Dropshipping is an essential part of the future of online retail. Estimates suggest that the global dropshipping market will grow to 476 billion USD by 2026, an almost 4-fold increase compared to 2020. Intriguing? Then let’s dive right in and find out what dropshipping actually means and how you can excel at it.
What is Dropshipping?
eCommerce dropshipping is a retail fulfillment method where brands outsource the procurement, inventory management, and shipping to a third-party vendor. A customer makes a purchase and payment to an online retailer (the dropshipper), who places an order with a supplier. The supplier then packs the order and delivers it to the customer.
Due to its many benefits like low startup costs, no overheads and the simplicity of this model, dropshipping is a valuable strategy, especially for small and medium-sized businesses. Why you ask?
Only a relatively small capital is required.
Dropshippers don’t need to purchase or store any inventory.
They don’t have to handle fulfillment.
Profit can be increased without investing too much time and effort into the new strategy.
In Action: Realizing Dropshipping
The fundament of a well-executed dropshipping strategy? Modern eCommerce technology connects many features like order management, logistics, payment, PIM, and third-party software with the help of powerful APIs. This results in an automated and real-time data exchange process from checkout to delivery.
There are essentially two ways to realize a dropshipping strategy: Your company can either do this on a small scale through an individual storefront or on a larger scale through marketplaces. Businesses may especially profit from this large-scale dropshipping since they can draw on the existing infrastructure of said marketplaces.
No matter which way you choose, there are some essential rules you should follow in terms of technology, operations, marketing, and more. Here are 8 golden rules of dropshipping you should know before opting for this fulfillment method.
8 Dropshipping Rules to Live by
1. Explore Unsaturated Markets
With many developed markets getting saturated, their developing cousins may offer more opportunities for your dropshipping business.
One example: Struggling to conquer Western Europe? Consider expanding your eCommerce business to other markets. For instance, Poland’s eCommerce market is expected to grow from $29.6 billion to $47.1 billion by 2025 – time to get in on this opportunity!
2. Have an Assortment Strategy in Place
There's no one-size-fits-all answer to the question of what the best product assortment strategy is. The ultimate goal is to have a well-rounded and comprehensive selection of products that will appeal to your target market and maximize your profit. The key is to work intensively with your reports to exploit the full potential of your assortment and detect areas that need improvement. By taking the time to understand your unique situation and goals, you can develop a customized strategy that will help you achieve success.
3. Optimize the Size and Range of Your Product Selection
Noticed some blind spots while analyzing your assortment? Fill the gaps with additional products to offer your customers a broader and deeper product range.
Find out your customers’ needs in order to offer a suitable product range (product width).
Determine how many different versions of a product you want to offer to provide suitable choices (depth).
By working with multiple suppliers, you can experiment with different additional products to expand your product range. To improve order fulfillment, you may want to work with multiple suppliers with overlapping inventories. The benefit? If one supplier does not have a certain product in stock and is not able to backfill, the other probably will. This way, you can ensure your customers receive the items they ordered without too much lead time.
4. Treat Your Customers With Special Offers
Sales and promotions are a time-honored way to gain the attention of customers – in particular the price-sensitive ones. Whether it is discounts, coupons, or special bundles, map out how you intend to attract attention at different stages of the customer journey.
For instance, a teaser about an upcoming promotion might entice a potential customer that’s not willing to buy yet, to sign up for your newsletter and can later be convinced. A “We miss you” coupon might trigger repeat sales for first-time customers. Woo your customers!
5. Paid Campaigns: Pave Your Way to the Top
A paid advertising campaign might boost your online dropshipping business by reaching the right audience at the right time in a crowded marketplace.
By sponsoring products through CPC bidding in product category pages, you can get your items placed at the very top of the search results. This increases your product’s ranking and visibility and gives you the opportunity to cut through the noise.
6. Crunch the Numbers: Your Performance KPIs
With 41% of buyers expecting a maximum delivery time of 24 hours and 24% expecting delivery within two hours, order fulfillment metrics matter just as much as aspects like your product quality.
Therefore, KPIs like on-time delivery, lead times and cancellations should be front and center of your attention when keeping an eye on customer satisfaction and the improvement of your customer experience.
7. Intelligent Order Routing to Minimize Logistics
An intelligent order routing system that relies on automation rather than manual dropshipping processes not only scales much faster and delivers a better customer experience. It eliminates human error in the supply chain and ensures a lean and streamlined order fulfillment process.
You might even think of it as the tactical brain behind your operations. This brain makes a split-second routing decision based on aspects such as supplier inventory, location, price, and service level – just much more precise and efficient than any human could.
8. Handling Returns: Put Your Customers First
Part of a dropshipping store and eCommerce platform is a well-functioning and customer-friendly return process. Handling returns can be a hassle, but your customers should always come first – whether that means compensating them for the return or sending them a substitute for a reduced price.
Modern technology can also help lower your return rate. Why not incorporate augmented reality to help customers visualize a product in a real-world environment before they make a purchase decision? Or simply offer in-store returns for full customer convenience.
This may even help to decrease the environmental footprint of your product returns, too, and prevent ever-growing landfills and excess packaging. Seeing as sustainability and climate protection are pressing topics, this is more than just a “nice side effect”.
Bring Your Dropshipping Services to The Next Level
A cohesive dropshipping business model can help sharpen your value proposition and set you apart from the competition. Ensure great customer service and convenience and make use of a diverse strategy to scale your business on your own website and (international) marketplaces.