Amit Basu is the founder & CEO of Artisan Furniture, the world’s first artisan marketplace.
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In a downturn, one option to do business that can be safer is dropshipping. With economic indicators looking a little worrying as we wind down the year, and the cost of living crisis putting businesses that deal with end consumers on high alert, discretionary spending is getting reined in.
The current unpredictability makes it difficult to budget and forecast with any degree of certainty. At the end of July, the International Monetary Fund updated its own global forecast (yet again), slashing growth in 2022 to 3.2%, which is half of last year when there was a pandemic in full swing. The 2023 global output is predicted to grow by just 2.9%. The IMF headlined its analysis, "Gloomy and More Uncertain," a wake-up call to anyone who is optimistically thinking this downturn is just a passing phase.
Against this backdrop, caution will be the byword for many. For anyone looking to start a business—or add a side hustle to their existing job to make ends meet—they could do worse than start a dropship service. According to Research and Markets, the United States dropshipping market topped $15 billion last year and should hit $17.6 billion by the end of 2022, growing to $26 billion by 2027.
The growth is impressive but as someone who works in this industry, it is not surprising to me, for there are some major advantages to becoming a dropshipper.
• The investment required is low as there is no need to buy the product and store it.
• Without having to store your goods, there are no costs in terms of warehousing and the administration that goes along with it.
• Logistics and tracking inventory are usually handled by the importer/wholesaler.
• Scaling can be a lot easier when you are not handling the product.
In other words, with drop shipping, the heavy lifting is being done by your partners in terms of importation, storage and delivery. As I have covered in a previous article, as a dropship reseller, you only need to focus on one person: your end customer. For this ease of doing business, there is a price of course, and that is that you will make less from each sale than if you had end-to-end responsibility for the supply chain yourself.
Be aware also, that while your partner will be delivering the goods directly, all communications to the end client, including shipping notes, etc., will have your name on them, and you will deal with the customer at every stage of the transaction. This is what is called a white-label process where the supplier name is not seen anywhere; your supply partner is very much in the background.
Under a dropship model, you are the effective retailer/reseller. You set the price of your products and advertise them online, knowing the wholesale price that you need to pay to your supplier. In other words, you can set your own margins, which sounds great in theory, but they need to be competitive or you will not get customers placing orders with you but with your online rivals.
Once a delivery is made, and the payment is processed, that is the end of the transaction and the end of the relationship—until the next order, that is.
Building A Relationship With The Right Supplier
I have made much of the process sound easy, but there are some hurdles to cross. Finding a trusted wholesaler with the right products, technology and reach require a lot of research. There are shortcuts like Oberlo that work with dropshippers, but you can also take the manual route of going through trade directories or databases.
You also want a switched-on supplier whose software allows you to quickly populate your own site or a shopfront on bigger platforms like eBay, Etsy and Shopify. Other services I recommend include a means to automatically download invoices, track deliveries and check the status of live orders. This is better than manually uploading information and images yourself, but watch out for one-off fees at this stage, as software is considered a service by some players in the market.
While the mechanics of drop shipping are pretty straightforward, the hard part is establishing an e-commerce shop that can engage the public alongside great marketing that can draw customers to the shop. Strategies for this include paying some of the bigger marketplaces to advertise your storefront against relevant searches, sending email newsletters to an existing customer base or using blog posts to drive traffic.
From the service side, other questions to consider when choosing suppliers are: Under what circumstances do you offer free delivery, and over what distances? What are the terms for returns? Are there free pick-ups, or is it at the cost to the end client?
Remember, too, that there are some statutory consumer protection rules that you, as a reseller, must play by. In the U.K. and Australia, for example, customers have 14 days in which to change their mind about a purchase they have not seen. They must contact the seller, which is you, as you are engaged in a B2C relationship with the end consumer. Your supplier with whom you have a B2B relationship has no involvement in this process.
Notwithstanding these downsides, dropshipping can offer some great returns, especially during a recession. If you choose the right products for your site that are niche or in-demand, especially where repeat purchases or accessories are needed, the returns can be swift. Remember, too, that at this time of possible economic contraction, dropshipping is one method to build a business with a very limited outlay, and I think that alone makes it a model worth considering.
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