Drop shipping is a unique kind of e-commerce business model that more and more entrepreneurs are beginning to explore. Not having to hold inventory sounds appealing, as does being able to work from anywhere, anytime you’d like. Profit margins are smaller, but if you think the process is worthwhile, then perhaps you don’t mind.
The concept entails a few caveats, naturally. Because products never cross your path, customer service is much more challenging to manage, and it’s arguably harder to market a strictly online business. This leaves the question: how big should your drop shipping business be? You want to grow over time, of course, but you also need to consider how much work you are willing to put in and what you are prepared to handle. Depending on what you prefer, you can start a national, international, or local dropshipping business —so what should you factor into your decision?
Consider your supplier’s locations
Consumers who shop online have become accustomed to the three to five day waiting period. Some are willing to wait longer, and others pay for faster shipping, but you risk customers becoming frustrated if they do not find themselves reaping the benefits of e-commerce the way they expect (and pay for).
Keep your suppliers’ locations in mind when selecting them. If your customers are in centralized areas like San Francisco or Los Angeles, then manufacturers based in New York or other countries carry additional risks (and freight is subject to theft and mismanagement, so the more miles traveled, the more opportunities for mistakes).
As a drop shipper, you will probably find yourself charging higher shipping costs to cover long distances and to make up for lower gross margins. You might also partner with multiple dropship distributors, so if a customer orders different products that you source from each one, then they will charge you their respective shipping costs. In this case, you might want to cater strictly to California for the time being and expand to other states when the time is right.
Where is your audience located?
When running any online business, it’s essential not to spread yourself too thin. Consumers searching for a specific kind of athletic shoe are more likely to turn to outlets that specialize in athletic shoes, not general footwear stores. Even though you can reach anyone in the world nowadays, your brand hinges on your ability to market it, and a range of unfocused products is excruciating to advertise (especially if you are not passionate about it).
Determine where in the world your audience is. If people looking for the products you want to sell are scattered everywhere, then it’s wise for you to be a larger-scale business. If people interested in your products happen to be in only a few locations (maybe the concept is more popular there), or if you only want to sell to your immediate community, then it might be more practical to establish yourself as a local business.
Who is your competition?
Assess who your competitors are. How long have they been in the game? How have they won over customers, and how do they retain them? To whom and where do they deliver? You do not want to waste efforts competing against a popular drop shipper right from the get-go, but you might fulfill an unmet need in a smaller area that your competition ignores. Once you grow, then you can take them on.
Consider the logistics
As a drop shipper, you assume all responsibility for things that go wrong, even if it’s not your fault. Because it’s your brand, unhappy customers will turn to your first, not your suppliers, even though it is their job to generate and send quality goods in a timely fashion. How many orders are you prepared to manage? How many customers are you ready to handle? You will also need to foster healthy relationships with your suppliers, so make sure you are ready to interact with a variety of them frequently enough.
Going international is a whole other story
You may think that if you open yourself up to the entire world, you can make vastly more money than if you remain local. This notion can be true, but it also entails a significant amount of additional work. Should you continue to rely on your US drop shippers to mail products to Thailand, then you are responsible for handling complaints if something unfortunate happens during shipping. If you partner with suppliers in other countries, then you need to be prepared to handle linguistic barriers and currency conversions.
Depending on your strategy, drop shipping can save you a great deal of work—or it can necessitate more. How far will your drop shipping business reach?