When Sam O’Connor told Stuff this week he was making $25,000 a month from dropshipping, selling products on platforms such as Trade Me, it sparked significant interest.
The idea of doing five hours’ work a week for a six-figure salary is tempting for anyone settling back into work after the summer break.
But how does dropshipping actually work? And could you do it, too?
GETTING STARTED
It’s relatively easy to open the virtual doors to your shop.
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A basic plan with online shopping system Shopify costs US$29 a month plus 2.9 per cent and 30c a transaction. Once you have a Shopify account, you can link it up to Oberlo, a dropshipping platform that lets you select products from manufacturers and wholesalers to sell in your store – via social media or on a website, or both.
When a customer places an order, the details go direct to the product supplier and the order is sent without the owner of the store ever seeing the item. This means there’s no upfront investment or risk to the business owner of having to hold a lot of stock.
Oberlo and Shopify are not your only options, though.
Doba, SaleHoo, AliDropShip and Wholesale Central all offer an easy way to hook up with offshore wholesalers and manufacturers. You could even set up a direct dropshipping arrangement with a single supplier if you found a really unique product you wanted to sell.
THINGS TO LOOK FOR
Although it’s simple to start dropshipping, there can be hurdles along the way. When you’re relying on someone else to fulfil your orders for you, your business reputation is somewhat in their hands.
When you set up a dropshipping arrangement, you’ll need to check how much of the product your suppliers have in store, where they can ship, what they charge for shipping and how they would handle any problems with their products.
If you’re selling clothes and someone orders the wrong size, can you offer them a replacement? Or would you only offer refunds on defective items – and how would that work? Reputable suppliers and wholesalers will take responsibility for problems with their products and accept returns but some will charge a restocking fee.
In most cases, the customer will return the product direct to the wholesaler, who will refund your cost while you refund the total amount paid to the customer. This can be a drawnout process, though, so many dropshippers end up wearing the cost of returned items – at least initially.
You’ll also need to keep good records to ensure you meet your tax obligations.
ELENA ELLISEEVA/123RF
How will your suppliers deal with returns?
CHOOSING YOUR PRODUCT
The range of things you could dropship is huge but SaleHoo recommends focusing on a specific niche.
“The rising popularity of dropshipping means it’s becoming harder to find niches that aren’t already saturated. But new products and niches are emerging every week, so the opportunities are almost endless.
“A common misconception about dropshipping is that you can be successful and profitable in any niche, but that’s simply not true. If you choose a niche that’s already saturated with sellers or dominated by major brands, you’re going to face an uphill battle with your new business.”
If you can find a product that you need and can’t get elsewhere, it’s more likely that others will feel the same way.
You’ll also need to think about how much you can charge for a product. The less competition there is on price, the better.
SaleHoo recommends looking for items that you can add a margin of at least 40 per cent to, after your own costs, but says sellers should aim for margins of 100 per cent.
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SHOPPING PLATFORMS
Some dropshippers sell their wares on platform such as Trade Me or eBay.
Trade Me has rules about who it allows to offer dropshipped items on its site.
“To keep our marketplace trusted and safe, only experienced sellers or sellers with considerable experience with drop shipping may be considered. All applicants will go through a strict vetting process and approved sellers are required to sign a separate agreement with Trade Me, over and above the standard Trade Me terms and conditions and agree to additional undertakings.”
A spokeswoman said that meant they would have had to have completed at least 1500 trades or have demonstrated business experience with dropshipping. They cannot have had any issues with non-delivery of goods or any breaches of terms and conditions.
“Approved sellers can only offer Ping or Afterpay as a payment option so that buyers are covered by our Buyer Protection policy (which provides refunds if goods don’t arrive or aren’t as they were described onsite), clearly state where the goods are located and how long the item will take to arrive.”
