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The dropshipping model for selling on-line

What is dropshipping? Dropshipping - also called drop shipping or drop ship - is a type of on-line sale that makes it possible to sell products without having them in stock, therefore relying on one or more suppliers - also called dropshippers - that handle all logistics.

It is a sale system created in the United States more than a decade ago and which has taken off in Italy too over the last few years. Today, in our country too, there are on-line stores that use this sale model, operating in a raft of product sectors: from books to car spare parts, from electronics to watches, just to name a few examples.

How to dropship and what you need to start selling on-line

The sale process is quite simple. Dropshipping sellers receive purchase orders on-line then send them to one or more suppliers who will send the goods to the buyer.

The simplicity of the mechanism also makes it easier to identify what you need to start. First of all, the regulations set forth in Italy governing e-commerce and the establishment of a company are applied. We have already discussed the topic in an article which explains how to open an E-commerce business: therefore, we advise you to take a look at it for more details and, naturally, if you decide to start your activity, to contact a business advisor.

One of the FAQs associated with e-commerce in general is Do you need a VAT number, and the answer is yes. Take it as a general rule that only where sales are considered occasional can they be carried out without a VAT number, in all other cases you must have one.

Once things have been put in order from a regulatory perspective, you can concentrate on what you need in this specific case. Among the first things you need to do is to decide which platform you wish to sell products on and there are two fundamental choices: through a marketplace - sale platform which brings together multiple sellers - like eBay or on a specifically developed site. We'll see later what to take into consideration to make the best choice.

Hence, starting from the assumption that you have already chosen what to sell, and it is recommended to dedicate all the time necessary to this aspect, another strategic factor is identifying a supplier/suppliers. While it is true that, at the dawn of the web, suppliers specialised in this intermediation model were thin on the ground, today the opposite is true; our advice is to contact specialised wholesalers because they can offer you and your customers specific services in this domain.

Promotion activities, all marketing initiatives in general, are another crucial aspect. Indeed, because the market is now extremely tough, in particular in some specific product sectors, it is crucially important that you invest in advertising yourself and acquiring customers for your store. We have written an article with loads of suggestions on how to promote your company on the web; the advice is to start from there when setting up a successful marketing strategy.

We'll close this list with the payment gateway, the platform through which you will receive payments from your customers. Although the majority of marketplaces already offer a collection solution, if you decide to sell on your site, you should also consider the choice of a virtual POS to be integrated. It is probably recommended, especially initially, to apply a zero-fee tariff plan with variable costs only on the transaction value in order to reduce fixed costs as much as possible.

Pros and cons of dropshipping

As with any business, dropshipping also has advantages and disadvantages. We have collected them together below to provide you with all necessary tools for making a fully-informed decision.

Let's start with the advantages:

  • Logistics
    We have written them at the start, with dropshipping you do not need a warehouse or agreements with a shipping company. This means greater flexibility and lower initial costs, no rent and additional costs for property management.
  • Offering of products
    With no products in the warehouse and, therefore, zero risk of finding yourself with unsold stock, your product catalogue can change more quickly and follow market trends equally quickly. Think, for example, of the world of smartphones which, in consumer electronics, are perhaps among the products with the lowest longevity.

And we'll move on to the disadvantages:

  • Dependence on other parties
    Yes, because if you delegate shipment to another party, responsibility for the quality of its service falls on you, for better or for worse. Another reason for carefully selecting who to rely on in undertaking your business.
  • Reduced margins
    Especially at the start, the number of orders you'll receive will be low and, consequently, so will your margins. In fact, consider that your earnings will be the difference between the sale price and the cost applied by the supplier, to which you must add at least the costs of the marketing initiatives you incur in promoting your business.

How much does it cost to start dropshipping

Giving a precise and comprehensive answer to this question is difficult regardless of the type of commercial activity you are about to undertake and this case is no exception. We can, however, identify a few elements to consider when calculating costs.

Proprietary site or marketplace
The creation of a site, generally, involves development and maintenance costs. Unless you have specific subject knowledge, you'll need to employ an agency or a professional. Alternatively, you can open an account on a marketplace, set-up costs will be lower or eliminated, but you'll relinquish the personalisation which can be offered by a site that can be fully customised according to your requirements.

Sale commissions
We have outlined the collection costs to be incurred previously. There are many offers on the market, which may entail activation costs, platform fees and additional costs based on personalisation and value-added services. If you like, you can take an in-depth look at our tariff plans to get an idea.

For some, the dropshipping method is a starting point for selling on-line and, once experience and customers have been acquired, you can move on to more "traditional" E-commerce. We have tried to provide you with all the necessary tools to understand whether this sale method is for you, now it is up to you to decide.

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