Want to Opt For Dropshipping? Here's What You Need to Know

Dropshippers are limited by short-term success unless the fundamental obstacles are taken care of
Want to Opt For Dropshipping? Here's What You Need to Know
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Student, XLRI
7 min read
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A deluge of eCommerce gurus often portrays dropshipping as a turnkey cash cow promising quick profits with minimum investment. If they are to be believed, even a hundred dollars is good enough to get going. A now defunct live store was set up to test the waters and gain insights. The findings reveal pitfalls to be avoided and successful strategies whilst building a dropshipping store:

Niche Selection

A narrow niche, preferably a micro-niche with low competition, should be selected. Dropshippers have manifested it to an extent where single-product stores are no more a rarity. A broad niche or a general store requires a huge marketing budget and more often than not eventually leads to failure.

Small-ticket products are easier to sell at a relatively new online store. Home Decor was chosen as the test store’s niche; thanks to inundation of handy innovative products within the segment.

Advertising Methodology

Facebook ads stand as the de facto standard for dropshipping and paid campaigns were setup for selling products at the test store. The page title usually is the store’s brand name or a generic phrase and opting for brand name is counterproductive for a relatively unknown brand.

Selecting ‘Home Decor Ideas’ as the facebook page’s title increased the audience’s likelihood of interacting with the page’s content; higher organic reach being a direct result. Users who interacted with a combination of the product’s video and image ads were later retargeted for product sales through carousel and Instant Experience full-page ads.

Product Research

An experienced dropshipper performs preliminary research to discover a winning product. It is make or break - a high product sales against advertising spend ratio guarantees significant profits. Product research involves running facebook campaigns for different products to filter profitable products by cost per purchase. Multiple tests were run before a winning product was found: A packet of glow in the dark stones. The campaign collectively garnered millions of views and a profitable ROAS was achieved. Facebook Ad Archive reveals history of ads associated with a page, it is useful for product discovery analyzing competitors within a niche.

Product Procurement

Until considerable sales volume is achieved, AliExpress retailers are a reliable source for product procurement. Newcomers usually start off with manual order assignment moving to automated process at later stages. A supplier with fast shipment timelines and a low complaint ratio can be directly engaged with to streamline sourcing.

Location Disadvantage

The test store was based in India while the target customers were largely located in high-income nations such as USA, Canada, Australia, and so on. Finding a reliable payment processor is a challenge for Indian dropshippers. PayPal India charges higher fees for accepting international payments and several leading payment processors including Stripe, Due and Shopify Payments do not currently accept registrations from India. Direct payment functionality for processing payments without being redirected to an external site is also unavailable to Indian merchants.

PayPal balance cannot be transferred to another account in accordance with RBI norms rendering it unusable to pay supplier invoices. Cross-currency markup for international USD payments adds another 3-4per cent to the procurement costs.

The difference in time-zones across different locations makes live customer support a resource-intensive task. US based providers offer local toll-free number subscriptions with possibility of routing to Indian numbers.

Customers - Repeat orders or Chargebacks

Majority of dropshippers face quality issues as products are sourced from remote suppliers. The high return shipping costs render returning the product to the shipper unviable. Thanks to mail subsidies, chinese suppliers manage to ship the product to the customer at a fraction of the return shipping cost. Customer complaints claiming product not being as described are not uncommon.

Several customer end up registering a dispute or a chargeback with the payment processor or credit card issuer. The industry-standard maximum chargeback rate is 1per cent, limiting it within these bounds in a dropshipping model, necessitates prompt customer support. The product quality has overarching repercussions: repeat orders are almost non-existent which results in a low lifetime customer value.

Product Return Rate

The industry-standard return rate is around 35per cent, but it is surprisingly lower within a dropshipping model. Dropshippers usually adopt a return policy which holds the buyer liable for the return shipping costs unless the item is defective upon arrival. The return shipping costs are high; at times more so than the purchase price rendering the process unfeasible.

Dropshippers based in the country where their primary customer base is located have an obvious advantage: They could accept returns domestically and maintain a buffer stock to expedite shipping.

After satisfactory sales volume were achieved at the test store, options for local procurement and fulfillment were explored. Chinese suppliers based in the US can manage fulfillment but inventory issues show up eventually. Simultaneously sourcing from both local and Chinese suppliers results in unprecedented delay. Finding local suppliers for all locations isn’t possible as well.

Optimization - Increasing Sales

The global shopping cart abandonment rate is 67.9per cent and the commonly cited reasons include issues with the return policy, a slow website, high shipping costs, and forced signups. A high checkout rate is desirable and optimization involves identifying the underlying causes and rectifying them. Visitor recording scripts capture videos of user activity which help understand the rationale behind cart abandonment. Follow-up email sent to customers who leave their email address before dropping out results in recovering otherwise lost revenue.

Scaling - Boosting Sales

Scaling is what most of the dropshippers are unable to successfully perform due to a wide array of reasons. It involves streamlining operations by establishing a reliable supply chain for the winning product. Scaling involves far more than simply increasing the ad budget, the number of customer care executives or upgrading the website infrastructure.

Increasing the ad budget without a proper strategy can be counterproductive; the ROAS (Return on Ad Spend) decreases. Targeting new interests to reach out to a different set of audience is one way to maintain ROAS. Data from Google Analytics and Facebook Pixel provides insights for better targeting.

Lookalike and Custom audiences are scaling tools to be implemented once the sizeable volume is reached. A custom audience is simply the set of users who have performed a specific task. Lookalike audience tool is part of the Facebook ad panel - It creates an audience similar to the existing one. Lookalikes for high-performing custom audiences - Purchases, Add To Carts, Video Viewers, and so on can be created.

Conclusion

Dropshippers are limited by short-term success unless the fundamental obstacles are taken care of. A hybrid model absorbing the best of both ends of the spectrum is more likely to succeed. Automating processes from nascent stages is important as resources can be allocated for expansion at a later point of time. Checking samples prior to choosing supplier results in better quality control and long-term benefits.

Investing resources in optimizing the eCommerce website help achieve higher checkout rates. Product research is an ongoing process and what product may sell right now may not in the near future. Something that is clear - Dropshipping does work if proper strategies are followed and a planned implementation is carried out. That said, it isn’t as undemanding as many within the industry might want you to believe.

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