What is Dropshipping? How to Make Money Online With Oberlo in 2020
Many people open stores and they succeed. You can set yourself up for success by getting a realistic definition of dropshipping before you start. In this video, we dive into what dropshipping is and why it's great. But we're also going to be really honest about the challenges of dropshipping.
Video transcript: Today, I'm going to tell you what exactly dropshipping is. You're likely here because you want to make money online, and I know I was when I first looked up dropshipping. I was tired of having to prove to some employer that I could learn skills from scratch and that I was hardworking. I knew that and I wanted to start making money on my own terms.
But before I could do any of that and start my own business, I had to come to grips with what dropshipping actually was. And there's a reason that I'm wearing red today. I usually wear black, but I'm wearing red because red is the color of warning. When you look up what dropshipping is you're gonna see a lot of, excuse me, but bullshit on the internet.
Today, I'm going to be real with you. I'm not only gonna tell you what dropshipping is and why it's great, but I'm also going to be really honest with you about the challenges of dropshipping. A lot of people open stores and they don't succeed, but you can set yourself up for success by getting a realistic definition of dropshipping in the first place.
Roll the intro, we have some definitions to get to.
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Dropshipping vs the Traditional Ecommerce Model
Dropshipping is a business model. It's not a trendy product in and of itself. But to understand dropshipping, the business model, you have to understand how online businesses, which we call ecommerce businesses, actually work.
In a typical online business, the entrepreneur, that's you, either produces themselves or buys from someone else a product that they then sell to their customers. You know what happens if you're producing this yourself. In that case, you're going to have as many products as you can produce to sell to your customers.
But what if you're buying products from someone else and you're selling those products to your customers? Well, usually, in that case, you have to buy a minimum quantity of products from your supplier before you can start selling them to customers.
For example, say, I was gonna sell purses online. In the traditional ecommerce business model, I would go to a supplier and buy, like, 1,000 purses before I had any customers 'cause I needed to put those purses in a warehouse. And then when a customer finally orders from my store, I'm responsible for packaging those purses and selling them to my customer.
Now, there's nothing wrong with this business model, and tons of successful businesses are doing just that. However, if you're a new entrepreneur and you don't have a lot of experience marketing or finding customers and you don't have a lot of money to spend on buying 1,000 purses or whatever in the first place, then it's really hard to get started with this traditional ecommerce business model.
No Inventory Involved
Dropshipping to the rescue.
The way dropshipping works is that instead of buying that minimum quantity from a supplier, you work with specific suppliers who are okay with selling you basically one product at a time.
Here's the benefit. In the dropshipping business model, you're able to list a product on your online store. So you'll have a product page that says, "Purse for sale," and you'll describe it and you'll have the price.
However, you don't have any warehouse. You haven't bought that purse from your supplier yet, it's basically virtual. Your customer will come to your store and they'll decide to buy that purse, and when they do, you get your customer's money.
Then it's your responsibility to go to your supplier and say, "Hey, supplier, can you send one of your purses to my customer? Here is their address." You buy that purse from the supplier at that time. The supplier says, "Yes sir," or, "Mam," sends the purse to your customer, transaction complete.
Now, there are several beautiful things about this business model, and one of those things is you can make money with it. Let's put some dollar signs on that transaction.
Say, you find the supplier and you know the supplier is selling the purse to you, the entrepreneur, for $5. What you can then do is list that purse in your store for $15 to $20. Then when your customer comes to your store, they'll buy that purse for $20. You pocket that $20, except that, remember, you have to go and pay your supplier $5 for them to then ship the purse to your customer.
Now, in that example, you have $15 of profit. You probably are going to spend some of that money on marketing, on some overhead fees, maybe on shipping. But the bottom line is that $15 of profit per transaction is a healthy amount to start making profits.
And because of the nature of dropshipping, you can scale this stuff really fast. Just a couple of other advantages to point out here and then we'll get to the really real part of dropshipping. Like I mentioned, you don't need to spend a lot on inventory upfront. And this is really great because it saves you money that you might spend on products that you're not sure will sell yet.
Flexibility With Ideas
The other great part about this is that you don't need to decide today what your business is going to be for the next six months. Instead, what you can do is list several different products in your store and see which products sell better. Then you can start to invest more in marketing those products.
So basically, this is a really lower-risk way of testing to see what you want to do as a business. So if you don't have any business ideas, dropshipping is a great way to start testing a lot of different business ideas at once without spending a lot of money.
There's also a logistical ease to dropshipping in the sense that you don't have to worry about finding products in a warehouse, making sure they're packaged correctly, shipping them to your customer, and so on. Your supplier takes care of all of that to you, and that frees up your time.
But don't go on thinking you're gonna have a lot of free time, at least not if you want to take dropshipping businesses as seriously and grow them fast. That takes a lot of effort.
Being a Business Owner… and More
And one of the tricks to dropshipping is you have to be comfortable wearing a lot of different hats. You're not just the entrepreneur in this scenario, you're also the marketer, the customer success manager, the accountant, and so on.
If you're the type of person that likes to learn a lot of different business skills at once, dropshipping might be a great business model for you. But if you like to go real deep into one thing, you might wanna at least find a business partner before taking something like this on.
Also, we talked about money and the fact that with dropshipping, you don't need to invest a lot in those minimum order quantities upfront. That's true, but you still do need money to start dropshipping.
We produced a video all about how much money you need to get started. I know that video wasn't produced this year. But trust me, we review it all the time. Those numbers are still accurate.
We recommend that you save somewhere between $300 and $500 to get started with dropshipping to give yourself the best chance of success.
To be sure, people have successfully started dropshipping stores with less than that. The thing is, if you start with less than that... Whoa! The sun just came out. The thing, if you start with less than that, you need to be prepared to put in a lot of time into your store.
You either got to invest time or money to get this business off the ground, and $300 to $500 represents a happy medium of both. You won't be staying up all night building this business and you will still be able to see it grow.
The Challenges of Shipping in Dropshipping
Another challenge in dropshipping, and especially for newcomers is the shipping complexities. Now, I know, I just mentioned that shipping with dropshipping was kind of easier because your supplier would take care of it, and that's true.
But what I mean by this is managing customer expectations with shipping and managing your own expectations with shipping. We all live in a world where we expect next day shipping from Amazon. The truth of the matter is that a lot of your dropshipping suppliers are in China and your Chinese suppliers can ship to customers around the world in two to three weeks, sometimes less and sometimes more.
I'm filming this in the midst of the COVID-19 epidemic when shipping times are longer. We're equipping you with all the data you need to understand the reality of these shipping times. So make sure to check out the resources below if you have more concerns about this.
But before you do, let me just say this: Every single new dropshipper thinks no customer will buy it from their store because of shipping times. I have to keep repeating myself because I don't want you to quit for this same reason. If this is true, I wouldn't be here, Oberlo wouldn't be here, our business model wouldn't be sustainable.
Customers are willing to wait for products.
But this goes back to your ability to test products. Customers aren’t willing to wait for bath towels or bed sheets or commodity items that they know they already need in their lives. Customers are willing to wait for new attention-grabbing products that they never knew they needed until they saw the ad. That is the key folks.
You've got to get the product-market fit right to get over the shipping concern. Luckily, we have tons of resources to help you do this, including Oberlo 101. It's our step-by-step guide to starting your first dropshipping business, and it goes way deep into product research.
You might be wondering where Oberlo fits in in all of this. Well, Oberlo is the app that allows you to find products to sell from those suppliers and then put them in your online store. Oberlo works exclusively with Shopify, which is an ecommerce platform that lets you actually build your online store.
Save Branding for Later
I just wanna talk about one more thing before I let you go. Because a lot of entrepreneurs fantasize about having their own brand. They picture a product arriving in a customer's mailbox with their logo on it and logo on the packaging, and that's part of the real pride of being an entrepreneur.
When you're just getting started with dropshipping, that kind of customization isn't really possible because you're working with the supplier selling products the supplier has already made.
However, I've talked to a lot of entrepreneurs who now run seven-figure businesses of completely branded products, and they started out with dropshipping. Once they proved to their supplier that they could sell products, the supplier was more willing to work with them on customization.
So just because you want to sell your own custom products, it doesn't mean that dropshipping isn't a great way to get started. After all, if you still need to learn skills like digital marketing, it could be kind of risky to invest in a branded product, launch your store, and then realize that you have no idea what you're doing with Facebook ads.
You might as well save the money on branding that custom product in the beginning and spend it on learning Facebook ads with a product that's already been proven to sell. Then you can scale into custom products and have your own swimsuit line in no time.
Now, you know what dropshipping is, you know what Oberlo is, you know why dropshipping is a really cool business model, and you also know why dropshipping is still a bit of a challenging business model.
If you decide that you're up for this challenge, I have great news for you. I'm here for you. In fact, all of us here at Oberlo are here for you. Subscribe to our YouTube channel because we're always sharing suggestions on products to sell, help with some of your questions about Facebook ads, and more.
And in addition, make sure to check out our other resources, like our podcast where my colleague David, talks to really, really successful entrepreneurs, and a blog that's chock-full of information about how to get started with this business model.
This could be the first step you take towards something great, I hope it is. And I hope you'll share your success with us along the way.