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February 13, 2024
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What is dropshipping and how does it work? (Detailed guide)

Dropshipping is a retail model in which the store does not buy back the product, but sells it directly from the supplier’s warehouse. The supplier is responsible for quality and delivery. The customer pays for the goods, the dropshipper places the order and transmits the data for fulfillment. Earnings in dropshipping are the difference between the initial value of the product set by the supplier and the price at which it was sold.

How does dropshipping work?

When compared to a traditional business, getting into dropshipping is fairly easy. The startup costs are extremely low. All you really need is a computer with internet access. If you already have your own store, dropshipping can be a good addition to your existing business.

The concept of dropshipping implies, first of all, a trusting relationship with the supplier. Item is dropshipped, meaning it’s sent directly from the manufacturer. The dropshipper’s business directly depends on the quality of the goods delivered and on how the supplier builds the delivery process. All claims, dissatisfaction and unpleasant moments that may arise when working with the order and the buyer – the “responsibility zone” of the dropshipper, he solves the problems. A dissatisfied customer is a customer who leaves for good. And this is already a blow to reputation and business losses.

What is dropshipping?

Dropshipping is a low risk business that is easily scalable and does not require a large investment at launch.

So, what dropshipping info will be useful to you? Of course, it is the opinion of those who have been using this model in their work for a long time. We are sure that you have watched more than one video on YouTube, read many articles. And still you have questions. Let’s get to the bottom of it. We are going to get help from a well-known provider of high-quality online services, Daehan Trading, which has been working on the dropshipping market for over 10 years, helping to create and promote new brands, finding partners and suppliers for online stores, checking deals for purity and relevance.

To succeed in the dropshipping business models you must:

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  • Place merchandise on your website, online store, or online platform
  • Sell products that are popular and in demand, with good profitability
  • work only with reliable and responsible suppliers
  • Promote your store effectively, invest in advertising and marketing
  • Work on increasing orders and customer retention

Dropshipper looks for a balance between price and quality. And, of course, offering products from different companies and brands. Sometimes unknown or little popular. It should be understood that when the customer has a request for a particular product, he considers offers, comparing: prices, characteristics of similar products and speed of delivery. If he is interested in a particular model or brand.

Dropshipping and its meaning in testing new business ideas and products is often underestimated. Although it is quite accessible and simple research tool.

Risk management

Almost every dropship guide starts with a detailed description of what you need to do when entering this business model. We’ll write about this below, but first we want to draw your attention to something worth serious thought.

Understanding the risk factors in dropshipping is key to making good decisions.

The myth that dropshipping is a hassle-free business goes from one promotional article to another. Creating a pretty picture.  A dropshipper can spend a lot of time and money creating and promoting his store. And it won’t guarantee him success. An incorrectly chosen niche and an unpopular product are major risk factors and possible points of failure throughout the sales chain. When planning a budget, the dropshipper should set aside some (often not a small amount) in advance for contingencies, advertising overhead, and running the business.

Dropshipping in Five Steps

You can launch a dropshipping business quickly. But the preparatory part will take a lot of time. Take your time and don’t expect quick results. Start with five steps.

1. Choosing a niche.

Think about why people buy certain products or services? Gather all available information about the suppliers and manufacturers of what you are going to sell. This process of monitoring and analysis can be quite time consuming; try to get as much data as possible. As a result of your research, you should have at least a general understanding of the size of your chosen niche, competitive factors, target audience, demographics, and buying habits. Is the niche trending or is it common and often in demand? What are the average sales figures for a typical niche product?

Without special tools, methodologies and techniques, it is quite difficult to diagnose and correctly assess the market situation. Daehan Trading’s online platform allows you to pick up interesting and “hot” offers from suppliers and dealers.

2. Product selection

You have to understand that only thorough market research allows you to work effectively, not idly. By filling your online store, you may be faced with a situation where most of the product will be unclaimed and will never be sold. You have wasted your time, you have rushed it. The basis of all decisions is the buyer and his needs. When researching the market, use the formula: 60% of total sales from total supply.

You can take highly specialized product categories, it will allow you to promote products in small niches, running targeted advertising campaigns.

It is important to know: who works in your chosen niche and what products they sell. Monitoring your competitors is becoming common and routine. Monitor website rankings, social media, and advertising.

3. Platform or your own site.

Most beginners and not only dropshippers use e-commerce platforms to create stores and manage orders. It’s convenient. Later on, many connect another promotion channel and create their own website: they order its manufacturing, buy a domain name, pay for hosting.

In order for the vendor to automatically receive information about the details of the order after payment and checkout, his platform should be integrated into the dropshipper platform.

Shopify is one of the most popular e-commerce platforms, which allows you to create your own store without any special knowledge or skills in web development. Simple sites can also be created on Etsy, eBay and Amazon platforms.

4. Choosing a supplier

You can start your search for suppliers by researching well-known e-commerce platforms: Alibaba, AliExpress, Global Sources, SaleHoo.

When choosing a supplier, the important things are:

  • delivery logistics: if the supplier is on the other side of the planet, you will need to take this into account when voicing the delivery time and calculating its cost.
  • platform technology, its automation and inventory management: the trading platform should be integrated with the dropshipping platform
  • supplier’s reputation and feedback on the quality of delivered goods

If the dropshipper works in the niche of building materials, pharmacy, electronics and household goods, then the Daehan Trading Co. Ltd. platform will help him find a reliable supplier. All the partners of this network (manufacturers, dealers and distributors) are subjected to multilevel verification of 80 criteria of transaction cleanliness and control of certification of all the offered goods.

5. Promotion

You can create a great store, fill it with popular products and not get a single order! No one will know about it. Without investment in advertising, efforts to fill the site with interesting content is unlikely to stand out and make a profit.

You will need to choose which platform you will advertise on. Usually Google, Facebook and Instagram, Snap or TikTok. Google is the long-term solution for organic traffic. It’s primarily context and site content. Google Ads work well, but require a lot of investment and the ability to set up ad campaigns within the system. Facebook and Instagram have long been good choices for B2C products. Email marketing should not be forgotten in 2023, personalization and promotional mailings are still important here.

Remember: dropshipping as a business model without marketing activities makes no sense.

You can’t do it alone.

The dropshipper has to compete with a bunch of clone sites. Often, he can’t find a quality product. He gets burned by the supplier’s lack of commitment and deception. We hope you have read our article to the end and now you know that success in dropshipping is a complex concept. Doing business alone without a reliable partner, a professional in his business will not work.

Dropshipping is a business that needs to be done, persistently and systematically. If you need help or good advice, contact Daehan Trading Co. Ltd. The company’s specialists will immediately get involved in the dropshipping process:

  • study niches, prepare for negotiations with suppliers
  • check potential wholesalers
  • Identify niche competitors and their suppliers
  • Contact manufacturers, check certification of products
  • Negotiate contracts 
  • analyze transaction budget, costs and profits

We would like to draw attention to new solutions based on IoT devices, which were developed by programmers of Daehan Trading Co. They automate routine operations, process data, reduce production costs and improve business processes.

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