dropshipping: an extensive analysis
The eruption of online business practices has rendered tremendous opportunities for people from all over the world to build significant wealth in a variety of unconventional means.
People who leveraged this opportunity were provided with luxuries of time and money in ways that were previously inconceivable.
What we once considered a traditional workman’s schedule of coming into the office at 9 in the morning and departing at 5 in the evening no longer applies to the new normal.
The ‘new rich’ as coined by Tim Ferris, have exploited the value of geographical arbitrage and have found ways to be more efficient while working fewer hours.
We know, it sounds impossible but we promise you it is anything but.
One promising way to dip your toes in the lifestyles of the ‘new rich’ is dropshipping. Although I’m sure that most of you have already been introduced to the concept of dropshipping, let us simplify its definition and signify its value.
Dropshipping employs a business model wherein a product-selling company maintains day-to-day operations without having to hold or maintain any inventory.
Its premise happens to be quite simple; an independent retailer partners up with a supplier that warehouses or manufacturers products. Once a customer places an order with the retailer, that order is forwarded to the supplier, the supplier then proceeds to pack and ship out the product to the retailers’ customer. All while the retailer picks up a percentage of the sale without having to indulge in any serious heavy-lifting.
Not to mention, a significant portion of this system can be automated to increase efficiency.
This type of business model is extremely appealing due to its low-risk and high-reward potential. Nonetheless, like most business models, there is far more than meets the eye.
Let us dive into the deep waters of dropshipping.
dropshipping: who’s it for?
The dropshipping business model is ideal for a novice in the online business industry. Due to low investment costs there is a very low barrier to entry – note that this can act as a double-edged sword. The less exclusive the industry, the more competition.
Another thing to keep in mind is that dropshipping, due to its low risk, is also subject to smaller margins. Retailers are still forced to pay per unit from their supplier, hence, rendering the prospect of purchasing for bulk discounts obsolete.
Dropshipping would be especially useful for individuals who possess some sort of an edge in the online world, those who excel in advertising and marketing. Those who possess the ability to creatively differentiate themselves from the norm and market their products in a more creative way.
Also, note that just because you start with a dropshipping model that doesn’t mean you’re confined to only practicing business with this model. Once you’ve gained some experience and developed some fundamental analysis skills you can expand into private-labeling or even develop your own product.
To someone new to this internet-business world, we advise getting started with dropshipping. As with all other endeavors, time allows you to determine which aspects of the business you are proficient in, and which aspects you may need to pass on to someone else.
Now that we have determined who dropshipping is ideally for, let us get into how we can get started.
To eliminate paralysis analysis, we at CG have broken down each step of the process from start to end so you can get started right away!
Ūnus – choose the right products
Before we get to how you can determine the right product for your business, we have a word of caution; passion isn’t the only solution. Novices who enter the dropshipping industry tend to dive into a market they’re passionate about, regardless of how profitable the market truly is.
Now, don’t misunderstand us, we’re all for passion. What we aren’t for is naivety. If you want to succeed, you need to research. Look at the numbers, check to see if the products you want to sell have any demand, and if there is demand what trajectory is it on – is it rising, falling, or stagnant? These are questions you need to answer if you want to ensure a successful go at dropshipping. You may not be particularly passionate about a custom toothbrush holder, but that could very easily be your ‘winning’ product.
The following are a set of criteria that you should employ when contemplating to add a product to your arsenal:
- product size and weight: Coming from a purely logistical perspective, packaging and shipping costs vary greatly depending on the physicality of a product. Smaller items require less packaging material and are susceptible to far lower shipping fees, whereas, in most cases, the opposite holds true for large products. That being said, larger products may also hold a greater retail value. The key is to find a suitable balance between the two. For novices, we recommending starting with smaller, more mobile, products
- selling price: In dropshipping, the spread between the retail price (your selling price) and the wholesale price is crucial, the greater the spread, the more room for profit. Another factor you must consider when determining a pricing strategy is that if you price your product to high, customers may choose to purchase a similar (or the exact same) product from a different source. Ideally, you are looking for a product with low competition (not too many sellers) and a relatively inexpensive wholesale price. The two most generic pricing strategies are low-price-high-volume and high-price-low-volume. The type of product you sell should assist you in choosing the right strategy; typically, more expensive luxury products employ the latter of the two pricing strategies.
- product durability: if the product you sell happens to have a short-lifespan consider the possibility that customers may choose to repeat their order. Disposable products (or their components) carry such features. If you choose an especially durable product, realize that this may entail a lengthened process of repurchases – meaning your business is heavily reliant on bringing in new customers regularly. Just something to keep in mind.
measure demand the right way
If nobody wants your product, no matter how good it is, you will have a difficult time making any money! Don’t create demand, find a way to fill it. Fortunately, the online world has blessed us with several free tools to research consumer demand.
– google keywords
Google’s keyword tool permits us to research the volume of specific keywords searched during a limited time. Simply type in a keyword related to your niche, and the tool spits out the number of people that have searched for that specific keyword, the data is displayed in an aggerate manner, presenting cumulative searches on a month-to-month basis.
Several training modules spend hours breaking down each key component of the google keyword tool, which is beyond the scope of this article. Nonetheless, the following are three primary components that will help you utilize the tool in the` right way:
- Search Term: The tool allows you to find differences in the volume of searches between various counties, you’ll soon find that some countries seek far more demand for specific products than others. Make sure to select a specific geo-zone if you only intend to sell your product in only one or a select number of countries.
- Match Type: This component provides you with the flexibility of being able to choose different keywords for your niche. By selecting broad phrases, you may find that there are other keywords related to your niche, with high volume, that you hadn’t thought of. If you prefer to strictly confine your keyword, simply select ‘exact match’ – this prevents the tool from displaying results of similar phrases and keywords.
- Long-tail variation: This factor works hand-in-hand with ‘match type’, as it allows you to discover longer, more specific, queries in association with your niche. Although, the volume of these variations may be lower than their broad counterparts, so long as there is sufficient volume, it may be a better strategy to focus on these keywords – as it permits less competition. Moreover, your traffic conversion from ‘long-tail’ searches are likely to be far greater than broader, more competitive, searches.
Keep in mind that this is just the tip of the iceberg, in terms of the kind of information that is available online. Not to worry, we won’t leave you hanging!
The following list consists of links to Udemy courses our media team went through, to better understand the online marketing world. The courses break down every aspect of several different tools (paid and free) you can use to not only analyze your business but also your competitors.
additional resources: checkout popular reviews blogs (including yours truly) to develop a more formidable understanding of consumer psychology and what that translates to in terms of thoughts and demands. The following are some of many blogs and forums that may assist you in finding the right products to sell:
Duo – keep track of your competition
Keeping track of your competitors can get quite confusing, especially to a novice. Too much competition may render your business model obsolete, while too little competition may indicate too niche of a market – limiting your business’ potential to grow.
A predominant method to measure your competitor’s online traffic is to track how much of their traffic comes from an organic stream (free traffic) – such as its Google ranking and the number of backlinks the site consists of.
To establish your dominance on Google’s search pages we recommend checking out Moz’s comprehensive Beginner’s Guide to SEO, alternatively, check out our SEO checklist guide – curated from a variety of different sources on the web (including MOZ and Shopify!).
To give you an insight into some of the things we cover in our checklist, the following are three factors to look at when analyzing a potential competitor :
- analyze their social media presence
Spend an appropriate amount of time browsing through your competitor’s social media channels, stay on the lookout for relevant customer feedback which specify what consumers like or dislike about your competitor’s product/service. Try to determine what the consensus is about the company, use sentiment analysis to your advantage. Also, take notice of the type of content being produced and what generates the most engagement. Note down what type of content is produced, what time it is published, and what type of content people specifically enjoy.
- get physical: order your competitor’s products
Order your competitor’s products to determine how your product differs from it. Keep track of factors such as quality and durability – note the lifespan of the product. Furthermore, exploit this opportunity to pay attention to your competitor’s after-sale service – get curious about how long it takes for the order to get processed, distributed, and delivered. You are now a ‘spy’ in uncharted territory, leverage it for your full benefit. Don’t hold back.
- make use of online tools to analyze your competitor’s website
Use online explorers like SEMrush to check the ranking and domain authority of your website, such tools breakdown where different sources of traffic are coming from – generally attributing the most success from a handful of keywords and links.
Tres – get help
No matter how strong you are mentally, or how badly you wish to succeed unless you are surrounded by the right people you are bound to burn out. To avoid that, devote a portion of your time to get the right people around you.
To add to that, we would like to point out one thing most novices fail to consider – you cannot be the best at everything. Which is why we recommend outsourcing a portion of your workload to others. If there is something that needs to be done, and you know that you won’t be able to do it well, outsource it. It may cost you a little bit more right now, but it will save you far more than you know in the future.
Use online marketplaces to look for qualified individuals to outsource work to. It’s hard to relinquish control, but sometimes it is necessary. We recommended checking out Fiverr and UpWork. The former of the two is more suitable for solopreneurs who are out there looking for cheap, yet extremely talented individuals. UpWork, though equally applicable, tends to scale to more expensive talents – which may be above and beyond the budget for some.
Quattuor – stay organized
Exploit the use of existing content management systems such as Gain and Hootsuite to stay on top of your streams of content production. Content is king – don’t let anyone tell you otherwise. In addition to producing the highest quality of content possible, it is just as important to publish content consistently. The tools described above with provide you with easy-to-use platforms to ensure that you are doing both.
Once your website starts to gain some traction, we recommend employing the use of a customer relationship management (CRM) software. CRM software provides you with a system to manage client interactions, thus allowing you to deal with current and future customers – ensuring that these relationships are optimized. Moreover, once you familiarize yourself with its use, much of the workflow can be automated quite easily. Fortunately, Hubspot, a very popular CRM platform, provides free services for small businesses*.
*Note that to use all of Hubspot’s extensive features you may need to upgrade to a premium plan.
Quīnque – the end
We have now reached the end of our analysis. Please keep in mind that there is still so much more you can and need to learn about the dropshipping model to have a successful run at it.
That being said, the information portrayed in this piece should be utilized as a framework for you to bookmark and repeatedly look back at to ensure that you are following the right path. We intend to continually update this article as time passes, as what works and doesn’t work on the internet is everchanging.
The most important piece of advice we can leave you with is that you must maintain a strong mentality throughout your dropshipping endeavor. 80 percent of businesses fail each year – and the only way you can ensure that you are in the 20 percent is to keep at it.
Discipline and persistence are two key attributes that will assist you in the journey. It is easy to be optimistic when things are going your way, it is nearly impossible when things aren’t.
Lastly, over the course of the next few weeks, we plan to expand on ideas and models that help the everyday gentleman find ways to add to his wealth. So if dropshipping doesn’t appear to be your forte, not to worry, there is an avalanche of quality information coming your way.
Gentlemen, be the exception not the rule.
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If you enjoyed this article, we suggest browsing through our building wealth section to discover content of similar quality.
We look forward to hearing from you, stay chivalrous!