Over $2 trillion in ecommerce sales are expected in the United States in 2017, that number will grow to over $4 trillion in just four years. Drop-shipping is one form of merchandise fulfillment that a growing number of ecommerce business like Shoe Carnival and Pier One Imports is using, according to the Wall Street Journal.
For those unfamiliar with the term, drop-shipping is an arrangement whereby the manufacturer directly ships items to the end consumer. That means that the retail company, in this case your ecommerce store, does not handle or house merchandise.
This article will review ten key ways potential small business founders can start a successful drop-shipping business from home.
- Find an underserved niche
The ecommerce industry is crowded. Organizations like Amazon, Wayfair, Bed Bath and Beyond and many others are able to successfully serve hundreds of millions of customers each year. In order to compete as a small ecommerce company, you should aim to identify an underserved set of potential customers. That way, it will be easier to grow your business without needing to worry about competition from larger organizations.
To identify potential niches, consider creating an MVP (minimum viable product) and promote the product via social media ads. If done well, you can determine the potential demand for a product before you even begin working with a manufacturer. Of course, the beauty of drop-shipping is that you can immediately start selling merchandise, even with an MVP, since you won’t need to warehouse the products.
- Get to know the customer by creating personas
In order to ensure that the website design, product offering and go-to-market strategies are correct, you need to have a great understanding of your target customer. To build this understanding, consider creating a marketing persona. Think of a persona as an archetype, using geographic, demographic and psychographic information, you can create an accurate picture of the type of person you would like to target.
Once you understand what motivates your potential customer, it will become easier to merchandise and market your drop-shipping ecommerce business.
- Find a manufacturer willing to drop-ship
With a niche and customer persona already established, it is time to find a manufacturer that is willing to drop-ship merchandise. Platforms like Aliexpress can help you to quickly find manufacturers that are willing to send merchandise directly to the consumer. Be sure to conduct a background check of the factory before making a commitment, as a poor experience will lead to cascading negative consequences.
- Calculate associated manufacturing costs
If you are interested in manufacturing items outside of the United States, be sure to calculate transportation and duty costs first. While international manufacturers are often able to produce goods below domestic competitors, additional freight and tariff costs can make items prohibitively expensive.
- Ensure outstanding customer service to create word of mouth business
As mentioned earlier, poor customer service can create cascading negative consequences. Be sure to provide customers with outstanding service in order to generate word of mouth referral customers.
Word of mouth customers are ideal for small businesses, because the cost of acquiring a customer via word of mouth is lower than any other channel. Low customer acquisition cost (CAC) is a winning formula for an ecommerce business.
- Promote content with targeted ads
In the early days of your ecommerce business, it will most likely be difficult to generate demand organically. Instead, you will most likely need to invest in digital ads in order to generate customers. Social media is a great way to grow your brand, regardless of whether your customer is looking for a custom bridesmaid dress or used hockey skates.
Since you should already have an idea of who your target customer is (thanks to the customer personas you created) it will be easy for you to use advanced social media advertising targeting options to ensure that every penny spent is spent on driving the right customer.
- Track the fluctuation of business metrics, and adjust pricing
There are a few business metrics that every drop-shipping business owner should track. Customer acquisition costs, lifetime value, website visitor conversion rate, and customer satisfaction are a few of the key metrics that you should track.
When viewed as a whole, the metrics will provide you with an effective way to benchmark and pulse check the performance of your drop-shipping business.
- Pivot to other products if necessary
Remember that a benefit of drop-shipping is that you do not need to hold inventory if it isn’t selling. If you notice demand for your products is declining, consider pivoting to other products that are more in demand.
Create another MVP and test the market once more with social media ads to identify a new product, or a new niche audience to target.
- Contact customers to evaluate performance
Customer service, good or bad, has the power to make or break your drop-ship business in the long run. In order to properly evaluate customer satisfaction, consider contacting a handful of customers directly. Ask them the standard NPS and CSAT questions, and ask them what else your business would need to do in order for them to tell their friends about their experience.
- Ask for advice from other ecommerce vendors
If this is your first drop-shipping business, learning the ins and outs of what it takes to be successful can take time. Consider accelerating your education by contacting ecommerce business owners operating in niches you are not targeting. Ask them for advice, and most likely some entrepreneurs will be more than willing to help.
Ecommerce businesses and drop-shipping businesses specifically are becoming increasingly successful. It has never been easier to identify a target market, find manufacturers, and promote products than today. By following the ten steps outlined in this article, you will be well on your way to creating a thriving drop-shipping business.