Six factors to consider when building a dropshipping business

Amit Basu is the founder and CEO of Craftsman furniturethe world’s first craft market.

Dropshipping has one huge advantage for business beginners: it offers a wonderful opportunity to “work from anywhere.” Beginner entrepreneurs can do it from anywhere and start with little or no investment. This is how.

“Geographically neutral” is one way to describe one of the biggest advantages of dropshipping, where you act as an intermediary between supplier and end user in the supply chain. You can ship from anywhere to almost anywhere, often at minimal cost because you never come into contact with any inventory.

These are important benefits, but there are also some catches. However, for entrepreneurs looking to control costs in the current tight economy; for full-time workers looking for a useful side income, or for newly arrived migrants who need to get on their financial footing quickly, dropshipping is one option worth considering.

So what are these tricks? Failures are common and the reasons for them are many, from lack of market research and limited engagement with your shopping audience to an uninspiring web store with no brand marketing and poor customer service. These problems do not instill confidence in buyers.

Dropshipping is not the get-rich-quick game that many so-called experts tell you it is. Getting it right requires some advance planning, work and determination. Of course, you can quickly establish your business; you can trade internationally within days with a laptop, a product hub and visibility on e-commerce sites like AliExpress, Amazon, Etsy or Shopify.

However, as the founder and CEO of a company that has supported thousands of independent wholesalers and retailers and offers a furniture dropshipping program, I have discovered that financial success requires research. This way, you can be sure you’ve tapped into the right product segments, the right wholesale or import partners, and the best routes to market. I discussed ways to start a dropshipping business in a previous article.

While the “geo-neutral,” work-from-anywhere aspect of the model gives you a lot of flexibility to fit your business around your lifestyle and schedule, there are practical considerations, which I’ll cover in more detail here.

Global interaction

One of the exciting aspects of the dropshipping business is seeing some of the surprising places orders come from and analyzing the data to find out who likes what in different parts of the world.

A customer in Germany can purchase a handmade rug made in India through dropshippers located in many locations around the world. The ability to facilitate this connection between manufacturer and end user is a reality thanks to the online e-commerce revolution that is still unfolding. Morgan Stanley expects the market could grow from about $3.3 trillion in 2022 to $5.4 trillion in 2026.

That sounds great, but there are some elements to watch out for as a remote sales cog in often complex supply chains. So here’s a checklist:

1. Size matters. Larger products obviously present logistical problems, so it’s worth asking your import or wholesale partners what percentage of their stock they can send as Small Parcel (SP), which is a lighter package, compared to Large Parcel or freight shipments. A high SP ratio is usually a better bet in terms of the volume of orders you might get, and it also reduces complexity, especially for dropshippers starting out.

2. Instructions and product descriptions. They are usually in English or other languages ‚Äč‚Äčthat a large part of the population speaks, and you need to know which ones you can use for your materials. It might not be a problem if you’re selling chairs, china or mobile phone cases, but it will be if your product range includes electronics, any item that needs an explanation, or items with a list of ingredients or components.

3. Performance. Does your wholesaler or importer partner have fulfillment centers in the countries where your buyers are based? Local or regional warehousing can provide faster and cheaper (or even free) deliveries with fewer border delays or chances of goods being damaged in transit.

4. Import duties and other taxes. Find out which goods are subject to which tariffs and surcharges between the wholesale exporter’s country and the buyer’s location, and which are exempt. You can do this by, for example, reviewing the GSP (Generalized System of Preferences), which provides special treatment to products imported from 119 countries. Or you can use IOSS (Import One-Stop Shop) for the EU, which is a portal to help businesses “comply with their VAT e-commerce obligations on distance sales of imported goods”. See also MFN (most-favoured-nation) clause, the equalization clause that applies to WTO members. Remember that your location is irrelevant as the products will go directly from the supplier to the customer.

5. Transport mode. Air freight, especially for heavier goods, will be a much more expensive way to ship, but some customers may be willing to pay for speed, so this service can be a nice option to offer. Shipping and delivery by road is usually unavoidable for large items such as furniture and I have found that customers are generally happy with an 8-12 week timetable.

6. Payment gateways. If you want to build a very international customer base, make sure your wholesaler or importer partner can handle enough currencies.

If you study and master these functional aspects, your dropshipping business will probably work better for you. It’s a lot of work in the beginning, but preparation and knowledge from the start will keep you on the front foot. Ideally, you’ll soon be generating orders and processing them with ease, and you may be able to scale much faster than if you just set up shop from day one.

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