Dropshipping Deep Dive

If you’re considering starting your own ecommerce business, you may be wondering how to get access to products, or where to store them. The traditional business model for retailers often means leasing warehouse space, handling supply chain and inventory management, and managing shipping costs. However, there’s an alternative business model called dropshipping that can be beneficial for online store owners. Here’s everything you need to know if you’re interested in learning about dropshipping. In this blog post, we’ll show you how it works and how you can get started.

What is Dropshipping?

Dropshipping is a business model in which e-commerce entrepreneurs sell products without having to carry any inventory. It is a great way to start an online business with little upfront investment.

How Does Dropshipping Work?

Dropshipping works by connecting ecommerce store owners with suppliers who will ship products directly to the customer. The owner creates a list of products they’d like to sell on their website and sets up a shopping cart. When a customer places an order, the store owner contacts the supplier and provides them with the customer’s shipping information. The supplier then ships the product directly to the customer.

Advantages

There are several advantages of dropshipping that make it a popular choice for ecommerce entrepreneurs:
1. Low startup costs: Since you don’t need to carry inventory, the startup costs for a dropshipping business are relatively low. All you need is a domain name, website, and an operational company.
2. No need for warehousing space: One of the biggest benefits of this alternative ecommerce business model is that you don’t need to lease warehouse space or store inventory. This can save a lot of money in the long run.
3. Easier to scale: With dropshipping, it’s easier to scale your business since you only need to contact one supplier as your customer base grows. In contrast, if you were carrying your own inventory, you would need to find more storage space and hire additional staff to manage the increased volume of orders.
4. Location independent: These type of businesses are location independent since there’s no need for physical store space. This means that you can run your business from anywhere in the world as long as you have an internet connection and are compliant with local regulations. Papilio Services can advise on the somewhat complicated topic of economic substance.

Disadvantages

1. Lower margins: One of the biggest disadvantages of dropshipping is that you have to contend with lower margins since you’re working with a middleman. In order to make a profit, you need to set your prices higher than the wholesale price, which can be difficult to do if there’s a lot of competition in your niche.
2. Less control over shipping: When you’re dropshipping, you have less control over the shipping process since it’s handled by the supplier. This can sometimes lead to customer service issues if there are any problems with delivery times or damage to products during shipping.
3. Can be difficult to find reliable suppliers: Another challenge is that it can be difficult to find reliable suppliers who offer good quality products and fast shipping times. If you don’t take the time to vet your suppliers carefully, it could end up costing you in the long run.
4. Complexity: The tax implications from dropshipping can be complicated and often overseen by the budding entrepreneur until it is to late, which could have reporting consequences. However, by seeking the correct guidance in the planning phase of your business before you are operational, the transaction can often be mapped out easier. Additionally, VAT reporting obligations, if any, will be clearly identified, making dropshipping a more than viable option for your ecommerce business.

Tips for success

Find a niche: One of the best ways to succeed with dropshipping is to focus on a specific niche. This will make it easier to find a supplier and market your products effectively to your target audience.
Do your research: It’s important to do your research and vet your suppliers carefully before committing to working with them. Make sure you understand their shipping times, return policy, and any minimum order requirements.
Invest in marketing: Dropshipping businesses rely heavily on marketing to drive traffic and sales. Be sure to invest time and money into marketing your store so that you can reach your target customers

If you’d like more information about dropshipping or setting up an ecommerce business in Malta, don’t hesitate to contact us. We can arrange for a free consultation.