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What is Dropshipping? Definition, Process and Best Practices

Mar 23 2022

If you’ve been exploring online business opportunities, you would’ve come across this word — dropshipping. 

With the exponential growth of eCommerce and evolution in business logistics processes, dropshipping found its sweet spot as one of the popular order fulfilment methods.

In 2020, the global dropshipping market size stood at $128.6 billion and it’s expected to touch $476.1 billion by 2026. It’s almost 270% rise over the next six years. 

In short, dropshipping is thriving globally. 

However, if you’re still not sure whether it’s the right business for you or you want to learn more about it before jumping into it, read on. 

In this guide, we’ll discuss everything you need to know about dropshipping — the positives, negatives, and how to start — so that you can make an informed decision. 

Let’s dive in. 

What is Dropshipping?

Dropshipping is a type of retail order fulfilment method where the seller doesn’t need to store or handle products. On the contrary, the store purchases the stock from a third-party supplier after they receive an order on the website or app. 

The dropship model is seeing success because it allows higher levels of automation and outsourcing. 

Thus, while you create your online store and market it well, your entire fulfilment process is taken care of by the supplier or manufacturer. This way, you can focus more on growing your online business instead of managing the supply chain. 

The Process of Dropshipping

First, you need to decide your product line and look for the dropshipping suppliers that you can collaborate with. Then you need to list your product line on your e-store and market them.  

We’ve discussed more on the above steps in later sections. 

Here’s an example of what happens once your website is ready and you start receiving the orders. 

How does dropshipping works

Step 1: Customer Places Order On Your e-Store

For instance, a customer from Adeilade ordered a garden tool set worth AUD 90 on your website. As soon as the payment is done, the software sends an order confirmation email to your customer. 

At the same time, the system also notifies you of the sale. 

Step 2: Your Store Forwards Order to Manufacturer

Next, your website automatically generates a purchase order and forwards it to your supplier partner that is located in Melbourne. 

They sell you the toolset for AUD 70. Thus, you get to keep the AUD 20 margin on this sale. 

Step 3: The Manufacturer Prepares Order

Then your dropshipping supplier packages the product and makes it ready for shipping. 

Even though the manufacturer prepares and ships the order, it carries your brand name. 

Step 4: Manufacturer Sends Order Directly to Customer

Finally, the manufacturer ships the package directly to your customer. 

Once products are shipped, you can track the order progress on your system.

Advantages of Dropshipping

The dropship model is a lucrative business opportunity for entrepreneurs and people looking out for a side hustle. 

Let’s look at the reasons why dropshipping is growing in Australia and so globally. 

Advantages-of-dropshipping

Requires Less Capital

The initial investment is one of the biggest barriers for people wanting to start a business. As per a survey, 74% of would-be entrepreneurs don’t start up due to a lack of funding. 

This is where dropshipping is turning out to be an answer to a lot of aspiring entrepreneurs’ prayers. 

With dropshipping, you need minimal initial capital that goes into creating your online store and marketing. Other than that, you’re not required to invest upfront in inventory purchases. In fact, you receive orders first, and then you procure them from suppliers.

Neither you need to spend on warehousing and logistics facilities as your entire supply chain operations are outsourced to the manufacturer or supplier. 

Ease of Starting up 

Operating an online business has never been easier than it is now.

When you adopt a dropship fulfilment method, you outsource:

  • Warehousing

  • Inventory management and tracking

  • Pick-pack-ship process — the dropshipping supplier packages and ships products for you.

  • Order tracking 

  • Reverse logistics, etc. 

Thus, you don’t need to manage the stock or logistics. So technically, you can operate from anywhere in the world and ship globally. 

Lower Overheads

As discussed, all the supply chain functions are handled by the dropshipping supplier or manufacturer. 

So you don’t have to incur overheads such as:

  • Employees’ salaries

  • Warehouse rent

  • Office rent, etc.

All you need is a laptop, internet connection, and an e-store. 

Easy to Experiment

Since you have not invested any significant capital upfront, you can try multiple product ideas until you find your success formula. Moreover, you also don’t have to worry about unsold inventory or dead stock. 

Easier to Scale

When you handle all your retail operations in-house, scaling up your business requires additional infrastructural, financial, and manpower resources. 

However, to scale up your dropshipping business you don’t need the above mentioned extra resources. Yes, you’d need to create a system to provide customer support as you can’t handle hundreds or thousands of customers alone. 

Limitations of Dropshipping

While there are multiple benefits of operating with a dropshipping model, it also has a few limitations — just like any other business.

However, the dropshipping benefits can easily outweigh the disadvantages. 

Disadvantages-of-Dropshipping

Very Low Margins

Although profit margins largely depend on the product line you sell, with dropshipping you can expect a little lower margins if you’re operating in a competitive niche. 

Since it’s easy to get started with dropshipping, a lot of stores choose to operate with the lowest prices and slim margins. Here, their strategy could be to optimise sales volume by offering cheaper rates. 

However, you don’t have to operate in a similar way or niche. You can pick up different and less competitive product categories while ensuring unique benefits to your customers. This way, you can enjoy better profit margins. 

Complicated Order Processing

Most of the time processing orders with dropshipping is a simple process. However, it may get a little complicated sometimes. 

Since most dropshippers work with multiple suppliers, shipping costs may vary accordingly. 

For instance, a customer ordered five different products which you have to source from three different suppliers. Now, you’d need to pay for three different shipping costs to deliver products to the same customer. 

Limited Control 

While you can enjoy the benefits of outsourcing and flexibility, you lose control over certain business operations with the dropshipping model. 

For example, you can’t control any part of the order fulfilment process. You have to trust and rely on your dropshipping supplier to operate seamlessly and deliver products in time. 

In addition, you also don’t have control over packaging quality since you don’t directly deal with packing and shipping. 

Customer Service is Challenging

Since you don’t have much control over the order fulfilment process, it becomes challenging to handle adversities like wrong or delayed deliveries. 

To add to it, you also have to take the blame for the mistakes made by your suppliers because customers take this as one whole brand experience. 

Limits on Customization and Branding

Dropshipping suppliers or manufacturers work with multiple wholesalers, retailers, and e-stores. So they usually produce goods on a large scale. This doesn’t allow them to accommodate specific customisation requirements of individual sellers. 

Some manufacturers may entertain such requests when you order a specific minimum quantity. 

Why Start Dropshipping in Australia?

Currently, Australia is the seventh-largest eCommerce market in the world and it’s seeing an average of 15.5% year-on-year growth.

In fact, in 2020 Australians spent a whopping $50.4 billion on online shopping as compared to $32.1 billion in 2019. It’s a nearly 57% rise over the previous year. 

Furthermore, 89% of the Australian population are active internet users and the numbers are rising. Hence, more and more Australians are likely to engage in online entertainment, shopping, banking, and more. 

Wait, there are more reasons. Take a look at the infographic below.

why-austrilia-is-a-great-country-to-target-as-a-dropshipper

So as an Australian, if you’re considering venturing into an online business, dropshipping can have a lot in store for you. 

How to Start Dropshipping in Australia

Just like any other business, dropshipping also requires a long-term vision and commitment. 

So before jumping into the dropshipping business you need to ask yourself whether you’re ready to commit those extra hours if you’re starting it as a side hustle. 

And in case you’re thinking of going all-in, do you have enough resources to survive until this business starts giving you equivalent to your full-time income? 

Once you’ve made up your mind, here are the steps you need to follow to start dropshipping in Australia. 

How-to-Start-Dropshipping-in-Australia

Research and Choose Your Products

The first step is to do extensive research to shortlist some of the products that you’d want to sell on your dropshipping store. 

You may find it a little challenging if it’s your first online business. However, once you find the right set of products, you’d be able to outperform your competitors. 

Let’s look at some of the ways to decide your product line. 

    • Pick a niche: Niche products usually have a passionate and loyal customer base. So you can narrow down your audience and target them. For example health & fitness, specific sport, pet owners, etc. 
  • Search social shopping sites: Social platforms like Pinterest, Instagram, Facebook, etc. have enabled shopping on social media apps. You can look for product trends on these sites. 

Not to forget, you can also simply google “how to choose dropshipping products” and you’ll find plenty of resources there too. 

Analyse Your Competitors

Once you have selected the products that you want to sell on your e-store, research the competition in your niche. 

First, make a list of the top five competitors in your industry. For this, you can search on Google, social media, or use a tool like Similarweb

Then, you may want to check how they:

  • Market their products

  • Design website

  • Source products from suppliers

  • Price their products

  • Write product descriptions, etc. 

Basically, you want to gather as much information as you can to learn more about the strategies that made them successful in dropshipping. 

Also, you need to find ways you can improve on what your competition is doing to gain an advantage over them. 

Identify Dropshipping Suppliers

Finding the right dropshipping suppliers is one of the most crucial aspects of your dropshipping success. 

In other words, your suppliers can make or break your business because they are the ones who’ll operate the supply chain for you. That’s why you don’t want to rush through this process. 

You can find the list of dropshipping suppliers in Australia on:

Once you shortlist a few suppliers, check:

  • How long have they been in business

  • Their product quality (Order sample products to check quality)

  • Their pricing as compared to competitors

  • List of countries they deliver products in

  • If it’s a manufacturing unit, what’s their production capacity

  • If they are wholesalers, do they have sufficient inventory

  • Are you required to place any minimum quantity of orders

  • Their standard delivery times

  • How do they handle reverse logistics

Thus, do thorough research before you join hands with a supplier. 

Understand the Associated Costs

When you start a dropshipping business in Australia, you can expect to incur costs such as:

  • The cost of eCommerce platforms you’d use to build your online store.

  • Supplier or product costs

  • 10% GST (Goods and Service Tax) to the Australian government

  • Shipping costs, etc. 

  • Fees to register and obtain your ABN (Australian Business Number) 

Set Up Your Online Store

The next step is choosing a domain name and building your online store. Some of the most popular e-store platforms are Shopify, Magento, WooCommerce, and BigCommerce.

The good thing about these platforms is that you don’t have to be a website developer or designer. Moreover, they guide you with step-by-step website building tutorials and resources to create your online store. 

Things to consider when choosing an eCommerce platform:

  • Catalogue designs

  • Flexibility in product pricing 

  • Analytics tools

  • Multiple payment gateways

  • Social media integration

  • Website personalisation features

  • Shipping flexibility, etc.

things-to-consider-when-choosing-an-eCommerce-platform

Work on Your Customer Service

Statistics suggest that 89% of consumers stop shopping from an online store where they experience poor customer service. 

So your customer service can be a key differentiating factor that can set you apart from your Australian dropshipping competitors. 

Therefore, ensure that you provide stellar customer support to retain your customers for a long time because acquiring a new customer costs seven times more than retaining an existing one. 

Develop a Marketing Strategy

Now that we know how to set up a dropshipping store, let’s understand how you can attract customers to your site and sell products. 

Since most of the operational tasks are outsourced in a dropship model, you can invest a major amount of your time in promoting and scaling your business. 

Here are some of the ways you can market your dropshipping store:

  • Paid advertising: You can run pay-per-click advertising on Google and social media platforms like Facebook and Instagram. 
  • Content marketing: Start creating content such as blog posts, infographics, podcasts, videos, etc. around your dropshipping niche. This can lead to a long-term sustainable flow of traffic, leads, and sales on your website.
  • Influencer marketing: You can hire social media influencers to promote your brand and products. It’s a mutually beneficial arrangement where you pay them a commission for every sale that happens with their code. 

Best-Practices-for-Dropshipping-in-Australia

Let’s take a quick look at some of the best practices to operate a dropshipping business in Australia. 

#1 Work with Multiple Suppliers

It’s recommended that you work with multiple dropshipping suppliers because in this model you sell the products that you don’t stock.

So if one supplier can’t fulfil your order, you can rely on the other supplier.  Moreover, you can also optimise your profit margins by forwarding the orders to the supplier with the lowest price for that order. 

#2 Install an Address Verification System

Address Verification System (AVS) helps you prevent online frauds on your e-store. 

When you’ve installed AVS on your website, it requires customers to enter their billing addresses — the address registered with banks and credit card companies. If the buyer enters an incorrect billing address the AVS declines the transaction. 

Thus, you can protect your customers from falling prey to fraudulent transactions.

#3 Effectively Deal with Defective Items

Most dropshippers don’t provide a free pick up service for defective products. Agreed that it’s not their fault if manufacturers send a damaged product. 

However, you should not let your customers suffer because of such errors. For your shoppers, you’re the brand and every experience is a brand experience. 

So don’t let short term expenses sway you away from your long-term branding goals. In fact, you can use such incidents as an opportunity to provide exceptional customer support and win their loyalty by offering a free replacement of defective items.

#4 Ensure you Have Correct Documents and Policies

It’s absolutely essential that you comply with Australian laws and regulations if you want to operate a dropshipping business in Australia. 

So ensure that you have legal documents like:

  • Supplier contracts

  • Terms of sale

  • Terms and conditions agreement

  • Privacy policy

  • Return and refund policy

  • Disclaimers, etc. 

#5 Be Aware of Taxation Policies in Australia

There are two major types of taxations that Australian businesses have to pay. 

  • Income Tax: You have to pay a certain percentage of tax on your taxable income. The tax percentage increases with a growth in your income. 
  • Goods and Service Tax (GST): You are required to register your business for GST if your annual revenue is in excess of $75,000. The Australian government collects 10% as GST from businesses. 

Conclusion

Since we’ve discussed most of the important things you should know about starting a dropshipping business, it’s time to make a decision and commit to it. 

Remember, dropshipping or any business for that matter takes time and work before you start seeing the results. It’s just that the dropship model allows you to focus more on growing your business with plenty of automation and outsourcing benefits. 

The key is in finding the profitable niche and marketing it right. And once you start getting customers, do everything you can to earn their loyalty with your outstanding customer service. 

Frequently Asked Questions (FAQs)

What is dropshipping?

Dropshipping is an eCommerce business model wherein you can facilitate the shipping of orders directly from the manufacturer to the customer through your online store. In this case, while your store would be the one to accept and process orders, the rest of the fulfilment processes are taken care of by the manufacturer/supplier.

What is a dropshipping business?

Dropshipping business is a name given to an online store that acts as the mediator between manufacturers and customers and markets the products. If you have a dropshipping store, you would be accepting orders and forwarding them to the suppliers and earning a commission on each order. The manufacturer will then send the order directly to the customer, saving you the trouble of having to establish a shipping process.

How to start dropshipping?

You can easily start dropshipping by choosing the right products to dropship, and then finding the ideal suppliers to partner with. Once this is done, all you need to do is set up an online store and start taking orders.

How does dropshipping work?

In dropshipping, the online store that accepts orders will then forward it to a manufacturer/supplier that they have partnered with in exchange for a commission. The manufacturer will then prepare and ship the order directly to the customer. 

How to start a dropshipping business?

You can start a dropshipping business by choosing what you want to sell, and the right sellers to partner for the products. Next, you will need to set up an online store to promote and sell the products. 

How to start dropshipping in Australia?

If you want to start dropshipping in Australia, start by choosing the products that you want to sell. Next, consider the costs associated with the process, locations you want to cater, and narrow down suppliers accordingly. Once you have this information, you can go ahead with registering your business and creating a website for promoting and selling the products.

How to start a dropshipping business in Australia?

Starting a dropshipping business in Australia is fairly simple, and requires you to firstly narrow down the products you want to sell, the locations you want to serve and the suppliers or manufacturers that you want to partner with. Once done, you can proceed to register your business, set up your website and start serving your customers. 

How to find dropshipping suppliers?

To find the right suppliers for your dropshipping business start with conducting an internet search and narrowing down the primary parties that make the products that you want to sell. You can also look into supplier directories and get in touch with them, to understand their process better. Assess the product quality, turnaround times, and alignment with your business vision to then select the right suppliers.

What is Shopify dropshipping?

Shopify is one of the most preferred platforms when it comes to creating an online store. You can create your dropshipping store on Shopify and avail the various features that the platform offers to start Shopify dropshipping.

What does dropshipping mean?

Dropshipping is the process of selling products in a way that your eCommerce website acts as the storefront for selling products but the shipping is carried out by your supplier. While you would be earning a cut of actual order value as commission for promoting and selling the product, the supplier will ship the order directly to the customer.

How much can you make dropshipping?

The amount of revenue or profit that you can make through dropshipping completely depends on the average order value that you generate and the number of orders you get. If set up and managed effectively, your dropshipping store can generate profits ranging from $50 to $5000 every day.

How to start dropshipping for free?

It is not possible to start a dropshipping business without any costs.  However, if you conduct thorough research in finding the right suppliers for your business, you can minimize the startup costs to a large extent.

What is eBay dropshipping?

eBay allows you to source products from wholesalers or manufacturers and lists them on the website to be sold to prospective buyers. This is known as eBay dropshipping. A lot of dropshippers make a profit from the difference in the buying and selling amount and continue using it to their benefit. It is important to note that buying from other marketplaces and re-selling them on eBay has been strictly banned by the company. 

What is reverse dropshipping?

Reverse dropshipping is a business model in which stores can buy products from countries that usually import them. The stores will then sell these products to the countries that usually export them. This gives the dropshipping store a chance to build a luxury brand and compete based on quality.

How to find suppliers for dropshipping?

Usually, conducting thorough research is the key to finding suppliers for dropshipping. Such suppliers can also be found on supplier catalogues and can be contacted directly for establishing associations. 

How to make money dropshipping?

The key aspect in making money by dropshipping is to find the right suppliers or wholesalers for the products that you are selling. You can find the right suppliers to associate with you,  sell the products that they make and earn a profit through the price difference as well as by setting up a commission model.

How to start a dropshipping business online?

Once you have decided on the products that you want to sell, and the right suppliers to partner with, the next step is to set up your website. Ensure to set up the website using a platform that offers features and integrations that meet your requirements. 

How to research products for dropshipping?

One of the best ways to find products to dropship is to keep an eye on product trends and analyze their sales patterns. Moreover, you can also use product research tools to find the right products based on your needs.

How does dropshipping work?

In dropshipping, you (the dropshipper) can promote or sell products in association with a wholesaler or manufacturer. When you receive an order, your store will process and forward it to the manufacturer after deducting a percentage of the product price based on your agreement with them. The manufacturer will then prepare and ship the order directly to the customer.

How to fulfil orders on Shopify dropshipping?

Order fulfilment on Shopify dropshipping stores happens on the manufacturer or supplier’s end. The dropshipping store will forward the order to them, which they will prepare and ship to the customer.

How to find a dropshipping niche?

To find the right dropshipping niche for your store, it is ideal to follow product trends and go for a niche that will best work for you. You can also consider the seasonal patterns, behavioural trends and other factors to settle on a niche that will be profitable for your dropshipping business.

How to advertise for dropshipping?

Social media marketing is always a great way to promote and advertise your dropshipping business. Apart from this, you can also use PPC ads and platforms such as Pinterest to engage and attract customers. 

How to start a dropshipping website?

When you are creating a website for your dropshipping business, start with choosing the right platform to host it on. Consider the features and integrations that will be useful to you, and based on that pick a platform that will offer you a scalable solution. Next, consider the brand identity of your dropshipping store, and design your website accordingly in terms of aesthetics and content.

How to start Shopify dropshipping?

You can create an online store on Shopify, create a product catalogue, and start dropshipping right away. 

How to set up dropshipping business?

Setting up a dropshipping business requires you to have complete clarity on the products, suppliers as well as the kind of customers you want to cater to. Once decided, you can set up an online storefront to promote and sell your products and work with your suppliers to get them delivered to your customers. 

How long has dropshipping been around?

The roots of dropshipping go way back to the 60s and 70s when the Internet was not even invented. At the time, mail order companies were using mail-order catalogues (booklets advertising products delivered with your mail). The orders were taken through mail or phone calls and then shipped to customers by the company. 

How to make money from dropshipping?

If you have a dropshipping store, you can either make money by setting a certain percentage of order value as commission. The other way to do this is by reselling products from wholesalers at a marginally higher price and earning the price difference.

How to promote dropshipping store?

You can promote your dropshipping store on social media, or using other advertising channels — offline and online. 

Where is AliExpress dropshipping center?

To have an AliExpress Dropshipping Center, you will need to sign up for an account. Once you have created an account, you can sign in to your dashboard and find all the information pertaining to your dropshipping center.

How to find products for dropshipping?

You can conduct thorough online researchers or use product research tools to find products to sell on your dropshipping store. Additionally, keep an eye on the product trends, to identify the ones that are most likely to generate profits for you.

How to set up a dropshipping website?

You can easily create a dropshipping website using platforms such as WooCommerce or Shopify. Based on the type of brand that you want to establish, you can then design and promote your dropshipping store.

What to sell on dropshipping?

Dropshipping has a lot to do with impulse buying. So, try to find products that are most likely to evoke that reaction in your customers. For instance, low-value products that customers would not think too much about before purchasing. 

Where to learn dropshipping?

Platforms such as Shopify Learn, Udemy, Meta Blueprint or even YouTube offer several detailed courses that can guide you through the process of setting up and running a successful dropshipping store.

How to use AliExpress for dropshipping?

First, you need to register your online store with AliExpress. Once you receive an order you can choose the dropshipping supplier from the list of registered sellers on AliExpress and place the order with them. They will deliver products directly to your customers. 

How to market a dropshipping business?

You can market your dropshipping store with paid advertising on Google and social media apps like Facebook, Pinterest, Instagram etc. Moreover, you can also use content marketing by creating blogs, infographics, podcasts, videos, etc. around your dropshipping niche to attract visitors to your site. 

How does AliExpress dropshipping work?

With AliExpress, you have to create your online store and register it with them. Then add the products to your website. Once customers place orders, you can select the dropshipping suppliers that provide you with the best quality products and competitive prices. The suppliers then deliver products to your customers. 

How to make money dropshipping on Amazon?

You can register your business on Amazon as a seller. Then let’s say a customer ordered a product worth $50 on your website and you purchased the item from your dropshipping supplier for $40 and got it delivered to your customer. Thus, you made a $10 profit on the sale. 

How to start a dropshipping company?

You can start with researching the trending products in the market and deciding your product line. Then register your domain name and build an online store on platforms like Shopify, WooCommerce, BigCommerce, etc. 

Then find the suppliers who can deliver the products for you and list the products on your website. Then market your products and e-store to attract customers.

How to price dropshipping products?

First, you need to partner with dropshipping suppliers who operate in your niche and negotiate pricing with them. Accordingly, mark up your products and list them on your e-store. 

For example, the supplier agreed to sell you a specific product for $40 including shipping. You can price your product anywhere above $40. The difference is your profit. 

How much money can you make from dropshipping?

It depends on the kind of products you sell, how you market them, and how dedicated you are to your dropshipping business. 

How to think of a dropshipping business name?

You should think of a name that is meaningful and relevant to your niche. Keep it short, easy to pronounce & remember. Here are some business name generator tools you can use:

 

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