Dropshipping - This is how dropshipping works!

Dropshipping – This is how dropshipping works!

In recent years, the trade concept of dropshipping, also known as drop shipping, has steadily increased in importance. We explain the model in its entirety, show you step by step how to set up a direct sales business, deal with costs and legal obligations, and compare the advantages and disadvantages of direct sales. We also show engaging direct sales providers.

Dropshipping - This is how dropshipping works!
Dropshipping – This is how dropshipping works!

What is direct selling?

Direct sales are always used when a retailer has his suppliers deliver the ordered products directly to the end customer. This eliminates the need for pre-financing inventory, warehousing, and the construction and operation of your shipping logistics. This saves direct sales distributors a lot of money and time.

Consignment or Generation Shipping: Two terms for one concept

By definition, dropshipping is also referred to as drop shipping or direct trade. Whatever the term is, it’s always about alternatives to classic retailing. Traditional online retailers buy products in advance, store them, and if an order is placed to send them to their customers, drop shipper transfers these tasks to their suppliers. These are primarily wholesalers, but sometimes also manufacturers.

Depending on the shop floor system used, the orders received are automatically forwarded to the appropriate supplier. This packages the required goods and sends them directly to the final customer. Purchase costs are incurred only when the consumer has already paid for the ordered items. The supplier plays a central role. Since direct sales distributors themselves do not influence product quality and delivery times, it is essential to choose trustworthy and reliable wholesalers and manufacturers.

Dropshipping - This is how dropshipping works!
Dropshipping – This is how dropshipping works!

Getting started in direct sales: 10 step-by-step instructions

Step 1 – Business Concept: The business concept not only indicates your desire to use direct sales as a trading model. You can also define which products you will sell to which target group and under which conditions.
Step 2 – Register your direct selling business: You only need to register your business to start a trading company. You can charge a small fee in the city or municipality you are responsible for. The business registration then leads to an automatic registration with the tax office and the Chamber of Commerce.
Step 3 – Find a partner: Using the direct sales trading model, the focus is on connecting with suppliers who have a decisive influence on the degree of success of the business model. It is essential to thoroughly potential screen candidates before starting a partnership.
Step 4 – Formalities: If you buy products from a foreign country, you should deal with the laws and regulations applicable to that country. In addition, products offered in that country/region must comply with local laws. You should also be thoroughly informed about taxes and duties.
Step 5 – Store system: In principle, you can use any store system (e.g., Shopify) to set up a direct sales business. However, it is better to choose software that already has exceptional direct marketing features integrated.
Tip!
Shopify’s direct marketing business needs to be appropriately managed. sevDesk’s office software supports you, and it even offers Shopify integration. This way, invoices are automatically generated and sent to your customers when orders are received in the Shopify online store.
Step 6 – Find direct sales products: Now it’s time to choose an attractive and appealing product range. First, you should analyze your target group. Based on this, you can place yourself in the position of your target group and finally choose the right products for your potential customers.
Step 7 – Design the packaging: It is, therefore, advisable to use neutral packaging or instruct your shipper to use a box with your advertising or logo. You can learn how to create a logo for your company here. This has additional costs associated with it. It is also essential to include your name and title with the paper so that everything blends together. You can send an invoice by email from your PC, just like a shipment confirmation.
Step 8 – Return and Complaint Process: Complaints can happen repeatedly. Or it may be defective. Of course, the customer turns to you first. How you handle the complaint then depends on the reason for the protest. Here, you need to reach an explicit agreement with the wholesaler. If he packed the wrong thing, he can, of course, exchange it and send it again.
Step 9 – Advertising and marketing: You should invest at least part of it in the marketing of your store and products and the personal support of your customers. This way, you create the conditions for consistently high sales and stable profits.
Step 10 – Optimization: The optimization phase begins immediately after you set up and launch your direct sales store. The goal is to continuously improve the product range and services to achieve higher sales.

Dropshipping - This is how dropshipping works!
Dropshipping – This is how dropshipping works!

These costs are incurred in the case of direct shipping

One of the main advantages of direct sales is the relatively low costs we deal with. Here a distinction must be made between start-up costs and operating costs.

Since no inventory is purchased for immediate shipping, no warehouses are provided, and no particular business premises are required, start-up costs are strictly limited. Direct sales retailers will initially start their business from home in many cases. However, a smaller amount must be budgeted for setting up a workplace or expenses incurred in-store systems or marketing.

The drop shipper also has an advantage when it comes to operating costs. He does not have to pay for warehouse rent or personnel costs. Finances are limited to expenses directly related to the orders received. These are mainly the purchase price of the goods, handling and shipping costs, and any duties that may arise. In addition, there are general administration and selling costs, advertising and marketing expenses, prices for the storage system and marketing, and payments to providers.

Liability of the shipper

Most shippers choose the legal form of a sole proprietorship to exercise their independence. Here, you face a situation where you can be held liable for damages caused by your actions. In the case of a distributor, liability relates first and foremost to the products he provides. If these can be proven to cause damage to the end customer, you may be liable to pay damages. However, as a rule, this liability is transferred to the supplier from whom you purchased the product. Exceptions may exist, for example, if you supply products from a Chinese distributor who is not authorized to enter the European market.

To not take any unique risks here, you should only offer products with the CE mark, and secondly, you should take out commercial liability insurance before starting direct sales.

Direct shipping suppliers: finding the right one

The supplier plays a crucial role in direct shipping. You choose it very carefully and check it thoroughly and regularly. We have provided some compelling examples of partners for your direct sales business in the following.

Dropshipping - This is how dropshipping works!
Dropshipping – This is how dropshipping works!

Global Express: Amazon China

Source: www.aliexpress.com
Global Express is comparable to Amazon as a Chinese retailer offering millions of products from every conceivable category.

DHgate: Cheap Electronics

Shipping through DHgate
Source: www.dhgate.com
DHgate is located in China and specializes in trading electronics, offering toys, cosmetics, and clothing products.
NEDIS: European direct sales service provider

Ships through Nedis

Source: www.nedis.com
NEDIS operates in the Netherlands and has branches in many other European countries. The range includes more than 17,000 products and focuses on consumer electronics.
DealExtreme: Everything to do with smartphones from Hong Kong
Shipping through Dealextreme

Based in Hong Kong, DealExtreme deals in various electronic products with a focus on smartphones and related accessories.

Proven and practical tips for potential traders

The following tips and hints will make it easier to run your own business based on dropshipping.

Tip 1: Choose your supplier carefully

The reliability and professionalism of your suppliers are some of the most critical success factors in direct sales. Choose your manufacturers and wholesalers carefully and check their performance regularly.

Tip 2: Keep store themes recognizable

Even if you can build huge assortments as shippers without incurring increased costs, you should always keep the store theme recognizable to your visitors and customers. This is the only way to build regular customers.

Tip 3: Avoid products with high return rates

Returns represent a severe disruption to operational processes and are associated with high costs. Therefore, remove products with high return rates from your product line as soon as possible.

Dropshipping - This is how dropshipping works!
Dropshipping – This is how dropshipping works!

Tip 4: Invest the time saved in advertising and marketing

As a shopper, you can save a lot of time in your day-to-day business because you don’t have to worry about storage and shipping. Use this time to focus on advertising, marketing, and taking care of your customers.

Tip 5: Always keep running costs low

One of the main advantages of direct sales retailers is low operating costs. Make sure you maintain this benefit by consistently and self-disciplined, keeping expenses low.

Conclusion

A direct sales online store can work well if you find the right partner and favorable conditions to ensure reliable cooperation. Automation programs that save a lot of time are a big help. International deliveries and the small amount of control over your inventory can be problematic. Complaints can also be complex. Here, you can solve some problems by choosing suitable suppliers and products, quality checks, and individual agreements with wholesalers.

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