What Is Dropshipping and How Does It Work?

What Is Dropshipping and How Do You Make Money?

When starting an online eCommerce business, one of the essential elements is having products to sell. There are three ways to source products for your eCommerce brand:

• Create your product own range and stock it.
• Sell other brands products from a stocked range.
• Dropshipping – for both your own product range and other brands, but do not hold stock. 

Dropshipping is often seen as the dream business for creating residual income as it is seen as an automated way to run a business with little or no interaction with the goods themselves. In this blog, we will discuss the latter, dropshipping and hope to offer an unbiased view on what it is, the costs involved, and if you can still profit from it. 

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What Is Dropshipping?

Dropshipping is the term used to describe an eCommerce business that sells products but does not hold stock. This can be products from their own designed and designed range or other brands products, but critically none of the stock is stored or produced directly by the brand. 

The most common two types of dropshipping businesses are imported goods, usually via AliExpress and Oberlo, in which the eCommerce store advertises and takes payment for the goods. However, they are shipped from overseas suppliers directly. 

The second and the most popular usually comes in clothing brands where a print on demand supplier will sell clothing items to customers based on a pre-set design by the eCommerce store owner, directly to the customer, but they are only created on receipt of an order. 

What Costs Are Involved With Dropshipping?

Despite not holding any stock physically, there are still costs involved with dropshipping, such as startup costs and ongoing running costs. 

Startup costs:

• Website design – £800-£3000
• Branding – £500-£2000
• Working capital

Ongoing running costs:

• Advertising – £200-£2000 per month
• Website hosting – £30-£300 per month
• Money in the business to cover orders

You will also need to have some starting capital to cover any initial orders via your store. Most dropshipping suppliers will take payment from your account when the orders are placed to service the order. However, most payment handlers will not release funds to your account for at the very least a few days. This means you will need to have some working capital in your business account at all times to ensure the smooth running of your store. 

The Pros’s and Con’s Of Dropshipping

Dropshipping is often looked at as a way to escape the 9-5 or run a side hustle to boost your income. There are a few things that you need to take into consideration before you launch a store, so we have created a pro and cons list for you. 

Pros:

• Extra income
• Great way to launch a new business without a substantial financial commitment
• No space needed to store products
• Hands off production business
• Suitable for testing the waters on a business idea

Cons:

• You are not in control of quality 
• Reliant on third parties
• It takes just as much time and effort as a “traditional business.” 
• 100% of the risk is on you – not the suppliers
• Harder to sell on the business compared to a traditional business setup. 

You will also need to see proper financial advice from an accountant and or financial advisor on how to handle the income and expenditure of the business itself and the implications of this, such as paying additional tax. You also might want to check for any clauses in your employment contract that prevent you from running a business alongside your current role. 

Dropshipping Summary

This blog might come over as a bit negative towards dropshipping. This is because, unlike other digital agencies, we like you to have all the facts when deciding to invest your hard-earned money into any project. Dropshipping is often portrayed as an easy way to make money and completely hands-off when in fact, it can be a risky route to invest in, despite its upsides.  

If you get it right, dropshipping can be very profitable and can help you launch a much more profitable and investable business down the line. Put particular emphasis on:

• Choosing the right products
• Effort into inbound marketing & social media
• Attracting return customers with things like email marketing
•  Expanding your range as budget allows

Need further advice? Get in touch with us here at Morgan Branding we have a fully dedicated team ready to help you and your business get ahead online. You can get in touch via our contact page or get social with us on Facebook, Twitter, Instagram or LinkedIn! 

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