Are you thinking about starting a Shopify online store, or you’ve already created that, and recently you’ve met drop shipping?

Please check out our updated article about the new way of Drop Shipping: Remote Warehousing, click here!

It seems to be a good opportunity, and it is. However, you need to know that there are more types of drop shipping as well. If you want to run your company for a long time successfully, putting just a small amount of money in it, you may want to take into consideration our advice mentioned below.

When you start your online store, you have to define what will be your main profile, what kind of products you will sell and who will be your target audience. After the positioning, you need to find your sources too, especially those where your goods for sale will be coming from. You have the following options.

You can sell products that you:
  • make on your own,
  • resell from other virtual retailers (and from marketplaces),
  • receive from real wholesalers.

When people talk about drop shipping, they usually think about the last two options (and selling your own products can also work with those two), but if you want to use the real method of drop shipping that can bring you long-term success, it’s better to work with only wholesalers – and not with retailers and marketplaces.

What is drop shipping? This is a closed chain that has three elements: physical customer, suppliers (originally wholesalers) and virtual marketplaces/retailers. It’s an endless cycle. The customer orders products from a retailer that doesn’t have a real stock, then the retailer orders those products from the supplier. Money moves between the customer and the retailer, and between the retailer and the supplier. Suppliers usually deliver the product to the customer, but there is another way of shipping: supplier -> retailer -> customer, but when you use this method you may need to rent a warehouse – but it is not necessary. With drop shipping you can be successful with your retail store in the long run with small capital investment.

Retailer and wholesaler affairs

Retailer + retail marketplace (as supplier) + customer = bad business?

You can import items from other virtual retailers, from retail marketplaces to your Shopify web store. There are also many marketplaces that sell products and let other retailers to resell goods from their stock as well. These marketplaces are for example AliExpress, eBay or Amazon. In another point of view, retail marketplaces have more retailers that sell their own items there, and Shopify web stores can be associated with these ones.

What happens in this case? The owner of the Shopify web store chooses products one by one from the marketplace that he wants to sell in his own web store. Then he sets the right settings and offers those items for sale. There aren’t real stock holdings, there is no need to pay for a warehouse. Products that were ordered from marketplaces will land at the customer’s house directly. There’s no need to invest too much money into the business and the selection will be wide ranged in newly created virtual stores too.

Well, it might seem to be tempting. However, there are lots of disadvantages of this form of e-commerce that can cause a fatal business failure easily.

Here they are:
  • long delivery time: customers often wait a month or more until the product they ordered get delivered. Nobody likes this
  • higher prices: the owner of the Shopify web store sets the margin for the prices of items from the suppliers/retail marketplaces for monetization purposes. But who wants to buy products at a higher price when they are available for less money in the original stores (for example on AliExpress)?
  • customs duty and VAT: if the customers order goods by reaching a certain money limit, they have to search for ordering documents and manage VAT and customs duty matters, and pay more
  • unknown quality: as Shopify web stores don’t have warehouses, they can’t even see and check the products they sell
  • lost package: it’s not a new problem in the world of ordering goods from abroad, and it can cause inconvenience for both the web store and the customer
  • problems with guarantee: web stores have to send back the packages to the other side of the globe, the product can be lost again, and the biggest problem is when the retailer disappears and there’s no place to send back the products that would need guarantee service, there’s no chance to get money back or to get a new product
  • reliability at issue: you don’t know anything about the retailers from the marketplace, you are not able to know if they are reliable or not
  • banks move apart: because of reliability problems, banks don’t like to work with money from classical drop shipping businesses
  • items arrive from different places: if customers order things that are from different retailers (from the marketplaces), they won’t get the packages in one main box, they will get that number of parcels as many orders they made. There’s no place where the products can wait for each other.

Just avoid selling products with a retailer through another retailer!

Retailer + wholesaler (as supplier) + customer = good business?

If you want to be successful in long-term with your Shopify web store, you better use a newer form of drop shipping instead of the classical one. (which was the previous one mentioned). In this case, we talk about the following. As a retailer, you are associated with real wholesalers who will be your suppliers. You will put their items in your online store, so customers will buy these. You choose your suppliers based on what kind of shop you would like to have, what you want to sell (it can be for example women’s clothes, gifts or home decor). Then you contract with those suppliers, so it will be a long-term and reliable cooperation and business for both of you.

This process is a bit similar to the classical drop shipping, money moves in terms of physical customer -> retailer -> wholesaler. Customers will order from you, you will summarize these, then send it to the supplier. And now a difference. The supplier will deliver the parcels to you, and you need to forward it to the customers. The advantage of this is that you can make sure about what you are selling. Also about what is the quality of the items, if they are damaged or not. You don’t even have to worry about renting a warehouse because you can place the packages in your own living room, garage or kitchen.

The wholesaler will give you a price list…

…in which you will see what items you can buy and sell and for what price. At the very beginning of commerce in reality, this went on the same way. Just the technical conditions changed. You buy a product for a certain price, you put a margin on it, then you sell it with a new price and you still going to earn money.

If you use novel drop shipping you don’t have to pick the virtual items one by one from the supplier’s list. You get everything from the wholesaler. They have data feeds – you get them – but they are in different file formats. There are different kinds of data structures too. So you will probably have a hard time with the manual settings. If you want this to be easy, you don’t have to do anything else but use the right Shopify application which can solve these problems facilely.

Why should customers do the shopping at your web store?

Benefits of cooperating with real wholesalers:

  • responsibility: you make a contract with the supplier, you will work together in the long run. You can contact them with any problems, and they won’t disappear without a trace
  • quality: you choose who do you want to work with, you know what kind of products it distributes. You can make sure about the quality. Nothing will surprise you
  • lower purchase and sales price: you can get the products at a lower price from wholesalers than retailers, and even if you set the margin for prices it’s going to be a good bargain for the customers
  • guarantee: the handling of warranty problems are not cumbersome
  • fast shipping: if you order from a cross-border supplier, you get the products in 3-7 days. If you order from a supplier who is in your country, you and the customers can get the products in 1-2 days or on the day of order placement
  • you don’t have to keep your money in products: you work with virtual stock by using the constantly updating database of the supplier. You don’t have high investment costs.

Do you want to run your business successfully in the long run and you have serious intentions about it? We definitely recommend you to build your retail company with the novel kind of drop shipping.

The hardest part of drop shipping is to find the adequate partner to work with. If you want to know how you can find suppliers to your retail business, click here.