What is dropshipping?

Can you sell goods without having to pack and ship them? Yes, you can actually do that. It's called dropshipping! When you run a dropshipping online store, you do not have any physical inventory, because your orders will be sent directly to your customer from your dropshipping supplier. Dropshipping is relevant for you, if you are considering starting an online store, but also if you are already running an online store and considering supplementing your product range. In this article we explain the concept of dropshipping for you, so you are not in doubt! 😉

Kristian Kalajdzic

Udgivet den September 26, 2020

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Table of Contents

  1. Introduction
  2. Benefits of dropshipping 👍
  3. Disadvantages of dropshipping 👎
  4. Is dropshipping a good idea?
  5. Who can dropship?
  6. Risks when dropshipping

Introduction

When you dropshipper, you sell a product that is shipped directly from a supplier, wholesaler or manufacturer. Dropshipping is not as well known in Denmark as it is in e.g. USA, but it has become far more popular than it once was. Many both established and newly started online stores do dropshipping, as it has a number of advantages. Benefits can e.g. be that you do not tie up money in a warehouse, that you can expand your range and thus provide a better customer experience or that you can continue to sell goods that you may not have in your own warehouse, and thus ensure a good delivery service.

There are also many pitfalls in dropshipping. Some people get the wrong idea about dropshipping, as sharp guys in the industry sell the notion that you can make quick money with minimal effort. This is not possible! Running an online store based on dropshipping requires hard work on an equal footing with an online store with physical inventory. Likewise, there are many things to be aware of when embarking on dropshipping. It can e.g. be related to the supplier you choose to use, as suppliers from e.g. China presents a number of challenges in connection with TAX, customs and VAT.

How dropshipping works infographic

Benefits of dropshipping 👍

When you dropshipper, you sell a product that is shipped directly from a supplier, wholesaler or manufacturer. Dropshipping is not as well known in Denmark as it is in e.g. USA, but it has become far more popular than it once was. Many both established and newly started online stores do dropshipping, as it has a number of advantages. Benefits can e.g. be that you do not tie up money in a warehouse, that you can expand your range and thus provide a better customer experience or that you can continue to sell goods that you may not have in your own warehouse, and thus ensure a good delivery service.

The key element in dropshipping is that you have no stock costs or money tied up in inventory – thus you achieve a large savings that you can invest in activities related to e.g. marketing. It’s worth gold, as a freshman. You should in principle only have money out of pocket when you make a sale, as the item in this connection must be ordered from the supplier.

Thus, you do not need a huge start-up capital to get started selling items in an online store. Likewise, you can offer a wide range of goods and the customer will thus get the impression that you are a large company, which increases trust.

As an established online store, you will be able to test products without risk before you take them in stock, you will have the opportunity to forecast (predict) your sale of a given dropshipping product and can thus better plan purchases. Likewise, there will be some products and / or product categories that for one reason or another do not pay to take in stock, but may well pay to dropship, as this gives a better customer experience. A good example of this is if you sell computers that you have in stock, but it may not pay to sell cables there, as storage costs and handling costs become too high. Then it can give a good customer experience that you therefore dropshipper the cables.

Disadvantages of dropshipping 👎

When you dropshipper, you sell a product that is shipped directly from a supplier, wholesaler or manufacturer. Dropshipping is not as well known in Denmark as it is in e.g. USA, but it has become far more popular than it once was. Many both established and newly started online stores do dropshipping, as it has a number of advantages. Benefits can e.g. be that you do not tie up money in a warehouse, that you can expand your range and thus provide a better customer experience or that you can continue to sell goods that you may not have in your own warehouse, and thus ensure a good delivery service.

The key element in dropshipping is that you have no stock costs or money tied up in inventory – thus you achieve a large savings that you can invest in activities related to e.g. marketing. It’s worth gold, as a freshman. You should in principle only have money out of pocket when you make a sale, as the item in this connection must be ordered from the supplier.

Thus, you do not need a huge start-up capital to get started selling items in an online store. Likewise, you can offer a wide range of goods and the customer will thus get the impression that you are a large company, which increases trust.

Some of the disadvantages associated with dropshipping are primarily lower coverage. Since you do not handle stock and shipping yourself, while you may only order on a unit basis, the supplier will of course reflect this in a higher product price. This means that you will experience a lower profit.

Likewise, there will often be fierce competition, as easy access to dropshipping products without large start-up costs means that many people try to sell the products. Therefore, you should be proficient in getting organic traffic to your website so that you do not rely solely on advertising dollars. Organic traffic can be achieved through SEO (search engine optimization), Facebook posts, Instagram posts and general presence on online forums within your niche.

Another disadvantage, which is not necessarily a disadvantage if you have done your prep work properly, is that you lose control of the products. If you make sure you choose a proper supplier, this problem will be limited. But do you choose to go with a supplier from e.g. China, then there will be a risk that the products do not live up to the customer’s expectations, that wrong products or the like will be sent.

Is dropshipping a good idea?

In most cases, dropshipping will be a good idea. However, it requires that you make an individual assessment, based on your own situation. As a beginner, it will clearly make the most sense to dropship, where an established online store should make a more in-depth analysis to clarify whether it is profitable or not.

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Who can dropship?

In principle, anyone can start dropshipping. However, it will often be the dropshipping supplier who decides if they want you as a retailer of their products. Many thank you nicely no thanks to online stores without CVR number, newly started online stores, etc. Therefore, you should also think about how you appear when you contact suppliers. Eg. no one will take you seriously if you write from “[email protected]”, but in return they may at least read your email and reply to it if you write from “[email protected]”.

Make sure you do your homework properly and do not jump headlong into a project. You will not get far without a strategy for your dropshipping online store and it increases your chances of success if you have a plan for how you want to go about it.

At Vendino you have the opportunity to access thousands of dropshipping products from Danish as well as European suppliers. The only requirement for you is that you have a CVR number. It is a smart way to get started, as you do not have to contact potential suppliers, integrate with their inventory, etc.

Risks when dropshipping

When you dropshipper, there will be a risk that the customer chooses to return his goods within the 14 days in which the right of return applies. You should also be aware that in some cases there may be problems with customs and VAT if you choose a supplier outside the EU. But in the long run, your risk will be minimized, as you are paying a higher price, for the risk that the wholesaler, supplier or manufacturer instead takes on. There are quite a few written and unwritten dropshipping rules, which you need to be aware of. If you familiarize yourself with them, you can minimize your risk.

Kristian Kalajdzic

Udgivet den September 26, 2020

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