have to pay the upfront fee that many of them are charging.
Continuing the toy theme here's a nicely done drop shipping opportunity for kids toys, musical instruments, puzzles, table games and much more. What caught my eye was the enormous range of electric cars which were on display at tigristoys.co.uk.
Facebook advertising has opened up eCommerce to a massive new audience, and many of them are impulse buyers.
Fad products like charcoal teeth whitening are all the rage at the moment, and there will always be a market for conventional beauty products like facial masks, day creams, night creams and oils.
In my research, I started to find that better and better opportunities presented themselves the further down the Google search results you go. This is because drop shipping companies are not very good at promoting themselves.
Oberlo may be the easiest way to start a store, but it's not the best way to find an opportunity. So don't be fooled into thinking that going down the Shopify/Oberlo route is always going to be the best option.
In many cases finding an opportunity combined with an excellent domain name and backing it up with some quality content is all you need to build a significant second income from a drop shipping business.
More Dropshipping Thoughts
High Advertising Costs
When you start a dropshipping business, you are primarily relying on your marketing techniques being better than the competition. In most cases, this means spending a lot of money on Facebook or Adwords campaigns.
If you look at most of the sites for sale on Shopify Exchange, you'll see that while some of them claim high monthly revenue figures, they also have high advertising costs associated with them. You can do some due diligence by running their domain name through Semrush and viewing their organic traffic figures. You'll see a lot of them are non-existent, so while it's possible to say "I took this business to £65,000 monthly turnover in six months" they don't highlight that they have £55,000 in associated advertising costs to obtain that, naturally.
There's a great group on Facebook called “Shopify Entrepreneurs”. If you haven't seen it yet then it's must-read material for anyone beginning to build an eCommerce store, regardless of the software you are using to build it. Once you've hung out there for a while you'll notice a recurring theme; people expect money to fall into their laps like the leaves on an autumn breeze.
It's not enough to add a theme, drop in a few products and then start hoping the cash register starts singing. Instead of people working hard for their money, they are falling for the whole “I built a six-figure eCommerce business in three months” Facebook advert, hook line and sinker.
We learned about honesty and integrity - that the truth matters... that you don't take shortcuts or play by your own set of rules... and success doesn't count unless you earn it fair and square.Michelle Obama
There is no substitute for putting in the hours and the hard work. There are no shortcuts, only doing things correctly and most of the time that means learning from your mistakes. Building an eCommerce business takes patience and time as any other business. Give it a bare minimum two years to breathe and to begin attracting traffic. No site ever died from an abundance of traffic, or at least those that did couldn't afford the hosting charges.
Content Creation Requires Time
The current emphasis on researching eCommerce trends, finding a niche product and launching your site into a non-competitive market is great advice. But good luck with finding those markets. Everyone is looking for the same thing, a market that isn't saturated with people trying to flog their products on Amazon, eBay and any other platform that will support a Shopify “Add To Cart” button.
eCommerce website builders make the job of bringing products to market on the internet so much easier than old school server-based software. They are quicker, nimbler; much easier to set up and that is their attraction. But the advantage gained is quickly being eroded by the number of people trying to squeeze into an already crowded marketplace. The half-baked Shopify sites that consist of one page and a couple of links are frighteningly bad. They will never inspire consumer confidence and make a sale even if you paid the two years subscription fee up front.
If You Need Cash Fast - Freelancing Should be Your Gig
Like a youngster buying his first car and finding the insurance and running costs four times as much as the original outlay, building an eCommerce store is simply the entry price to market. It is the cost of building up those all-important reviews and gaining consumer trust that is the real barrier to entry.
And to get those reviews and build that trust? You'll need traffic. Traffic is built over time from blogging and building links. You can see why I'm not convinced three months is in any way shape or form a viable project length. No, that's not it at all. If you need cash fast then freelancing should be your gig.
To be successful, you must set lofty goals. Aiming low means you'll be just another eCommerce website in the Google graveyard. Aim high, and with a following wind, you might just make something that people will like. Use the top site in your niche as a blueprint and then improve on it. That should be the goal.
Not to do the bare minimum and offer up a Hail Mary.
As a business model, drop shipping now rivals affiliate marketing for the ease at which you can start a new business.
Many affiliate marketers use embedded XML feeds to recommend products on their websites supplied by the major affiliate marketing networks, but the commissions available are so ridiculously small that you have to build very high traffic websites to make it work. For example, trying to sell white goods or electrical products through affiliate marketing typically has commissions of 2- 3%.
Using a Shopify store in combination with Oberlo gives you the opportunity to make a better presentation and offer a wider range of products at a higher margin.
The caveat is that every man, dog, brother and his son, wife and children will all be trying to do the same thing because it is so easy to do. Competing on price is not the answer.
Drop shipping is a great supplement to an existing business model, for example, a successful blog which already has a qualified traffic stream. Or for going into marketplaces where shopping buttons were not previously available (Facebook/Shopify).
As a stand-alone investment of your time, you'll have to have unique knowledge of a marketplace or a new angle to make it a success. Setting up shop is one thing, getting traffic to it is quite another.
All Life Is An Experiment, The More Experiments You Make, The BetterRalph Waldo Emerson Poet
You can't build a business without trying something or experimenting. For a low-cost way to start building an eCommerce business and begin learning the ropes then Shopify in conjunction with Oberlo is the way to do it.