What is Dropshipping? Is Dropshipping a business model for you? – Gofrugal 2022

What is dropshipping? Is dropshipping a business model for you? - Gofrugal

Looking for a business model that demands the least possible investment? Ever dreamt of being the boss of your business? Is the upfront investment stopping you? With the right tools at your side, Dropshipping can yield promising profits. What makes Dropshipping the business model of 21st-century India? Let’s see!

India is one of the top 10 entrepreneurial economies (source: U.S. News & World Report) and has the second-largest number of internet users (source: statista) in the world. And 30% of our GDP comes from small and medium businesses (source: livemint). This makes us a country that explores online, no-infrastructure business possibilities of low investment. And Dropshipping is the perfect combo of the three. This article will focus on understanding the Dropshipping model and guidance for newbies.

What is Dropshipping?

Dropshipping is an online retail business model where you sell goods without maintaining a physical inventory. Goods are not purchased and stocked, in fact, Dropshipping needs no warehouse. Retailers own an online storefront, and an e-commerce site and take care of the sales, payments and records. The orders are sent to the suppliers, manufacturers or wholesalers, and they take care of the packaging and delivery of goods to the customers.

How does Dropshipping work?

A customer visits your online storefront and places an order. This order will be auto-forwarded to the supplier, the dropshipper. The dropshipper will pack the goods and dispatch them to the customer. You own only the order fulfilment. Dropshipping is legal in India and is supported by third-party e-commerce platforms. The rules and regulations, and the process, differ from the platform of Dropshipping.

Dropshipping on a third-party e-commerce platform: On a third-party platform, you register yourself as a Seller of Records (SoR) for Dropshipping. This puts you in charge of the price and payments while allowing you to place your brand (instead of the supplier’s) in the shipping slips. And the e-commerce platform takes care of shipping the goods from the dropshipper. However, in this case, your sales is subject to cart commissions, and an online selling fee.

Dropshipping on your e-commerce site: On your platform, you create the catalogue of your online store and set your margins. The policies and terms are fixed by you in conformation with that of the supplier. The supplier takes complete care of the packaging and delivery. You have the freedom to choose your suppliers, margins and target market. With your own e-commerce platform, you have no commission charges or fees.

The dropshipping model flow from customer to delivery.

Advantages of Dropshipping

Dropshipping is a competitive market because of the list of advantages and simplicity of business setting up and management it offers.

  • No inventory Inventory management is a time-consuming process, although it is made effortless with automated inventory management solutions like the stock pick, stock take and stock refill. But why own an inventory when you can choose not to?
  • No infrastructure – The boom of the e-commerce sector can be attributed to its go-digital with the less-infrastructure model. And especially the businesses that start low on capital should not consider leasing, renting or owning infrastructure.
  • No upfront costs – You save inventory and infrastructure costs and keep the working capital low. To find the right digital solutions, you can avail trials in the exploration phase.  
  • No purchase – Retailers fail to purchase the right goods at the right times and overcome this with automated reordering solutions. However, with Dropshipping, you do not purchase any goods to stock.
  • No employees – Hiring and retention hinder operations at retail stores. Although Dropshipping requires less labour, using a POS can help you operate with minimal labour and the least skills.
  • Scalability – Not maintaining a physical inventory, an outlet or a warehouse keeps your boundaries open to expansion. Scalability extends to the products that you choose to sell, as space isn’t a concern.

Challenges in Dropshipping

  • Product quality concern – You cannot assure the quality with which your customers are served. You can solve this by defining clear terms with the supplier and collecting feedback from customers.
  • Low income – Dropshipping is a low-income business until you market your brand to the right audience. Communicate offers, discounts, and price drops via messages and increase your customer re-engagement.
  • Competitors – Dropshipping is easy to get started, thus the competition. Analyse your competitors’ weaknesses and differentiate yourself. Pro-tip: Harness the power of technology to frame strategic business plans.
  • Inventory management – This unaddressed challenge causes order cancellation due to stock unavailability. Keep the stock availability on your site in real-time sync with the distributor’s inventory with a POS that offers consumable APIs.  
  • Prompt anywhere, anytime engagement – Managing different shipping prices for different shippers on the go keep the site updated. Use mobile business assistants to stay connected with your business with instant price fixing.

How to get started in Dropshipping business?

The ease of getting started is what gives Dropshipping the power to compete with traditional business models. Here’s how you can start your Dropshipping business.

  • Identify the market – Choose the market of your target. Research and understand the market and the shopping trends.
  • Identify the products – Recognize the market’s appetite. And dynamically extend your research to trending products and seasonal demands.
  • Identify the suppliers – Spot the suppliers fetching the highest margins for the products you have chosen to sell.
  • Study your competitors – Analyse the competitor to understand their weaknesses and leverage them to stand out from the crowd.
  • Officialize your business – Refer to the legal formalities to start your business (source: India Filings). Consult a corporate lawyer to complete the legalities.
  • The supplier concord – Sign the Dropshipping agreement with the Dropshipping supplier. Refer to the Dropshipping supplier agreement template (source: AllBusinessTemplates.com).
  • Set up the e-commerce site – Set up your own e-commerce platform or consult e-commerce site developers or register yourself as a seller on third-party e-commerce platforms.
  • Integrate your site with the POS – Select a POS with e-commerce site integration and consumable APIs. This will fix a major Dropshipping challenge, discussed in detail below.

Is Dropshipping for you?

As discussed in the beginning, Dropshipping is a business model that fits well into Indian retail. So to find out if drop shipping is for you, try answering these questions.

  • Are you an aspiring entrepreneur?
  • Can you employ and maintain resources?
  • Can you gather huge investment capital?
  • Can you afford business infrastructure?
  • Can you dedicate yourself to a business?

If you want to venture into a low-investment business that requires less time, effort and attention, Dropshipping can be your first resort. Understandably, the fear of failure is common in any new venture. However, the fact that you have little to invest/lose in a Dropshipping business makes it worth a try! India is a witness to successful and exemplary Dropshipping businesses like Indiamart and TradeIndia. As Dave Thomas, Wendy’s founder, once said that the key to business success is to know your product, and customer and have the desire to succeed.

How much should I invest in starting a Dropshipping business?

As you have understood, Dropshipping is a low investment model. And so, there is very little to invest in – an e-commerce site and a POS. Do not purchase software solutions right away. As you can avail demos and find the right product for yourself and your location. Ensure that the solution you choose

  • Is customizable to your business model
  • Operates with your choice of devices
  • Is easy to use and scale
  • Requires minimal staff with least skills

To start with, you can avail a 30-day free trial of Gofrugal’s order management system and POS and see how it works for you.

How can I earn from Dropshipping business?

Your earning is the profit margin obtained from the difference between the selling price and the supplier’s price. Say, you sell the product at MRP and the supplier sells at the wholesale price. The margin (MRP-Wholesale price) is your profit. The mere establishment of the site will give you this margin. To drive in fresh and repeated sales, you should reach your audience, store your customer’s data, re-engage with them, and understand their purchase patterns and frequency.

You can do this with a POS that integrates with e-commerce platforms. As discussed earlier, Dropshipping business can be done effortlessly with a POS that provides open APIs to connect with the distributor’s inventory. Gofrugal’s POS solution has a wide range of integration facilities and solutions that will help you differentiate yourself from the crowd.

Now that you are confident about Dropshipping, what’s stopping you from setting out on your new venture? As I said in the beginning, with the right tools, Dropshipping yields promising returns! Remember, “The early bird catches the worm.” Click below to connect with us for a personal consultation to kick-start your business successfully.

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