I am planning to set up an eCommerce store in Shopify and I don't have an idea about how drop shipping model works.
Should i setup my own inventory while i am still in the startup phase (i have some links with local suppliers), or should i opt for a dropshipping business? Will Dropshipping let me serve local as well as global audience at the same time? I am pretty sure that with local suppliers i will not be able to make investments for shipping globally.
Okay, so I personally have experiences with this as I've run an eCommerce company that carried inventory have helped dropshippers alike, so I'll 'drop' as much knowledge as possible on you (in no real order- but if you ever have questions my inbox is always open)
But before I jump into it, here is the Golden Rule about Dropshipping and starting a dropshipping company-
"Dropshipping is NOT a battle over price, but a fight for attention."
What this means is that your pricing structure is not your primary concern (although very important), but instead your battle for audience attention (marketing).
I can dive deeper into this but all I have to say is this- ask yourself, why wouldn't I just buy what you're selling through Amazon or Wish?
Anyways, lets get back to your questions, I'll write this out in bullets:
1. Holding your own inventory is great but really costly. It lets you solve a lot of shipping and product issues on-site and helps you provide faster solutions to end customers, but at a cost. (I can explain more if you like...)
2. The basic dropshipping model is simple. You receive a purchase order, you accept the funds, you place the order through your wholesaler (i.e. Ali) and they (the seller) fulfill the order on your behalf. Because you charge more than the wholesaler, you create a small profit on each item (not a lot, but something).
3. Dropshipping will let you serve globally, but the farther the distance the higher the risk/cost to you (shipping costs). There is a large risk for shipping certain items to foreign countries because of fraud, exchange rate, loss, and time. Pick the areas you want to serve carefully and list them on your 'Shipping Information' page. Have a good understanding of how these countries accept foreign dropshippers because not all are welcoming.
4. The most important thing you can do is develop a strong brand. If you're selling something you don't care about or have zero passion for, it's going to reflect in the quality of your brand. Build a personality around the theme or industry you're looking to sell to (and be a part of). Branding is so important because it will really help you stand out and gain traction.
5. You will most likely fail; that's the reality. If you're doing this for the money or to get rich in a few months- you're also going to fail. Do this because you genuinely want to do this.
Here are a little side notes:
The three horseman of dropshipping (and many other companies) are:
- How are you going to ship the product?
- What are your costs for this? (Is shipping included)
- What is your timeline for shipping?
(You really need to make this clear because managing consumer expectations is the difference between being instantly hated and being tolerated.)
- How do you issue a return for someone?
- What is your policy?
- Will you give them their money back?
(This is a big one because a lot of customers don't want to wait a month for their product and will most likely cancel their order or ask for a refund after the item has shipped. You need to be ready to cater to their needs and take the loss on certain things- that's life.)
- Why wouldn't I just go to Amazon or Wish?
- Why wouldn't I just buy from the wholesaler like YOU?
- Why would I pay this markup?
(If you have a solid brand and product, most of the time people will pay a little more. But if they smell BS are you make the user checkout process difficult or time consuming, they're going to price check on Amazon and 9/10 times you've lost them.)
These tree bastards are going to cause you a lot of trouble because each one is a full-time commitment. Hone in on your UX and guide consumers through as quickly and easily as possible. Don't make them think.
Again, my inbox is always open.
Drop shipping eliminates your need for warehousing but exposes you to vendor performance and cost issues. In many cases, drop shipping a standard production (non-specialized or custom) also insulates you from inventory risk. However, it also may expose you to supply chain issues you were not aware of in advance. If you have a product you want globally distributed, are taking inventory risk anyway, you should look at Amazon FBA (fulfillment by Amazon). It will solve your global issue and bring some other economies of scale.