Dropshipping gives college students the opportunity to be active players in the world of e-commerce.
The hassle of keeping inventory and shipping products are gone. The new wave in e-commerce is drop shipping and for good reason.
In this article, we will cover the “dropshipping business model” and how to set yourself up for success in the competitive world of e-commerce.
Opening an e-commerce store in 2018 has never been easier for a college student. With the business model that fits the busy life and budget of a college student e-commerce is a great option for students looking to start their first business.
By the end of this article you should know:
- The dropshipping business model (what is it and how it works)
- What you need to know before getting started dropshipping
- The Pros and Cons of starting a dropshipping business
- The Supply Chain
What Is Dropshipping?
Dropshipping is one of the most popular e-commerce business models because it eliminates the stress of managing and shipping.
Dropshipping is a retail fulfillment model where the wholesaler handles and ships the product to your customer.
The e-commerce entrepreneur doesn’t keep inventory of their products instead they outsource the task to the wholesaler for a small fee.
Another appealing aspect of dropshipping is, you don’t have to pay for a product until you make a sale.
This is a big bonus considering that most business models include purchasing the product before making a sale.
Your job as the seller involves no shipping or handling which helps you focus on other aspects of your business.
This oversimplified process of dropshipping
- Customer pays for a product
- You forward the order to your supplier
- Your supplier ships the product
Just know that if a manufacturer agrees to ship products straight to the customer you’re participating in dropshipping.
Now that you know what dropshipping is and how it works, let’s get into the pros and cons of running a dropshipping business.
Starting an e-commerce dropshipping business is relatively simple and cheap. Between paying for a website, creating a Shopify account, and the buying the necessary learning tools, starting a dropshipping business doesn’t require a significant amount of startup capital.
You will have other start-up costs, but for the most part, it doesn’t require a lot of cash to get started.
You don’t have to worry about storage and shipping
The dropshipping model is perfect for college students who don’t have the room or the budget to store and ship products.
That responsibility is outsourced to your supplier. Without the hassle of storage and shipping you can focus more on marketing and advertising your e-commerce business.
You only pay for the product after you’ve made a sell
What makes the dropshipping model so appealing to college students is, you pay the manufacturer or wholesaler after your customer has paid you.
That’s right, you only pay for the product after you’ve already made a the sell. Again this perfect for college students that want to make money online without having a product, or enough cash to build up an inventory.
You can find a dropshipper for most products
You can find wholesalers and manufactures for most of the products you would like to sell. The challenge is finding a supplier that will ship their products straight to your customer at a reasonable price.
Finding high-quality manufacturers and wholesalers is one of the hardest challenges you will face when starting a dropshipping business.
The business can be run from anywhere in the world
Since you are not in charge of handling and shipping you could theoretically work anywhere in the world.
As long as you have a laptop, an internet connection, and a phone you can set up shop almost anywhere.
It doesn’t matter if you take a trip to see your friend at The University of Southern Florida for homecoming, you can still run your business.
Less control over fulfillment
Since you are outsourcing the responsibility of shipping and handling, expect more problems to arise dealing with shipping and handling.
Most e-commerce stores that utilize drop shipping in their business model have a variety of dropshippers, which is why miscommunication tends to be a big problem.
Handling customers become a huge responsibility once you decide to dropship your items.
Lower Profit Margins
Since the barriers to entry are low for entering the e-commerce market, competition is fairly high.
It’s easy to get started dropshipping and it doesn’t cost that much to run the business. This means your profit margins are going to be low.
The high levels of competition diminish profit margins.
When deciding to use the dropshipping model be prepared to take on the role of handling your own customer service issues. When the wholesaler ships the product to your customer your logo and return address will be on the package.
If there is a problem, the customer won’t call the dropshipping company, they will contact you.
What You Need To Know Before You Get Started
One word you should get to know before getting started in the dropshipping business is supply chain.
The supply chain refers to the string of events involved in the production of a product. The supply chain sums up all the steps needed to get a product from creation to the purchase.
There are three very important players in the process of production and distribution.
How The Supply Chain Works
The first step in the supply chain is the manufacturer. The manufacturer is in charge of creating the product. This is by far the best way to maximize your profits.
Manufacturers always have the lowest price because you’re receiving a product before anyone else in the supply chain.
Once the product is shipped to a wholesaler, the price will increase and diminish some of your profits. Manufacturers tend to have high purchasing minimums, meaning you will have to buy in bulk.
The next in the supply chain is the wholesaler. The wholesaler usually buys in bulk from the manufacturer.
Since wholesalers have huge amounts of capital, they can meet purchasing minimums required by the manufacturers.
Once the wholesaler receives the product, they will mark up the price and sell to retailers. Wholesalers usually have a lower purchasing minimum than manufactures, but their prices are usually higher.
Don’t think of a retailer as a brick and mortar store. A retailer is anyone who sells to the general public.
A person who runs an e-commerce is known as a retailer; this will be your role in the supply chain. This is where the product will have the highest price in the chain supply.
Retailers mark up the price then sells the product to the customer.