Dropshipping: How does it work and is it still worth it in 2023?
Dropshipping has been around for a while now, especially in eCommerce and there are some big players to compete with.
So one question you may have now is – can you still be successful in dropshipping in 2023?
Or perhaps, can dropshipping be a business model for your new or existing business?
Well, our answer to them would be yes and yes! Just keep reading to find out why we think this way.
Ready, set, go…dive in with us.
- What is dropshipping?
- What is a dropshipper?
- Is dropshipping still a thing in 2023?
- Some statistics on the Australian dropshipping market
- What is the dropshipping process?
- What are the benefits of dropshipping?
- What are the disadvantages of dropshipping?
- How do I start dropshipping?
- What’s the Sleek Scoop with dropshipping?
What is dropshipping?
Dropshipping is a retail fulfillment method where a store sells products it does not keep in stock.
When a customer places an order, the dropshipper purchases the product from a third party supplier, and the supplier delivers it directly to the customer.
As a dropshipping store it means you never see or handle the product. This can help to save money on inventory and storage costs, and allows for a wider selection of products to be offered for sale.
What is a dropshipper?
A dropshipper is a person or a company that engages in the dropshipping business model.
They work with dropshipping suppliers, manufacturers or wholesalers to source products and then sell those products to customers through an eCommerce store or other online marketplace.
The dropshipper acts as a middleman, taking orders from customers and then placing those orders with the dropshipping supplier, who ships the products directly to the customer.
As a dropshipper, you will typically set your own prices for the products, and make a profit by charging more than what you pay to the supplier.
Is dropshipping still a thing in 2023?
Dropshipping continues to be a popular and viable eCommerce business model in 2023.
This model is used by many businesses, large and small. Think The Iconic, Bunnings Marketplace, Kogan, Catch and Temple and Webster as dropshipping companies!
Dropshipping allows for a relatively low-cost way for entrepreneurs to start an online business without having to invest in inventory or warehouse space.
As you have seen over the last couple years, the eCommerce market constantly changes and evolves.
One thing we do know is that the profitability of dropshipping is affected by various factors such as the niche, competition, marketing strategy, and customer service.
If you are thinking of starting a dropshipping business in 2023, you need to know it is a very competitive field and it can be hard for new dropshipping businesses to succeed without a unique value proposition or a good marketing strategy.
We highly recommend you conduct thorough market research and to have a clear idea of your target audience, unique value proposition and a good marketing strategy (all good practices for all types of business!) to make your dropshipping business profitable in 2023.
Additionally, staying up-to-date with the latest eCommerce trends and technologies can also help to increase your chances of success.
Some statistics on the Australian dropshipping market
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Some general eCommerce statistics in Australia may give you an idea of the current state of the market:
- In the year to September 2022, online retail sales in Australia reached $53.82 billion AUD, representing 13.5% of total retail sales, according to the National Australia Bank (NAB) Online Retail Sales Index.
- The eCommerce market in Australia is expected to reach $43.8 billion AUD by 2024, growing at a CAGR of 6.3% during the period of 2020-2024, according to ResearchAndMarkets.com.
- According to Australia Post’s eCommerce Industry Report 2021, almost 9 million households purchased online during 2020. That’s an extra 1 million households when compared to 2019.
- In 2022, the most popular categories for online shopping in Australia are variety stores, fashion and apparel, home and garden and health and beauty, followed by hobbies and recreational goods and specialty food and liquor, according to Australia Post.
What is the dropshipping process?
Dropshipping works by having a retailer, such as an eCommerce store owner, work with a supplier or manufacturer to sell products to customers.
Here is how the dropshipping process works:
- Set up your dropshipping store or sell products on an online marketplace such as Woolworths, Amazon, MyDeal, plus many, many more!
- Partner with multiple suppliers or manufacturers who agree to ship products directly to your customers.
- List your supplier’s products on your website or marketplace for customers to purchase.
- When your customer orders on your website, you forward the order and customer shipping information to the relevant supplier.
- Your supplier ships the product directly to your customer.
- You pay the supplier for the product, minus any agreed upon wholesale discount.
- You earn a profit by charging customers a higher price plus shipping costs than what you pay to the supplier!
The dropshipping business model allows you as a retailer to offer a wide range of products without having to invest in inventory or warehouse space.
Additionally, a dropshipping model can test different products and niches without a significant investment, which can be beneficial to find the right product or niche to focus on – and be successful!
What are the benefits of dropshipping?
There are many benefits of dropshipping:
Low startup costs:
Starting a dropshipping store requires relatively little upfront investment.
You do not need to purchase inventory or rent warehouse space, which can save a significant amount of money.
Easy to set up:
There are many free resources to help you set up a dropshipping store.
There are also website platforms such as Shopify and Squarespace with templates to set up your eCommerce store.
Did you know that Sleek offers quick and inexpensive company incorporation complete with ABN and business registration – all online and ASIC compliant!
A dropshipping business can be run from anywhere, at any time with an internet connection, allowing for the flexibility to work from home, while traveling or after hours.
Your dropshipping business can be easily scaled up or down depending on demand, as you do not need to invest in physical inventory.
Because you do not purchase inventory upfront, you have less of a financial risk if products do not sell as well as you had hoped.
Wider range of products:
With dropshipping, you have access to a wider range of products than you would if you were purchasing inventory upfront.
This allows for more diverse offerings and can help to attract a wider range of customers #moresales.
Many dropshipping platforms and tools allow for automation of tasks such as inventory management, customer orders and fulfillment, and customer communications, making it easier to manage and scale your dropshipping business.
It’s worth noting that the success of dropshipping stores depends on many factors such as the niche, competition, marketing strategy, and customer service.
What are the disadvantages of dropshipping?
While there are many advantages to using the dropshipping model, there are also some disadvantages you should consider:
Low profit margins:
Dropshippers typically purchase products from suppliers at wholesale prices and then sell them to customers at retail prices, the profit margins can be relatively low.
This means you will need to sell more to generate significant income from a dropshipping business.
Lack of control over product quality:
As a dropshipper, you do not handle or inspect the products themselves, you may have limited control over the quality of the products you are selling. This can lead to customer complaints and returns.
Limited control over the supply chain:
Dropshipping has limited control over the shipping and handling of products. This can lead to delays or other issues that can negatively impact customer satisfaction.
- High competition:
As dropshipping becomes more popular, the competition in many niches is becoming fierce. This can make it difficult for new businesses to stand out and attract customers.
- Shipping and handling limitation:
Since the dropshipping supplier handles shipping, you may have less control over the shipping costs and shipping time. This can impact the cost of your product to your customers and your profitability.Also you may not have the ability to customise their packaging and branding.
Customer support can be tricky:
As you are the go between the customer and your dropshipping suppliers, it’s hard to keep track of and manage product delivery schedules.
It’s important to weigh the advantages and disadvantages of dropshipping before starting a business in this model. Having a clear idea of the niche and target market you will be serving.
[h2] Is dropshipping for you and your business?
Now for the million-dollar question. Can dropshipping be a model for my business?
Dropshipping can be a great business model for some companies, but it may not be the right fit for everyone.
Here are some factors to consider when deciding if dropshipping is right for your business:
Dropshipping can be a low-cost way to start an online business, but the profit margins can be relatively low. If your main goal is to generate significant income quickly, dropshipping may not be the best option.
- Your niche:
Dropshipping can be successful in many different niches, but it may be more challenging in some. Consider the level of competition in your niche and whether there is a large enough market to support your business.
- Your experience:
Dropshipping can be a great option for entrepreneurs with little business experience, as it requires relatively little upfront investment. However, it can be difficult to compete with established businesses if you lack experience in eCommerce or marketing.
- Your resources:
Starting a dropshipping store requires relatively little upfront investment, but it does require time and effort to research suppliers, create a website, and market your products.
How do I start dropshipping?
Well done, you’re still here!
Now let’s get down to the nitty gritty of what you need to do to start dropshipping.
Starting a dropshipping business can be a relatively simple process, but it does require a significant investment in time and effort to find the right products, suppliers, and to develop a successful marketing strategy.
Follow these steps to start your own dropshipping business:
Conduct market research:
Before starting your online store, research the market to identify a niche that is in demand and has a relatively low level of competition.
Thinking about conducting market research but don’t know where or how to start? Here’s an article on that and more!
Choose a platform:
Decide on an e-commerce platform to create your online store. Some popular options for eCommerce platforms include Shopify, BigCommerce, and WooCommerce.
Alternatively, choose an online marketplace to sell through, that matches with your products and target market.
- Find a supplier:
Research and find a dropshipping supplier or manufacturer that offers products that align with your niche and that can ship products directly to your customers. A professional and efficient supply chain will help in your success!
- Create your website:
Using the online marketplace or platform you’ve chosen, create an eCommerce website that showcases your products and makes it easy for customers to purchase them.
- Set up payment processing:
Choose a payment processor and set it up on your website to accept payments from customers.
- Create a marketing plan:
Develop a marketing plan that includes strategies for driving traffic to your website and increase sales.
- Test and optimise:
Start by testing a few products and suppliers, and optimise your website, marketing and customer service as you go.
The key here is to be prepared to adjust your strategy as needed, based on customer feedback and sales data.
Stay up-to-date with the latest eCommerce trends and technologies, and continue to learn about how to optimise your marketing, website, and customer service to increase sales and profitability.
What’s the Sleek Scoop with dropshipping?
We asked some of our eCommerce retailers and dropshipping clients for their advice to help budding new dropshipping entrepreneurs like you!
This is what they told us –
- Research and understand the market you’re entering and have a clear idea of your target audience and unique value proposition to stand out among the competition.
- Create a clear, easy-to-use website that makes it easy for customers to find and purchase products. Investing in good website design and user experience can go a long way in driving sales and building customer loyalty.
- Spend time (and revise, revise, revise) developing (and revising) a good marketing strategy to drive traffic to your website and increase sales. This should include paid advertising, social media marketing, content marketing, and email marketing.
- It’s important to investigate and carefully choose your dropshipping suppliers. You’ll want to work with suppliers that are reliable and have a good reputation for quality products and timely shipping.
- Be aware that some suppliers may require a minimum order quantity or charge extra fees for small orders. Make sure to factor in these costs when setting your prices.
- Keep in mind that you’ll be responsible for collecting and remitting GST for orders shipped to customers in your state (hey, get Sleek to help you here, they are great!).
- Be prepared to handle customer service inquiries and issues, as you’ll be the main point of contact for your customers, even if the supplier is shipping the product.
- Stay up-to-date with the latest Commerce trends and technologies to stay competitive and make the most of your dropshipping business.
Dropshipping can be a great business model for entrepreneurs who want to start an online business with relatively low startup costs and a high degree of flexibility.
Head over to our eCommerce tax guide for beginners – it will give you all the information you need to know about setting up an eCommerce online store as well as the taxes you may need to pay!
Get in touch with a Sleek accountant who can help you set up correctly from the very beginning. Call our office now on +61 2 9100 0480 or use our chat box in the bottom right-hand corner.