What Is a Dropshipping Business?

Dropshipping is a remote business option allowing an ecommerce store to sell without worrying about inventory management. It means you don’t have to worry about procuring, storing, and shipping products because a third-party supplier will handle them, unlike other business models where you’re in charge of your physical inventory. 

However, your dropshipping business heavily depends on your suppliers, from the products to packaging and delivery times. You need to get traffic, generate sales, and do other menial business operations. 

If you want to start a dropshipping business, aim for low operating costs and efficiency while not compromising quality. Starting a dropshipping business can be tricky due to being dependent on your suppliers. Some may not be as ethical as they present, leading to a poor customer experience. 

But what is a dropshipping business exactly and how does dropshipping work? We will provide you with everything you need to know, so keep reading to find out!

How Does Dropshipping Work

So what is dropshipping in practice?

The dropshipping business model in the UK allows you to own an e-commerce business without purchasing inventory and leasing warehouse space, managing the supply chain, or managing inventory and logistics. After a customer places an order, you need to forward the order so your dropshipping supplier ships the products directly to the customer.

You may be the first point of contact, but your supplier is the last touch of contact with your customers. Ecommerce dropshipping is profitable, allowing you to earn with just an internet connection, and low investment without having your own products.

The Dropshipping Process

Although the image above shows the dropshipping model, you need to understand in detail how the dropshipping works.

Let’s see a summary of the process below:

• The supplier and the dropshipping companies sign a dropshipping agreement contract (a standard contract regarding the use of the supplier company’s intellectual property, responsibilities of both parties, etc).
• A customer purchases products through dropshipping sellers’ stores.
• The seller receives an automatic notification, or the dropshipping store owner forwards the order details to the supplier.
• The customer receives an order confirmation.
• The dropshipping supplier prepares and ships the order.
• The customer gets their product.

One of the best ways to approach the dropshipping operation is to partner with multiple suppliers on platforms like AliExpress. Dropshipping businesses are able to sell multiple generic products, making building a brand and differentiating products easier. Having a number of different product sources means that if suppliers fail to prepare an order, you can always rely on another one.

Pros and Cons of Starting a Dropshipping Business

Although the benefits of dropshipping are endless, there are a few disadvantages to any fulfillment approach.

We will start with the advantages below:

• Low Startup and Overhead Costs: It is possible to start a dropshipping business without paying a dime for products, depending on the agreement between you and the supplier. You may have to pay for the packaging and delivery, though. Also, since you are the ecommerce retailer without a physical store, you won’t spend extra to move the products and storage spaces.
  
• No Inventory: Since you do not have to pre-purchase inventory to later supply to potential customers, you also don’t need to worry about inventory costs and having to manage inventory.
  
• Location Independence: With a dropshipping retail business in the UK, fulfilling customer orders outside and within the country is absolutely possible. All you have to do is have a supplier who offers dropshipping services from fulfillment centers in and out of the country.
  
• Reduced risk: Not being in charge of inventory helps reduce the risk of loss due to stolen merchandise or over-ordering a few products more than expected. On the flipside, you don’t suffer due to unsold inventory either.
  
• Scalability: Partnering with more supplier positions gives you an advantage in accepting massive customer orders online without increasing your capacity.

Having dropshipping suppliers who allow you to ship without paying for products ahead is superior. It will enable you to sell products of different varieties on a low budget and increase your earning potential.

Of course, there are some potential disadvantages of this business model.

More on that below:

• Limited Control Over Shipping and Product Quality: In the dropshipping business, even though the seller signs agreement forms regarding protocol, you will have little control over the order fulfillment process, fulfillment timeline, and product quality, leaving much room for supplier errors that you don’t have any control over. If your supplier’s service doesn’t meet customer expectations, then your business might suffer.
  
• Competition From Other Dropshippers: Due to its low investment and yield model (depending on the market), the dropshipping scene is saturated with e-commerce retailers making it highly competitive. You’ll often see tens or even hundreds of dropshipping stores selling the same products.
  
• Branding: You may choose to repackage your products by sending off packaging materials to the supplier, but you may need help to stand out as your supplier may be famous.
  
• Profit margins: If one niche or supplier has many drop shippers, profitability becomes difficult, especially if the selling point is market price. Selling at low prices requires you to sell products online to more people in order to build a profitable ecommerce business.
  
• Inventory management: Real-time stock updates in your retail store may not tally with your third-party suppliers. For example, if a customer orders a product in your online store only to discover it’s out of stock after forwarding it to the supplier.
  
• Limit on sales: Most ecommerce businesses in the United Kingdom have periods where they host sales and offer discounts, free delivery, exclusive product offerings, and mouth-watering deals. But in the case of drop shipping, you may not be able to do so because you don’t handle order fulfillment—except if you cover the expenses.

Lastly, we all know that life doesn’t always go as planned. Imagine a scenario where delivery is taking longer than usual or a customer orders a sold-out product; it makes the entire communication line more complex than it is. You also have to be responsible for any negative reviews.

Identifying Profitable Products and Niches for Your Dropshipping Business

In this section, we will review proactive methods for finding your niche based on budget, target audience, interest, demand, resources, and location.

When starting your new ecommerce website, you need to use some market research tools to help you uncover high-demand and low-competition products.

Meta Audience Insights

Formerly Facebook Audience, Meta Audience Insights is a dropshipping product research tool that helps find niches and trends.

It segments users’ information on Meta and helps identify the relevancy of niches and data like:

• Demographics: Age, gender, education, job title, relationship status, etc.
• Location: Majority country and languages spoken.
• Activity: Ads clicked, promotions redeemed, devices used, and more

Visit the Meta Audience Insight tool to search any niche keyword, and you will see the number of active monthly users worldwide. It works just like an SEO tool for finding high-performing keywords.

Google Keyword Planner

You can find out the monthly search volume of a keyword through the Keyword Planner tool. Also, you can search for any potential niches using this tool to see if people are interested.

With it you can tailor your search to countries, so if you plan to sell online outside the UK, you can check the search volume for the target keywords in other specific locations. 

SEMRush

Another great tool you can use is the SEMrush Keyword Magic Tool. It is more intuitive and effortless to navigate than the Google Keyword Planner.

Also, it can provide you with additional data related to your competitors, like their current ranking positions, SEO keywords they are targeting, link profile and so on.

You can use this information to gain a competitive advantage in your target market.

Online Marketplaces

Online marketplaces such as Amazon, Konga, AliExpress, Alibaba and Jumia are great research tools. Look out for the Bestsellers or Hot Products in this category. However, there are dropshipping alternatives like reaching out to companies with products you like and setting up a custom partnership model.

From there, you will see the number of sales, customer ratings, shipping options and price range. You can also find out how competitive the market is. If the market price is fair, low competition, and high sales, you should know it’s a good niche to tap into.

The Most Profitable Dropshipping Niches

Aside from fashion and beauty items, the best dropshipping niches to go for are already famous and proven successful.

​​Some of the best niches for 2024 are:

• Car Accessories: In 2023, the global car accessories market rose to £267,5 billion and is projected to grow annually by 5.5% through 2032
  
• Kitchen and Dining: With the rise of food bloggers and more people interested in healthy living.
  
• Eco-Friendly Products: You definitely must have felt how the sun’s intensity has increased lately. Thanks to the increasing need for eco-friendly practices, sustainability has grown popular. According to the 2023 survey, 58% of consumers will spend more money on eco-friendly products.
  
• Home and Bedroom: The monthly search for the home décor market has been steady, which means people are continually interested in it. It has a competitive niche and high-commodity products. In 2023, home decor reached £100 billion, and experts project it to grow annually by 4.77% through 2028.
  
• Child and Baby: Every parent loves to treat their children with special care, which makes the childcare niche a great dropshipping business idea.
  
• Home Office and Office: Millions of 9-5ers and remote workers would need an office set-up that makes it easy to deliver work, making this one of the most profitable product ideas.
  
• Phone Accessories: There are a lot of people who prefer to navigate the web with their smartphones. They would also want to care for the phones, and that’s where you come in.

For your convenience, we will provide you with some products for each category to help you get started with your dropshipping business journey.

Car Accessories

Air fresheners, Bluetooth car adapters, cleaning gels, interior LED light strips, leather conditioners, license plate frames, floor mats, portable vacuum cleaners, roadside emergency kits, seat covers and organisers, steering wheel covers, microfiber cleaning cloths, car chargers, car trash cans, dash cams and backup cams, device holders and mounts, first aid kits for cars, window shades and sun shades, wiper blades.

Kitchen and Dining

Electric kettles, insulated mugs, air fryers, microwaves, kitchen organisers and storage, portable blenders, stainless steel tumblers, water filters

Eco-Friendly Products

chemical-free cleaning products, reusable coffee cups, solar-powered lighting and small electronics, compostable cups, plates, and bowls, sustainable activewear, tote bags, solid shampoo and conditioner bars, stainless steel, bamboo straws

Home and Bedroom

weighted blankets, handheld clothes steamers, holiday décor, laundry baskets, essential oil diffusers, fairy or string lights, pillows and poufs, blackout curtains, ceramic vases, satin pillowcases, frames, ready-to-assemble furniture, rugs, microfiber bedsheets, non-slip hangers, shower curtain liners

Child and Baby

Diapers, hydration multipliers, sponge bottle brushes, stroller fans, teething toys, baby healing ointment, hypoallergenic baby diaper wipes, no-touch forehead thermometers, baby bottles, booster seats, breast milk storage bags, chew toys for infants, organic baby clothing, water-based wipes, white noise machines.

Home Office and Office

Corkboards, desk lights, desk pads, dry-erase markers, mouse, chairs, keyboards, monitor stands and risers, high-quality notebooks and journals, organisers and storage bins, mechanical pencils, office décor, pens and holders, staplers, USB hubs and adapters, notepads, webcams and microphone sets, wireless charging pads, file folders, heavy-duty packaging tape.

Phone Accessories

Smartphone wallets and card holders, portable chargers and power banks, ring lights, cleaning kits, Bluetooth speakers, earbuds or headphones, car chargers, custom cases, phone cooling accessories, screen protectors, selfie sticks, tripods, USB-C power adapters, waterproof cases, phone grips, phone mounts and stands, wireless charging stations

Finding Reliable Suppliers and Managing Relationships With Them

Researching and finding a trustworthy supplier is the first half of your job as a dropshipper because they can make or mar your dropshipping journey. The dropshipping process will require you to have patience and interest.

Check out some of the techniques below to find reliable suppliers:

• Make a List of Your Niche and Market Needs: Firstly, you should know what you want before sourcing it. To do this, you need to study good and bad customer reviews to understand what people want. You should also study suppliers and see which offers the best services and coverage. Your list should also include offers customers enjoy most.
   
• Researching Potential Suppliers: Use marketplaces such as AliExpress,  Alibaba, Amazon, Jumia, Etsy, and Taaskly to discover suppliers with solid reputations and diverse product ranges. Look out for customer reviews and testimonials, and also use Reddit, Quora, and Twitter for social listening.
  
• Analyse Quality and Pricing Structures: Assess product quality by paying close attention to what the majority say. Also, pay attention to the pricing. After looking at the market price, will you be pricey and deter customers or still be competitive? It would benefit you to partner with a supplier that discounts bulk purchases.

• Shipping & Fulfillment Capabilities: Confirm how long shipping takes and if there would be any unexpected surge in shipping fees or shipping delays.
  
• Track Order Availability: There should be ways for you to be alerted immediately once a product is sold out.
  
• Communication and Support: You need to choose suppliers who deliver excellent products and handle customer service effectively. Initially, you should ask questions and see how well they respond. Make sure you also inquire about their approach to processing customer returns. You should find another supplier if they take too long to reply or give lazy answers.

Lastly, consider submitting a trial order to see how a supplier will handle your customer’s requirements. You can even make the trial look like a customer ordered the product.  

Optimising Your Dropshipping Website for Sales and Customer Retention

After building your own website, you should optimise it for conversions and customer retention.

This is among the most important retailer processes, as it will allow you to gain more customers and sell more products. This way, you will also be able to increase your dropshipping profits and establish a successful business in your niche.

There are a number of ways to do this. Below, you will find the most important ones to consider.

Personalisation

Personalisation allows you to relate to customers on a friendly level. Why? Because you take your friends seriously and trust them.

Personalisation also goes beyond messaging. It extends to targeted email campaigns, product recommendations, landing pages, and features like personalised pop-ups, quiz service bots, or even one-to-one video calls. Personalisation might also mean setting up for multi-channel selling, as some target audiences might prefer online shopping from social media or other marketplaces.

Mobile Optimisation

A responsive website is the new bare minimum. Your dropshipping store should be able to adapt to various mobile screen sizes and load quickly because the smartphone is the primary way to interact with businesses and consumers.

Consider running a mobile usability test for any issues present in your design. Additionally, you would shed the site load time as it impacts your position on the SERP. Nowadays, everyone is in a hurry, and nobody has time for slow-loading websites.

Consider using Content Delivery Network (CDN), compress the sizes of images and videos, and reduce the use of redirects to optimise speed

Security and Trust

No one likes using a website without security, so obtaining secure socket layer (SSL) encryption is mandatory, even for small businesses. You may also consider implementing different network and information security measures to further secure your website and its customer data.

Another essential way to increase customer retention is to have a user-friendly and easy-to-navigate store. A website that impresses customers with a simple layout and easy navigation is worth remembering and will have more customers return.

Calculating and Maximising Your Profits in a Dropshipping Business

When calculating your profits as a dropshipper, you need to factor in essential metrics to calculate and maximise your dropshipping profit margin.

For your convenience, we have divided them into sections, so you can get familiar with measuring your profitability in terms of financials, customer performance, and gaining important financial data.

Read more in the below lines.

Financial Performance Metrics

In this section, you will see different financial performance metrics and their importance of determining the financial health and performance of your business.

Let’s see the most important ones below:

• Cost of Goods Sold (COGS): The total cost of goods sold focuses only on products sold. It is the expense you incurred for the products from the supplier.
  
• Gross Profit and Gross Profit Margin: The gross profit shows your profit after deducting the COGS from the total revenue. Conversely, the gross profit margin shows the percentage of your gross profit compared to your income. See how to calculate both below.
  
• Gross profit Formula: Gross Profit = Total Revenue – COGS.
  
• Gross Profit Margin formula: Gross Profit Margin = (Gross profit / Revenue) x 100%.

Gross profit is an excellent way to say this would have been your profit without the expenses. It shows how far you can get without extra costs.

Customer Performance Metrics

The following customer metrics will represent the effectiveness of your customer management, acquisition, and retention strategies.

The most important ones are net profit and net profit margins. The net profit calculates your actual profit, while the net profit margin is the percentage of your net profit compared to your revenue. They consider the cost of goods sold and all other expenses (i.e., ad cost, sales tax, website hosting, COGS) for running your business.

Net Profit Formula: Net Profit = Total Revenue – COGS – Other expenses.

Net Profit Margin Formula: Net Profit Margin = Net Income / Total Revenue x 100%

Your net profit margin shows you how low or high your dropshipping income is. If your expenses significantly affect your income, find more cost-effective ways to run the business.

Other important metrics for online stores are:

• Customer Lifetime Value: This may not directly impact your current profit, but Customer Lifetime Value (CLV) measures the expected average profit from each customer. It’s ever-changing and not static. Calculate it as follows: CLV = Average order value x Number of monthly transactions x Retention period.
  
• Conversion Rate: Your conversion rate is a crucial metric showing how well you perform as a business. It’s the percentage of customers that buy after visiting your store. For example, if you converted 20 out of 2000 visitors, your conversion rate is 1%. The conversion rate formula is: Conversion rate = Number of orders / Number of unique visitors.
  
• Customer Acquisition Cost (CAC): This is the average cost to incur customers through marketing and advertising. If your CAC is relatively high, you should look for more cost-effective ways to convert people. To calculate your CAC, here is the formula: CAC = Total marketing, sales, and advertising costs / Number of new customers.

Another important metric is the refund rate. How often have customers complained that a product was terrible and not up to standard? Retail store owners calculate it by slashing refund numbers over the total number of orders. If it is high, it is high time to change suppliers.

Conclusion

Dropshipping represents a dynamic and innovative business model that has gained popularity for its low entry barriers and minimal upfront investment requirements. This method of e-commerce store management allows you to focus on marketing and customer relations while mitigating the risks associated with traditional inventory management.However, in order to be successful, online sellers need to carefully select their products, find reliable suppliers, and apply effective marketing strategies.