Will Drop-Shipping Still Be a Viable Business Model in 2020?
For many years, drop-shipping was touted as the best possible business model for online entrepreneurs who wanted to start lucrative, yet lean businesses from the convenience of their own homes. But with so much saturation, is it still a profitable idea?
What is Drop-Shipping?
According to Shopify, “drop-shipping is a retail fulfillment method where a store doesn't keep the products it sells in stock. Instead, when a store sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the merchant never sees or handles the product.”
The biggest benefit of running a drop-shipping business is that you don’t have to invest in any physical inventory or storage space. You only purchase an item when a customer makes a purchase. This prevents debt and allows you to run a lean, yet highly profitable business.
How to Be Successful With Drop-Shipping
Over the last five years to seven years, drop-shipping has been utilized by hundreds of thousands of entrepreneurs. And while many inside the industry claim the business model is dead, that’s simply untrue. It’s certainly become more competitive and challenging, but you can still carve out a lucrative foothold in certain industries.
Here’s some of what it takes to be successful:
1. Get the administrative details squared away.
“Before you do anything, you need to take care of some basic preliminary steps when starting a business,” IncFile notes. “Obtaining a business license should be your No. 1 priority before anything else. You’ll need to decide if forming a LLC or a sole proprietorship is the best option for you.”
By establishing a corporate entity — as opposed to using a generic sole proprietorship — you’re able to protect yourself from both financial and legal liabilities. Yes, it requires some extra effort, but it’s worth it in the long run.
2. Find the right niche.
Most drop-shipping businesses focus on a particular industry or niche. There are many different schools of thought on how to proceed, but here are some pointers:
- Choose a passion niche. In other words, you’re better off drop-shipping golfing products than paper products. Consumers are extremely passionate about golf and will spend lots of money on it. The same can’t be said of printer paper and manila folders.
- Choose a niche that isn’t super brand-specific. You want a category where people are looking for quality and price, not necessarily a specific brand. For example, running shoes probably isn’t a good category because people are loyal to Nike or Adidas. Children’s toys, on the other hand, are more generic. People buy what looks fun and exciting.
3. Choose the right type of product.
After zeroing in on a niche, think about the specific products you want to sell within this category. This will play a significant role in your ability to scale up and manage your time.
According to entrepreneur Ian Atkins, “logistics should be one of your top concerns when shipping an item, so it's better to consider light and durable products instead of heavy and fragile ones. It’s also wise, especially if you’re just starting out, to steer clear of products that require more than simple technical assistance to set up.”
4. What sets you apart?
When you’re up against dozens of other stores, retailers, and drop-shipping companies, you have to build a brand that’s enticing. Find something that can set you apart and really drive that differentiating factor home in your marketing, advertising and web design. This could be free shipping, lower prices, better customer service, cooler designs, or just about anything else that captures attention.
5. Prioritize the customer.
At the end of the day, it’s the customers who decide whether your business is profitable. Treat customers with respect and serve them well. A one-time customer puts a couple of bucks in your pocket; a repeat customer can propel your business and create a sustainable revenue-producing engine.
Are You Committed?
Drop-shipping is no longer as easy as it once was. When competition was low, people were launching six- and seven-figure drop-shipping businesses out of thin air. Today, it requires some strategy, finesse and a whole lot of commitment. You aren’t going to find instant success. It’ll take months and years of work to scale. However, it’s still very much a viable opportunity. Dig in and find out if it’s right for you!
Anna Johansson is a freelance writer with a special passion for entrepreneurial and marketing-related topics.
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