DROPSHIPPING?How Dropshipping Works.

DROPSHIPPING?

What Is Dropshipping?: How Dropshipping Works

At this point you might be asking yourself, how does dropshipping work?  Perhaps you’ve heard the term floating around on various ecommerce platforms or maybe this is one of your first times encountering the concept at all. In the simplest terms, after a dropshipper sells a product, he or she buys it from a supplier and has it shipped directly to the customer. Typically, the process works as follows. An ecommerce merchant posts products on his or her website, from which a customer places an order and pays for the item. Then, the merchant fulfills the order by placing an order for that same product from the supplier who sends it to the customer. When merchants decide to host their ecommerce shops through Shopify, apps like Oberlo make the process simpler and more streamlined by acting as the connective tissue between the supplier marketplace and the front end of the ecommerce shop from where the merchant items are displayed for sale and purchased. The app makes it easier to import products directly from suppliers into the store, and helps to manage any changes in inventory or pricing in the supply marketplace so that there aren’t any discrepancies between what is being displayed in a merchant’s ecommerce shop and the actual characteristics of the item in the marketplace.

In addition to numerous dropshipping advantages, the dropship model is extremely flexible:

• Dropshippers control their own margins. Also, dropshippers aren’t bound to a suggested retail price (MSRP) and can decide their retail prices on their own.
• Dropshippers don’t need to be established business entities before starting their online stores. Though they will need one once they grow.
• Dropshippers have access to millions of products. Instantly.

Understanding the Supply Marketplace

At this point, the supplier marketplace portion of the dropshipping model might seem a bit mysterious, so let’s shed some light on that aspect of things before moving on. Dropshipping is largely fueled by Chinese suppliers, and the number of Chinese dropshipping companies is still on the rise. The growth of Chinese exports during the last decade can be linked to their integration with western businesses, and now thousands of Chinese suppliers understand the opportunity they have with dropshipping. That’s why to most people, dropshipping reminds them of Chinese products and nothing else.

Ecommerce entrepreneurs can access these Chinese suppliers through online supply marketplaces where they post and sell the products they produce at wholesale prices. By far the most common and widely utilized of these is AliExpress. Using this platform will make figuring out how to start a dropship businesses much easier and it can also boost your current store’s efficiency. Naturally, it isn’t perfect, but it’s very useful to understand the ins and outs of AliExpress as well as its origins.

Benefits

Less Capital Is Required – Probably the biggest advantage to dropshipping is that it's possible to launch an ecommerce store without having to invest thousands of dollars in inventory up front. Traditionally, retailers have had to tie up huge amounts of capital purchasing inventory.  

With the dropshipping model, you don't have to purchase a product unless you already made the sale and have been paid by the customer. Without major up-front inventory investments, it's possible to start a successful dropshipping business with very little money. 

Easy to Get Started – Running an ecommerce business is much easier when you don't have to deal with physical products. With dropshipping, you don't have to worry about:

• Managing or paying for a warehouse
• Packing and shipping your orders
• Tracking inventory for accounting reasons
• Handling returns and inbound shipments
• Continually ordering products and managing stock level

Low Overhead – Because you don't have to deal with purchasing inventory or managing a warehouse, your overhead expenses are quite low. In fact, many successful dropshipping businesses are run from a home office with a laptop for less than $100 per month. As you grow, these expenses will likely increase but will still be low compared to those of traditional brick-and-mortar businesses.  

Flexible Location – A dropshipping business can be run from just about anywhere with an internet connection. As long as you can communicate with suppliers and customers easily, you can run and manage your business.

Wide Selection of Products – Because you don't have to pre-purchase the items you sell, you can offer an array of products to your potential customers. If suppliers stock an item, you can list if for sale on your website at no additional cost.

Easy to Scale – With a traditional business, if you receive three times as much business you'll usually need to do three times as much work.  By leveraging dropshipping suppliers, most of the work to process additional orders will be borne by the suppliers, allowing you to expand with fewer growing pains and less incremental work.  Sales growth will always bring additional work – especially related to customer service – but business that utilize dropshipping scale particularly well relative to traditional ecommerce businesses.  

All these benefits make dropshipping a very attractive model to both beginning and established merchants. Unfortunately, dropshipping isn't all roses and rainbows. All this convenience and flexibility comes at a price.

Disadvantages

Low Margins – Low margins are the biggest disadvantage to operating in a highly competitive dropshipping niche. Because it's so easy to get started – and the overhead costs are so minimal – many merchants will set up shop and sell items at rock-bottom prices in an attempt to grow revenue. They've invested so little in getting the business started so they can afford to operate on minuscule margins.  

True, these merchants often have low-quality websites and poor (if any) customer service. But that won't stop customers from comparing their prices to yours. This increase in cutthroat competition will quickly destroy the profit margin in a niche. Fortunately, you can do a lot to mitigate this problem by selecting a niche that's well suited for dropshipping. We'll discuss this more in Chapter 4.

Inventory Issues – If you stock all your own items, it's relatively simple to keep track of which items are in and out of stock. But when you're sourcing from multiple warehouses, which are also fulfilling orders for other merchants, inventory changes on a daily basis. While there are ways you can better sync your store's inventory with your suppliers', these solutions don't always work seamlessly, and suppliers don't always support the technology required.  

Shipping Complexities – If you work with multiple suppliers – as most drop shippers do – the products on your website will be sourced through a number of different drop shippers. This complicates your shipping costs.

Let's say a customer places an order for three items, all of which are available only from separate suppliers. You'll incur three separate shipping charges for sending each item to the customer, but it's probably not wise to pass this charge along to the customer, as they'll think you're grossly overcharging for shipping! And even if you did want to pass these charges along, automating these calculations can be difficult.

Supplier Errors – Have you ever been blamed for something that wasn't your fault, but you had to accept responsibility for the mistake anyway? 

Even the best dropshipping suppliers make mistakes fulfilling orders – mistakes for which you have to take responsibility and apologize. And mediocre and low-quality suppliers will cause endless frustration with missing items, botched shipments and low-quality packing, which can damage your business's reputation.    

Is It Worth It?

As we initially warned, dropshipping isn't a perfect, stress-free way to build a successful business. The model has some definite advantages but comes with a number of built-in complexities and problems you'll need to be able to address.  

We'll be examining these problems – and how to best address them – in future chapters. The good news is that with some careful planning and consideration, most of these problems can be resolved and need not prevent you from building a thriving, profitable dropshipping business.

AliExpress Explained

The name Jack Ma shouldn’t be a unfamiliar to you. He is the guy who built the $179B Alibaba empire that predates the AliExpress marketplace. Ma is often compared to Jeff Bezos from Amazon, as he started his business in 1999 after failing to find Chinese products online. He built Alibaba as a platform to offer Chinese suppliers’ products to the western world.

At Alibaba, ecommerce entrepreneurs can buy products wholesale to stock their warehouses. From there, AliExpress was created to accommodate dropshippers who instead purchase items and have them shipped directly from AliExpress to their customers instead of stocking the merchandise themselves. In other words, Alibaba is set up for buying wholesale and AliExpress was created for the dropshipping ecommerce model. With  AliExpress, you can buy products in single items for yourself as well.

Small scale ecommerce entrepreneurs and individual sellers can register on either platform, and order products from them to sell to people around the world. It’s important to note that neither Alibaba nor AliExpress holds inventory as they are simply platforms that host individual suppliers looking to sell their products to merchants. They are marketplaces set up similarly to eBay. For the purposes of understanding dropshipping in conjunction with AliExpress, the most common supply marketplace used with this ecommerce business model, let’s run through how this crucial side of the process works in a bit more detail.

How Dropshipping Works with AliExpress

AliExpress dropshipping works in line with traditional dropshipping methods. You can search products on the marketplace and choose from millions of options. When you find an item that you like and wish to sell in your own store, simply import the product from AliExpress to your store and set your own price markups. Oberlo makes importing and syncing the product, photos, and accompanying descriptive information with your own store easier as it can otherwise be difficult to ensure that the AliExpress marketplace and the front end of your store coincide with each other. This is because AliExpress is a live marketplace where product prices fluctuate and inventories vary. Don’t forget that once you sell a product in your store, you will then need to go through and purchase it from AliExpress. From there, the supplier will ship the item directly to your customer.

What Makes AliExpress Special as a Dropshipping Marketplace

As a one stop shop for all your product importing, AliExpress dropshipping comes with many advantages, including the fact that when you dropship goods from AliExpress, you gain more freedom and time to focus on what matters: marketing. This is one of the most important aspects of operating a successful dropshipping business.

The reason that AliExpress distinguishes itself from other dropshipping marketplacesis its expansive size, where an enormously wide range of products are available for dropshippers to choose from. For a bit of comparison, one of the largest wholesale directories, WholeSale2b, offers over 1,500,000 products. AliExpress sells more than 1,500,000 t-shirts alone, and you can choose to dropship any of them simply by importing them from AliExpress into your store. Not to mention the mind boggling number of other categories including everything from electronics and jewelry and much more.

Next, dropshippers can start their dropshipping businesses immediately, for free. AliExpress dropshipping is possible even without contacting the supplier, and getting started is as simple as navigating onto the platform and browsing the products for things you might like to sell. If you’re unsure about how to select the right products, another benefit of using the AliExpress marketplace for your dropshipping business is that AliExpress products are trendy. Chinese suppliers do their research and follow the patterns of what’s selling. Follow their lead and do the same. Consider the events going on in the world and sell products accordingly. Notice more and more people wearing cat eye sunglasses? Hop on AliExpress and import a few pairs into your own shop!

This all looks pretty good, right? So what can be so messy about starting a dropship business with AliExpress? Below I answer the most frequently asked questions I hear about AliExpress dropshipping. Being fond of AliExpress, I did my best to provide an honest, accurate picture with objective answers.

What Is Dropshipping?: FAQs on How to Start a Dropship Business

1. Can You Dropship AliExpress Products Easily?

Yes, you can easily dropship AliExpress products. It’s even easier with tools like Oberlo.

Dropshipping from AliExpress makes all parties equally happy. AliExpress as a platform gets its share of revenue, suppliers sell their products, and you make profits.

As a dropshipper, I’ve personally sold over $3M worth of AliExpress products and know guys who have sold even more. The dropship model really works.

2. Will My Customers Know If I’m Dropshipping Products From AliExpress?

Only if they find the same products on AliExpress themselves. There are rarely any promotions in the packages your customer receives, especially if you tell suppliers not to add them. If you’re making quite a lot of sales, you can even arrange custom packages or flyers for free.

3. How to Start a Dropship Business: Why Should Someone Buy From Me If They Can Buy the Same Product From AliExpress for Less?

Because you’re better. Call it better marketing execution, which reached the prospective customer first. Call it branding, which drives people to buy from you. Call it creating a store that people trust, even if based solely on location. Call it the value you offer by providing extra services or content. Call it technology that allows your customers to shop more easily.

Don’t be preoccupied with price competition or even worse, uniqueness. In ecommerce, you will never be the cheapest, and you will most likely never be particularly unique.

Especially with lower priced products (<$100), the price is not the determining factor.

Look at the same product on different websites:

All of these stores are multi-million dollar businesses. Are these companies price competitive? No. Are they out of business? No. Why? Because in the ways that count, they are better.

That being said, your ability to set your own prices and not have to worry about being price competitive should further ease any worries you have about how to start a dropship business. If you’ve calculated that it costs $15 to gain one customer with Facebook marketing, add $22 to the original AliExpress price and try to make the sale. You can increase your price as long as it makes sense for people to buy the product at that price.

You can reorganize your pricing strategy later, but for ecommerce first timers, this a tremendous no-sales relief.

4. AliExpress Shipping Takes Too Long, My Customers Won’t Wait.

Alibaba made over $17.7 billion in sales in one day. The customers from the businesses listed above weren’t concerned with long delivery terms, either. Your task is to define your shipping policy, and then display it on your store’s website in order to set clear customer expectations.

Further, AliExpress packages aren’t delivered by sea anymore, and it doesn’t always take 60 business days. Actually, with the commonly favored ePacket delivery option, it typically takes only 7-14 days to reach the US. Another benefit of the dropship model, is that the ePacket delivery method is now implemented across 29 countries around the world. In addition, some suppliers keep their most popular products in US warehouses, which offers even quicker delivery.

Note: the differences between shipping options are huge. Some suppliers claim to ship their orders the same day with ePacket delivery (delivery time: approximately two weeks), others ship their orders within 10 days and offer standard China Post 45 days delivery (delivery time: approximately two months).

Lastly, choose only the best suppliers by doing your research. If you choose a random supplier, chances are you picked the one with the 2 months delivery option.

5. What About Quality Risk and Copyright Infringements?

You’ve probably heard stories about the ridiculously bad quality of Chinese products. Sadly, these claims are often true. As usual, though, there are two sides to every story.

In reality, you can just as easily run into a bad supplier in Europe or the US. In the end, you need to be cautious when it comes to choosing your dropshipping suppliers. It’s up to you who should sort the bad suppliers from the good ones. The unfortunate stories are well documented. Read them and don’t repeat the mistakes.

AliExpress is a marketplace. Just as I can put any item on eBay, a Chinese supplier can put any item on AliExpress. Just like eBay has had thousands of scammers and quality issues, AliExpress has had its own as well.

Being a public company and hoping for business in foreign markets, AliExpress is forced to do a great job correcting its shortcomings. Supplier accounts on AliExpress are no longer free. Now, suppliers must pay ~$1,500 to have a full store running, which makes it difficult for scammers. Moreover, AliExpress offers a generous buyers’ safety program and hires thousands of employees to check their listings. In fact, Alibaba hires over 2,000 employees to check that their listings don’t contain copyright infringements.

In short, a lot of Chinese suppliers can’t afford to sell cheap products anymore.

6. Do AliExpress Suppliers Speak English?

Chinese suppliers’ English isn’t perfect, but you can contact the suppliers in advance to get a sense of their level of proficiency before doing business with them. Larger suppliers are typically quite responsive. They have sales teams managing your orders and can answer your questions via live chat or email.

7. What Is the Best Way to Handle AliExpress Dropshipping Returns and Refunds?

An easy refund and returns policy is one of the competitive advantages you can offer. That said, be aware that offering this feature effectively can be a bit tricky.

Returns

AliExpress suppliers rarely agree to accept returns and even if they do accept them, you don’t usually get notified when they receive the item. Even if the return is received, sending your customer the refund is your responsibility. From my experience, I suggest accepting returns to your office, and if the product is not spoiled or used, reship it later from your location.

It will be simpler for your customers and you’ll be able to offer better customer support.

If your store communicates the relevant information about product features and delivery terms, your return rate should average between 6-8%.

Refunds

The two most frequent scenarios:

1. the order has not shipped or is extremely late
2. the customer picked the wrong product or is not happy with the product’s quality

In the second case, you can apply your returns policy. To reiterate, I suggest accepting the return order at your office or warehouse. If it was a quality issue, cover the return costs and issue a refund. If your customer picked the wrong product or doesn’t want the product anymore — covering the return costs is optional — just be sure to issue the refund.

In the first scenario, it’s uncommon to handle a return by relying on the AliExpress supplier to refund you for the item and then issuing the refund from your own account to your customer. More likely, you’ll just go ahead and cover the refund yourself.

AliExpress suppliers are generally opposed to issuing refunds. They will likely insist that the order has shipped or eventually offer a reshipment. The risks increase when you start making more sales. Try to arrange a refund agreement with your supplier in the beginning because blind dropshipping can cause serious problems.

Avoid pitfalls and errors in this regard by trying your best to be strict and persistent. If the supplier refuses to refund you even when there’s an acceptable reason for return (e.g. the package was never delivered or the order’s tracking status is pending for 30 days or more), apply for the AliExpress Buyer’s Safety Programme. You should also continue to write the supplier every day. You may even consider bombarding him or her with the bad reviews. Changing an AliExpress supplier account isn’t easy, and they value this source of revenue a lot, so the good ones will be responsive. Just try not to get to the point where your order isn’t delivered, the tracking code is inactive, 50 days have passed, and your customer is angry.

Fun fact: I made one supplier send a photo of every package they shipped for me. They literally took pictures of every single order they shipped, for months!

8. Is AliExpress Dropshipping Favored by PayPal?

Being that the entire ordering process has a few additional steps when you are dropshipping, there tend to be a lot of questions surrounding payment gateways. PayPal is one of the most well known and widely used payment gateways, so it makes sense that many ecommerce entrepreneurs might want to incorporate it into their business models.

That said, we suggest you really think this idea through before integrating PayPal too deeply into your business. From a customer’s perspective, PayPal is a great system as it tends to favor customers over merchants. If a customer has a payment dispute or wants a refund, for instance, you can bet that PayPal will take the customer’s word and respond accordingly. All of this is meant to protect the many millions of people who use PayPal to make purchases every day.

In order to create a more stable and secure experience for customers, PayPal has set some precautions in place that can make using it as a payment gateway a bit of a hassle. For example, PayPal puts limitations on the money in your account in advance. These limitations are based on your business history, track record, ability to provide proof of delivery on time (via tracking numbers), your business’s physical location, and many other factors, the limitations can vary. Holds on your funds can sometimes last for months, meaning that you might have to place and fulfill orders with your AliExpress suppliers out of your own pocket.

As dropshipping becomes increasingly mainstream, PayPal is also adapting some of its policies to make it a friendlier environment for ecommerce entrepreneurs who dropship, and there certainly are merchants who have success with this option. That said, we still suggest exploring other payment gateways. Some of our top picks in this regard include Stripe, 2Checkout, and Shopify Payments. Shopify Payments in particular is a great choice if your store is hosted on Shopify because you can accept payments directly with this inbuilt system, which eliminates the complication of utilizing a third party payment gateway. Note, however, that Shopify Payments isn’t available in every country.

9. How Can an Established Businesses Benefit From Aliexpress Dropshipping?

When it comes to dropshipping, learning by doing works best. AliExpress dropshipping is the ideal model for first-time entrepreneurs. It’s totally understandable that an established business wouldn’t change its order fulfillment model and adapt to AliExpress dropshipping, but it’s still worth considering in these scenarios as well.

AliExpress dropshipping is great for quickly testing out new product ideas. In addition, you can add a new product category within a few days and if it proves to be successful, you can stock the products in your warehouse as you usually do. This way, you reduce the risk of stocking the inventory before knowing what sells. Also, it increases your business flexibility.

Conclusion

This article might raise more concerns on AliExpress dropshipping than enthusiasm. Indeed, it’s far from a perfect platform. It’s tough and complex. Becoming adept at using AliExpress dropshipping requires time, careful research, and planning. I still prefer it because its advantages make it the easiest way to kick-off your online business and it’s totally awesome for testing new product ideas.

Even with the challenges in mind for those who are just figuring out how to start a dropship business as well as for experienced entrepreneurs looking to improve their existing shops, established platforms like AliExpress dropshipping provide lots of benefits. It requires low starting capital, and therefore you have the ability to try your hand at ecommerce with limited risks.

There are lots of helpful apps and services available to use in conjunction with AliExpress dropshipping including Oberlo and Shopify. These can facilitate and automate the more complicated aspects of the dropshipping process, and eliminate some of the pitfalls we’ve discussed in this post. With these tools, you can devote your time to maximizing profits through developing the right marketing techniques and solidifying your brand. You don’t have to concern yourself with storing inventory, which only further accelerates the formation of a successful business. To learn more, check out the Oberlo app or have a look at our blog for information about the leading dropshipping apps and platforms.