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What is Dropshipping: Learn the Definition and Processes (2024)

Aman Chopra
  •  
June 1, 2024

Have you ever dreamt of starting your own online business but felt overwhelmed by the idea of managing inventory and shipping? Then, dropshipping might be the answer you’ve been looking for!

This post will discuss the following topics:

  • What is dropshipping in Canada?

  • How does dropshipping work?

All these things answer the biggest question of launching your own successful dropshipping business!

Key Takeaways

  • Dropshipping is a way to sell things online without actually holding stock. Instead, you pass the order to a supplier when someone buys something from your online store. This supplier then sends the product directly to the customer.

  • To do well in dropshipping, choose what you will sell carefully, find trustworthy suppliers, and promote it effectively. You’ll also need to deal with competition, keep your prices competitive, and ensure customers are happy.

  • While dropshipping is one option, starting your own business with inventory from scratch has advantages, too. There are also services like Stallion that can help you ship at lower costs.

What is Dropshipping Business?

supplier warehouse

To simplify it, dropshipping is selling products online without holding them in stock yourself. It’s a retail fulfillment method where you, the seller, act as a bridge between the customer and a third-party supplier. Dropshipping has advantages over other business models because the business owner typically does not have to worry about inventory or storage.

Here’s how the entire process works:

  1. You list products on your online store. You curate a selection of products you want to sell and showcase them on your website or marketplace platform.

  2. The customer places an order. A customer browses your store and decides to buy a product.

  3. Order gets forwarded to supplier. Once the customer completes the transaction, you don’t physically prepare and ship the product. Instead, you forward the customer orders and shipping details to your dropshipping supplier.

  4. Supplier fulfills the order. The supplier then packages and ships the product directly to your customer, often under your brand name.

  5. You earn the profit. You set the selling price for the product. This amount should not be the same as the dropshipping supplier’s set. Or else, how would you make income? Your profit margin is the difference between your store price and what you pay the supplier.

Is Dropshipping Legal in Canada?

Yes, dropshipping is absolutely legal and a recognized business model in Canada. Many successful dropshipping businesses are operating across the country. However, it’s crucial to remember that dropshipping companies still have to follow some regulations, such as:

  • Product restrictions. You can’t sell products that are illegal in Canada. Make sure your suppliers adhere to these regulations as well.

  • Taxes. You’ll be responsible for collecting and remitting applicable taxes, such as GST or HST, on your sales. There are thresholds for registration, so research what applies to your business.

How Hard Is A Dropshipping Business Model?

a woman calling the dropshipping supplier

The difficulty of a dropshipping business model can be deceiving. Here are some aspects to help you understand the effort involved:

Low Barrier To Entry

Compared to a traditional eCommerce store, dropshipping requires less upfront investment. You don’t need to buy and store inventory, which can be a significant cost for startups. This means there are several players in the market, often trying to sell the same products.

Time Commitment

While it reduces inventory management, dropshipping success hinges on other factors. Unfortunately, you need to exert time and effort to meet these components. Marketing, customer service, and building a solid brand are crucial and ongoing tasks.

Competition

You must understand how saturated the dropshipping market is. Standing out requires passing the following criteria:

  • Unique selling proposition (USP)

  • Exceptional customer service

  • Effective marketing strategies

Profit Margins

Dropshipping suppliers typically have lower profit margins because you add another layer to the distribution chain. Careful planning and pricing strategies are essential to ensure profitability.

Limited Control

You rely on your dropshipping supplier for product quality, shipping times, and fulfillment. Choosing reliable suppliers and having clear communication are vital for customer satisfaction.

How Can You Start A Dropshipping Business?

Boxes inside the trolley on top of a laptop

Dropshipping can be an appealing way to start an online business because it requires relatively low upfront costs. Here’s a basic roadmap to get you started:

Find Your Niche

Select a product category. Don’t forget to choose items you’re interested in and have a good market demand. Remember, not all people have the same taste as you. You cannot expect every item you sell to end up in customers’ shopping carts.

Thus, market research is important! Find potential products using tools like Google Trends or social listening platforms. This extra step will help you avoid wasting time building your eCommerce business.

Source For Reliable Dropshipping Suppliers

Look for dropshipping suppliers that offer products aligned with your niche and target audience. Research their reputation, shipping times, and minimum order quantities. Also, read the dropshipping agreement contract before deciding. Don’t be afraid to explore multiple suppliers. In fact, this can benefit your dropshipping business. However, you must remember that managing different suppliers also comes with challenges, including:

  • Coordinating shipping times

  • Managing business relationships

  • Dealing with various product quality

It’s essential to have solid systems and processes to handle these complexities effectively. Additionally, you must conduct thorough research and due diligence when selecting and vetting suppliers. This will ensure they meet your standards and align with your business goals.

Additionally, thorough research and due diligence should be conducted when selecting and vetting suppliers to ensure they meet your standards and align with your business goals.

Build Your Online Store

Various eCommerce platforms like Shopify offer user-friendly interfaces to build your online store. But, consider factors like pricing, features, and ease of use when choosing a platform.

Brand And Market Your Store

Create a strong brand identity, including a logo and consistent messaging. Develop a marketing strategy to attract potential customers. This can involve the following strategies:

  • Social media marketing

  • Search engine optimization (SEO)

  • Pay-per-click (PPC) advertising

With the right strategy, your dropshipping store can stand out from its competitors. retail store

Process Orders and Provide Customer Service

Once you receive an order, forward it to your dropshipping supplier. They’ll handle packaging and shipping the product directly to your customer. They’ll handle packaging and shipping the product directly to your customer. Be prepared to provide excellent customer service to build trust and loyalty.

Pro Tip:

  • Focus on high-quality product descriptions and images.

  • Offer competitive pricing and shipping options.

  • Provide excellent customer service.

  • Continuously test and improve your marketing campaigns.

Is Dropshipping Worth It For Beginners?

A hand touching the "add to cart" icon

Dropshipping can be a good option for beginners interested in eCommerce for a few reasons:

Lower Startup Costs

The most significant advantage is the low barrier to entry. You don’t need a massive upfront investment in inventory, which can be a major hurdle for new eCommerce businesses. This allows you to test the waters and experiment with different products without a huge financial risk.

Simpler Inventory Management

Since you don’t manage inventory, you don’t have to worry about storage space, packaging, or shipping logistics. These perks free up your time and resources to focus on marketing and customer service.

Learning the eCommerce Ropes

The dropshipping model provides a hands-on way to learn the fundamentals of being an eCommerce retailer. You’ll gain experience in product selection, marketing, customer service, and website management. These skills are valuable for any eCommerce venture, even if you decide to move beyond dropshipping in the future.

Thus, dropshipping can be a worthwhile option for beginners willing to put in the effort. It offers a low-cost entry point to eCommerce and allows you to gain valuable experience. However, it would be best if you prepared for the challenges of competition and tight margins.

Here’s a tip! Before diving in, research successful dropshipping businesses to understand the strategies that work.

How Profitable Is Dropshipping?

Two small toy human figures on top of coins

The profitability of dropshipping depends on several factors:

  • Product selection. Choosing high-demand, competitively-priced products with healthy profit margins is crucial. Research trends and avoid oversaturated markets.

  • Supplier costs. The price you pay your supplier directly impacts your profit margin. Negotiate good deals and factor in supplier costs when setting your selling price.

  • Marketing and advertising costs. Attracting customers requires investment in marketing and advertising. Carefully track your return on ad spend (ROAS) to ensure your marketing efforts are profitable.

  • Store operating costs. Consider platform fees, payment processing fees, and any website maintenance costs when calculating your profit margin.

Dropshipping businesses can expect profit margins between 10% and 30%. Note: this depends on the abovementioned factors.

Here’s an example to illustrate:

  • Selling price: $25

  • Cost price from supplier: $10

  • Advertising cost per sale: $5

In this scenario, your profit per sale would be $10 ($25 – $10 – $5).

While some dropshipping success stories boast high profits, it’s essential to be realistic. For most beginners, profitability takes time and effort. Focus on building a sustainable business model with a loyal customer base over aiming for get-rich-quick schemes.

Dropshipping can be a legitimate way to make money online. However, it requires hard work, strategic planning, and a commitment to providing value to your customers.

Is Amazon Dropshipping Profitable?

A phone on top of an Amazon prime package

Amazon dropshipping can be profitable. However, there are some specific considerations to consider compared to general dropshipping. Here’s a breakdown:

Pros of Amazon Dropshipping:

  • Large customer base. Leveraging Amazon’s massive customer traffic can be a significant advantage. Reaching potential customers is easier when you’re already on a trusted platform.

  • Fulfillment options. Dropshipping does not involve holding inventory. Instead, you can use Amazon’s Fulfillment by Amazon (FBA) service. This offers you with faster shipping times and improved customer satisfaction. Note: This service comes with additional fees. Thus, you should include that in your operational expenses.

Cons of Amazon Dropshipping:

  • Stricter guidelines. Amazon has rules that are more stringent against dropshipping than some other platforms. Ensure your supplier adheres to Amazon’s policies to avoid account suspension.

  • Increased competition. The competition on Amazon is fierce. It will take you plenty of time and effort to stand out. To get noticed, you must have excellent product selection and competitive pricing. Additionally, you must be willing to spend more on marketing efforts.

  • Lower margins. Amazon seller fees can affect your profit margins. Thus, you must factor in these fees when calculating your pricing strategy to ensure profitability.

Profitability Potential:

Studies suggest that 94% of Amazon dropshippers are profitable. However, profitability hinges on several factors:

  • Product selection. Focus on products with healthy profit margins after accounting for Amazon fees and supplier costs.

  • Supplier pricing. Don’t hesitate to negotiate if you think the rates can still go lower. Go for the best possible amount with your supplier to maximize your profit margin per sale.

  • Marketing efforts. Effective marketing strategies are necessary to drive traffic to your listings. This will also help you compete with established sellers.

What Is The Best Shopify Plan For Dropshipping?

A phone reflecting the Shopify mobile app

The best Shopify plan for dropshipping depends on your business stage and needs. Here’s a breakdown of the most popular options to help you decide:

Shopify Basic

Shopify Basic is a good starting point for beginners. It costs USD 29/month, offering essential features, such as:

  • Online store

  • Unlimited product listings

  • Ability to sell on social media channels

  • Basic fraud protection

However, it has a transaction fee of 2.9 + 30 cents, which can eat into profits on low-margin dropshipping products.

Shopify

The Shopify plan provides all the features of Shopify Basic. While it still has a transaction fee, it’s 3% lower (+ 30 cents). It also offers other functions, including abandoned cart recovery and discount codes. These features help grow your dropshipping store and increase profitability.

Advanced Shopify

Advanced Shopify is best suited for high-volume dropshipping businesses. However, it is also the most expensive, costing USD 299/month. Meanwhile, it has the lowest transaction fee at 2.4% + 30 cents. Other features you can expect with Advanced Shopify are:

  • Advanced reporting tools

  • Third-party shipping rates calculation

These features can be beneficial if you’re scaling your business. They can also assist businesses needing more in-depth analytics or want to offer real-time shipping options.

Here’s a table summarizing key considerations:

FeatureShopify BasicShopifyAdvanced Shopify
Monthly PriceUSD 29USD 79USD 299
Transaction Fee2.9% + 30 cents2.6% + 30 cents2.4% + 30 cents
Abandoned Cart RecoveryNoYesYes
Discount CodesNoYesYes
Advanced ReportingNoLimitedYes
Third-Party Shipping RatesNoNoYes

Why Not Start Your Business From Scratch?

If you find dropshipping overwhelming and want to start small, why not ship your own products instead? There are several reasons why you can consider starting your business from scratch:

  • Higher Profit Potential. Building your brand and sourcing products directly gives you more control over pricing. This can help you achieve higher profits because you remove another layer from the distribution chain.

  • Greater Brand Identity. With dropshipping, you’re essentially selling another company’s products under your store name. On the other hand, building your own brand from scratch lets you do the opposite. You can develop a unique identity, voice, and customer base loyal to your brand.

  • More Control Over Inventory and Quality. Dropshipping relies on your supplier for product quality, packaging, and shipping. Meanwhile, you can source products directly, ensuring quality control. Additionally, you can customize packaging or include inserts to enhance the unboxing experience.

  • Long-Term Growth Potential. While dropshipping can be a good starting point, it can limit your growth potential in the long run. Building your own brand allows you to develop a loyal customer base, expand your product line, and build a more sustainable business model.

  • Greater Sense of Ownership and Accomplishment. Building a business from scratch involves overcoming challenges and making creative decisions. With this combined, you can witness your brand come to life. This sense of ownership and accomplishment can significantly motivate many entrepreneurs.

How Can Stallion Help Your Online Store?

Stallion is a valuable asset for Canadian online stores, especially those new to eCommerce.

  • Discounted Shipping Rates. We have the lowest rates in the industry, especially for USPS postage on US shipments. This can be a significant advantage for new sellers with tight profit margins. Additionally, these prices allow them to compete with big brands and local sellers, as consumers try their best to save as much as possible.

  • Streamlined Shipping Process. Stallion offers features to streamline your dropshipping workflow. Our platform can integrate with various eCommerce platforms and online marketplaces. This includes Shopify, WooCommerce, Amazon, Etsy, and eBay, among many others. Thus, you can manage orders, print shipping labels, and track shipments from your account.

  • Multiple Carrier Options. We have partnerships with carriers like USPS, FedEx, and Canada Post. These options provide flexibility in choosing the most suitable and cost-effective shipping for your shipping needs.

  • They offer partnerships with carriers like USPS, UPS, FedEx, and Canada Post, providing flexibility in choosing the most suitable and cost-effective shipping option for your domestic and international dropshipping needs.

  • Focus on Canadian Sellers. Stallion caters specifically to Canadian online sellers. This can be advantageous if you target the Canadian market or want customer support readily available in your time zone.

To Summarize

Dropshipping offers a way to start an online store with a lower initial investment. However, success requires dedication, effort, and ongoing work in marketing, branding, and customer service.

However, if you want to build your own brand, Stallion can help you bring your products to your customers at a cheaper cost and faster delivery times.

Get started today! Ship faster, smarter, cheaper with Stallion.

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