by Table of Contents
One of the most common dilemmas that aspiring entrepreneurs face is the lack of resources and capital.
There’s always a misconception that in order to have a fully-fledged business, you must shell out a substantial amount of money for inventory, or for raw materials for your products.
While it’s true that you need money to set the wheels in motion, do you know that you can start even with little to no capital?
What is Dropshipping?
Dropshipping is a business model that enables entrepreneurs to run their own business even with little to no startup costs, inventory, raw materials, or warehouse.
As a retail fulfillment method that easily streamlines customer purchase to order processing and delivery, Dropshipping has become one of the most popular and profitable business models in the e-commerce industry.
Compared to the traditional method of doing business where the entrepreneur manufactures, stores inventory, and processes customer orders, dropshipping on the other hand allows the entrepreneur to focus on the marketing and sales aspect of his business by working with third party companies.
How does Dropshipping work?
To give you a clear example of how dropshipping works, let’s assume that Joseph wants to start a small business with only 3000 pesos as a starting capital. He wanted to sell t-shirts with his original designs as prints but he doesn’t have much capital to produce it himself.
Via the traditional method, Joseph would need raw materials like fabric, sewing machines, heat press, printers, etc. to be able to fulfill his inventory.
But via the dropshipping method, the only thing that Joseph would have to do is to have an online presence for his brand. For his inventory, Joseph will contact third party print-on-demand companies to produce those shirts.
So here’s how it goes:
- Joseph creates a website or sells via Lazada, Shopee, or Facebook marketplace.
- Once a customer orders from Joseph, he will accept the payment from the customer (let’s say 500 PHP).
- Joseph will then forward the order to the 3rd party manufacturer to start processing the order, and he will pay whatever the company charges for the fulfillment of the order.
- The manufacturer charges 200 PHP for the shirt printing, packaging, and delivery. Whatever is left is Joseph’s profit (So 500 PHP – 200 PHP =300 PHP)
That company is responsible for printing the design (made to order), packaging the shirts, and delivering the order to the customer’s address. It’s as simple as that.
White Label Dropshipping vs Private Label Dropshipping
Dropshipping, as a fulfillment method, is categorized into two categories – White Label and Private Label. Both of them are quite similar but their key differences lie in exclusivity with the manufacturer that they’ve partnered up with.
Under the white label category, products that are usually generic in nature are manufactured by third-party companies which are later on rebranded by retailers. Retailers can opt to change the packaging according to their branding. They can also add their company’s logo to the products, and they will appear as if the retailers manufactured them by themselves.
With private-labels, on the other hand, third-party companies manufacture products exclusively for one specific retailer only. These products are not sold by other retailers and thus, these product offerings more unique.
What are the advantages of Dropshipping?
- You can start a business fast, with little to no capital
- Reduced product costs
- Little to no inventory
- No warehousing costs and less utilities expenses
- Allows for flexibility and quick product testings to see which products are suited for your target market
- You can focus on customer acquisition and other key business functions
- Easily scalable with unlimited product offerings
- Increased cash flow
What are the disadvantages of Dropshipping?
- No control over the quality of products
- No control over lead and shipping times
- Inability to combine and package several products in one order if a customer ordered several items at the same time
- Increased problems with customer service
- Low retention rate if the quality is poor and shipping time is slow
- Highly competitive as you are competing with retailers selling the same products
- Possibility of stock or inventory shortages from the manufacturer’s side
- Less margin and profit as a retailer
- Complicated return and refund policies for customers as you’d have to deal with the manufacturer’s side as well
Choosing the right manufacturer and supplier for your Dropshipping store
The success of your dropshipping store essentially depends on the manufacturer, supplier or distributor that you’ve partnered up with.
As mentioned in the disadvantages above, key business processes such as production, fulfillment, quality control, and shipping are out of your control and they are being handled by your manufacturer. These processes comprise 70% of your business model and being at the wrong hands could surely mean the death of your business.
Here are some important guidelines when choosing the right manufacturer or supplier for your store:
- Create a list of manufacturers, suppliers, and distributors that offers the products you’re interested in selling. Legitimate distributors and manufacturers don’t ask for monthly fees from retailers.
- Research on each manufacturers’ history and how long they’ve been in the business.
- Check for customer reviews from their social media sites.
- Call or contact them to gauge response time.
- Ask them about their minimum purchase orders.
- Order samples from those manufacturers to compare quality, price, and speed of delivery.
- Compare prices with your competitors and check if you can beat them price-wise.
- Ask each manufacturer about their policies about customer refunds and returns.
You can opt to buy directly from manufacturers from China via Alibaba and Aliexpress. But keep in mind the long delivery times, customs taxes and high shipping fees.
How to find the right Dropshippping products to sell?
Given the highly competitive nature of the dropshipping business model, finding lucrative products to sell can be quite tricky especially for beginners.
Case in point, while some wholesale products have high-demand, you might find that their margins are extremely low. On the other hand, the other dilemma is selling a premium product, but there is scarce demand.
What you want is a highly in-demand product that you can sell with a high margin. So how do you find this killer combination?
- Google Trends
You can use Google Trends to discover keywords that have high demand. It also shows you the Top of Mind keywords that your potential customers are searching for at the moment and you can gauge the seasonality of the product as well.
- Google Keyword Planner
You can check for keywords of products with high search volumes. Just type in the product that you’re interested in selling. in the Philippines and Google Keyword Planner will show you if the niche is highly competitive as well.
- Facebook search and marketplace
Type in your product at Facebook search and the results will give you an idea if the market is overly saturated with small scale retailers and resellers. You can also check Facebook fan pages of your competitors and see which products are selling the most
- Lazada and Shopee Search
Most customers buy products that are usually on the first page of the search results page of selling platforms like Lazada and Shopee. From this, you can gauge the number of competitors and demand. Check for customer reviews about the quality of the products your competitors are selling. Click on the second and third pages and if you still see several items similar to yours, it’s a pretty good indicator that your niche is highly saturated already.
Where to sell your Dropshipping products
- Lazada
- Shopee
- Facebook marketplace or fan pages
- Shopify
- Woocommerce
- Etsy
Final Thoughts about Dropshipping in the Philippines
In my experience, I’d say that the dropshipping business model is perfect for beginners who are looking to dip their toes in the business world even without capital. For the long term, however, it’s simply not sustainable as you’d have to deal with an overly saturated market with competitors selling the same items, and this will force you to lower down your price.
Establishing a competitive advantage over your product’s quality and service would be difficult as well as you couldn’t production, lead times, and shipping time.
But at the end of the day, choosing the dropshipping method for starting a business in the Philippines depends on your short-term and long-term financial goals and risk appetite. Analyzing the risks vs the rewards is highly crucial.
