Store interior with empty shopping cart. Concept: dropshipping
Jordan Schneir
By: jordan_shneir
Read in 12 minutes

Dropshipping: Can You Sell Online Without Inventory?

Are you interested in starting your own business?

It can be incredibly rewarding but also challenging. Starting a business requires a lot of time and energy, and forces you to make several tough decisions.

The first major decision you have to make is deciding what type of business you want to start. This as an essential step as it’s hard to go back and change course once you’ve gotten started. If you’re struggling to choose what type of business to start, consider dropshipping. 

Dropshipping is a retail model in which your store sells products without having them in stock. This model has many benefits, including low upfront costs, which makes it perfect for entrepreneurs who don’t have a lot of capital to spare.

Let’s take an in-depth look at what dropshipping is and how you can start your own dropshipping business.

What is Dropshipping?

Dropshipping is a business model that allows owners to sell products without inventory. When you sell a product from your business, you fulfill the order by purchasing the product from a third party and having it shipped directly to the customer.

Since your business doesn’t have any actual inventory, you don’t have to worry about inventory management or inventory financing.

Dropshipping: A customer purchases in your online store and pays for goods. You send the order to the warehouse with the goods. They are sent to the client. Thas all. Its simple!

How Does Dropshipping Work?

How does this process work? Let’s take a look at a quick example.

Say you want to start your own sporting goods store, but don’t have the capital to purchase inventory.

To fulfill customer orders, you would partner with a dropshipping manufacturer or wholesaler. Whenever a client places an order, you purchase the items from your supplier. The products would then be sent directly to your customers. As a result, you never have to see or handle the products.

This means you don’t have to worry about purchasing inventory before making sales and having unsold inventory.

Additionally, by learning how to negotiate with your suppliers, you can increase your profit margins.

How Dropshipping Works, steps

Pros & Cons

Dropshipping, like any business model, has plenty of advantages and disadvantages.

Advantages

  • Low Costs

The primary benefit of dropshipping is that it doesn’t require nearly as much capital as traditional retail business models. You never have to purchase inventory until you actually make a sale.

As such, it’s possible to start your own dropshipping business without having a lot of startup money.

  • Easy to Start

Dropshipping businesses are also straightforward to start. You don’t have to invest in storefront properties or warehouses. You also don’t have to worry about managing inventory, packing and shipping products, or handling returns.

  • Location

Dropshipping businesses typically operate online — meaning you don’t have to worry about picking the right location for your store. As long as you have an internet connection, you’re good to go.

Disadvantages

  • Out of Stock

Since you don’t have your own inventory, you have to depend entirely on your suppliers. If a customer places an order and your supplier doesn’t have that item in stock, you could run into some issues.

  • Competition

Since anybody can start a dropshipping business, you’ll likely be facing a lot of competition — especially when it comes to pricing. Dropshippers often offer products at extremely low prices to attract new customers. This can make it difficult to compete if you aren’t able to match those prices.

  • Quality

When running a dropshipping business, you have to depend on your suppliers for high-quality service. If your supplier accidentally ships a wrong or broken item, you have to take responsibility, which can damage your reputation. 

Despite these disadvantages, dropshipping remains a great business idea for people with low startup capital.

working men are checking stock in warehouse. concept: dropshipping

Dropshipping in 2020 and the COVID-19 Pandemic

The current global health crisis has affected millions of businesses. Many store owners have decided to update their businesses by moving them online. E-commerces have proved to be a fantastic alternative to keep existing businesses afloat. But that applies to stores that have their own inventory in-house.

Does the same apply for dropshippers?

Is dropshipping a good idea during the coronavirus crisis?

In theory, dropshipping is a good idea during the situation we live in because you wouldn’t need to have a warehouse, and you wouldn’t need to disinfect all your inventory continually. The problem is that dropshipping suppliers are also facing restrictions that disrupt their operations.

For example, many dropshippers have suppliers in China. And, as you know, that’s where this pandemic started, which is why many factories in the country have had to close. If that wasn’t enough, logistic companies and cargo services have been forced to do the same. Some have already started to reopen, but this process has been slow.

The same has been happening in other countries and continents.

You need to make sure that your supplier is open, and that their country is shipping and if the country of residence of your customer is currently receiving international shipments.

All of this translates to delays that, in some cases, could last several months, which is bad news for business.

The good thing is that the economy everywhere is starting to reopen, albeit somewhat slow. This means that if, before the pandemic, you were considering starting a dropshipping business, you might be able to do it not that far in the future. Take this time to start researching as much as you can about starting a dropshipping business and start preparing for when things go back to normal.

Fortunately, this pandemic has changed how people buy: customers are now migrating to online shopping, and this is excellent news for online stores, including dropshipping.

If you want to start getting prepared to open a dropshipping business, we’ve got you covered!

Shopping online concept - Shopping service on The online web. with payment by credit card and offers home delivery. parcel or Paper cartons with a shopping cart logo on a laptop keyboard. concept: dropshipping

How to Start a Dropshipping Business

Starting a dropshipping business is relatively easy. All you have to do is follow a few simple steps to get going.

1. Choose a Niche

First, you need to decide what type of business you want to start. What products are you going to sell?

It’s essential to focus on finding something that is in demand but not oversaturated.

You can sell pretty much anything you want to, including:

👉🏼 Electronics

👉🏼 Clothes

👉🏼 Jewelry

👉🏼 Gardening supplies

👉🏼 Sporting Goods

Start by evaluating your own interests and go from there.

2. Pick a Supplier

It’s crucial to find a supplier that carries all the products you want to sell has a good reputation and offers competitive prices.

When you start a dropshipping business, your supplier will be your most important business partner. It’s important to do your due diligence and find the best match for you.

3. Make a Website

Next, you need to build your eCommerce website. This is where your customer will go to browse and purchase your products. You can either create your online shop from scratch or choose an already established platform.

There are plenty of platforms to choose from, including:

🌐 Shopify

🌐 Amazon

🌐 Etsy

These platforms make it easy to start your own online store.

4. Get a Sales Tax ID

If you’re starting a retail business in the U.S., you’ll typically need to get a sales tax ID — unless you live in one of the few states that don’t have sales tax.

To get one, you’ll likely need to establish yourself as a sole proprietor. It’s important to collect the exact amount of sales tax required by your state. Otherwise, you’ll likely be held responsible for the difference.

5. Research

Lastly, you need to perform a lot of research to keep up with your competition and acquire new customers.

You’ll be competing with other dropshippers and large retailers, so you need to be able to research to determine your target market, pricing, and more.

By following these easy steps, you can get your dropshipping business up and running in no time.

How to Find Dropshipping Suppliers

As we mentioned before, your supplier will likely be your most important business partner. You’ll rely on them to fulfill orders, offer reasonable prices, and provide excellent customer service.

Delivery with parachute. Dropshipping. Package flying on parachute, delivery service concept. Flat design

But how can you find a good dropshipping supplier?

The two most common and easiest ways to find dropshippers are: use a wholesale directory or search online.

Wholesale directories, like SaleHoo, provide lists of reputable wholesalers for dropshippers like you to contact. These resources can save you a lot of time in your search for a quality supplier.

Alternatively, you can simply search online for wholesalers or manufacturers in your chosen niche. Alibaba and Aliexpress are common online suppliers used by dropshippers around the world.

Lastly, you can use apps to source products from third party suppliers. The Shopify App Store can guide you to apps like these that make suppliers easy to find.

Beware of Dropshipping Scams

Before starting your dropshipping business, it’s essential to be aware of dropshipping scams and how to avoid them.

The most common scam you’ll run into is fake suppliers. Meaning, people pretending to be suppliers without actually having the products you want to sell.

Instead, they pretend that they do have these products, collect payment from you, and never ship your products. This results in you losing money and ruining your reputation as customers never receive their products.

To avoid this, it’s important to find reputable retailers. Search for feedback regarding the supplier you’re talking to, ask for the suppliers’ business license, and ask for details regarding their products.

By identifying phony suppliers, you can avoid falling victim to dropshipping scams.

Is dropshipping what you’ve been looking for?

Starting your own business can be exciting but also stressful. It’s important to learn as much as you can about starting and managing your own business to avoid wasting your time and money.

At Camino Financial, we pride ourselves on providing expert advice to small business owners like you so that no business is left behind.

For more business ideas and advice, subscribe to the Camino Financial Newsletter. When you do, you’ll be part of an online community of business owners, just like you, that want to grow their businesses and reach success.

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