I am a huge fan of dropshipping as many of you already know. It’s one of the easiest ways for individuals with limited resources to get started with E-Commerce. However, I know that some people would much rather carry and manage their own inventory. Even then, I believe dropshipping can still play an important role in your business.
Say you found a product or products from a wholesaler that you want to try selling online. You think that the wholesale price gives you enough of a margin to make you a healthy profit. You are also think there will be a lot of demand for the product. Now what? You place a bulk order, cross your fingers, and hope it all goes well right? No! While many entrepreneurs think that they have a good idea and will happily bet their hard earned money on this gut feeling, it’s not good practice; the truth is that you really don’t know until you tried selling it. Many of the so-called good ideas fail, and some bad ideas will succeed. What I do know is that if you dive in head first without doing proper market research, you are taking a huge risk.
So before you go ahead and order 100 units of each item, consider dropshipping the items first. Even if you’re barely making a profit or losing a bit of money, it’s worth it! The point here is not about making money, but testing the market’s demand and your ability to sell the product before you commit yourself into buying inventory. Essentially, these are some of the questions you will try to answer when conducting the test.
Market Demand – Would people really buy this product? If so, how much are they willing to pay for it?
Customer Acquisition Cost – How fierce is the competition in this niche? Am I able to rank well within relevant search terms? Is PPC advertisement cost lower or higher than anticipated? Ultimately what is the average cost of acquiring a customer?
Knowing the answers to these questions is invaluable. It’ll help you better gauge the merits of the venture idea, avoid expensive pitfalls, and shed light on your customers’ behaviour and preferences. And the best thing about it is that dropshipping allows you to conduct your market validation with very little risk. There’s no minimum purchase quantity (MPQ), and you buy inventory only after the item has been sold.
Lastly, in the scenario where you are unable to find a similar item to dropship, you may be able to try using affiliate advertising to test the market. Though it won’t give you the versatility dropshipping would, since you have no control over pricing, it’s still better than nothing.
For example, assume you had a board game related blog and thought about leveraging your audience to start a webstore; you could use Amazon’s affiliate program to advertise selected board games on your blog. If your traffic leads to a sale on Amazon, then you’ll get a small commission for the sale; and more importantly you’ll have a better idea on whether or not you have the ability to sell those board games.
Remember, business is as much about not losing money as it is about making money. Too often entrepreneurs get too caught up with the glamour of the latter and forget the former. I myself have been down that road and learned from it the hard way. Hopefully, you can learn this lesson the easier and less expensive way.