The COVID pandemic has demonstrated to a lot of people the fragility of how they live and work.
Many people live paycheck to paycheck and even worse some live hand to mouth. Such an existence is not only stressful but it also impacts the ability of people to plan for their futures because they cannot budget on savings to finance that future. People struggle to grow themselves and their families and fail to develop economic opportunities of benefit to them and their families.
At Nairobi Business Courses, we teach the drop ship model of eCommerce as a solution to these real economic and financial problems.
In this post, we discuss drop shipping, what it is and how you can start such a business that will thrive, depending on how you run and manage it, for less than 10,000 shillings startup capital.
1) What is drop shipping ?
“Drop shipping is a retail fulfillment method in which a business doesn’t keep the products it sells in stock. When a drop-shipping retailer sells a product, it purchases the item directly from a third party (a manufacturer, wholesaler, or another retailer) that ships the product directly to a customer. So if your business adopts drop shipping, you act as a storefront that customers visit and order products from. Once they place an order, you charge the consumer, and the drop shipper charges you. You never handle the actual products.” Source
From this we can see the entire role in the business transaction for the drop shipper is being middle man between the customer and the supplier.
Stock is very often a heavy financial burden on new retail startups. Not having to carry stock is one of the biggest advantages of the drop shipping model of eCommerce.
The drop shipper serves as an intermediary between the customer and the wholesalers or manufacturers of the products. They purchase products, after payment by the customer, at a low price from wholesalers and manufacturers. The price the customer pays is marked up above the price the drop shipper pays to the wholesaler and the difference in the two prices is the drop ship profit.
At Nairobi Business Courses we teach you where to find wholesalers and manufacturers willing to sell single pieces or units of products at low prices which you can resell at a higher retail price.
The drop shipping model of E commerce is widely used and huge sites such as Amazon, Walmart and others such as Jumia in Kenya thrive on the Drop Shipping model. Carrying stock that is not moving or moving very slowly is tying up capital in a business. The beauty of drop shipping is that such tied up capital can be freed up to do other vital and necessary business tasks such as marketing and advertising to attract customers to your online retail store.
In summary the drop shipper is rewarded for providing products from mass producers to retail customer.
2) Challenges of Drop Shipping
Now that we understand the outline of the drop shipping model we look the challenges for a new startup in drop shipping.
The trick is to find high quality partners who will not disappoint you when a retail customer has placed an order with your store. They must be willing to provide high quality products at low wholesale or manufacturer prices in retail quantities. The suppliers must also carry sufficient stocks at the prices they advertise and have predictable order fulfillment processes so your drop ship business can similarly be predictable in its dealings with the end customer.
A major challenge for drop shippers having decided to start out in the business is deciding on what products to stock. There are an unlimited number of options and choices and the difficulty comes in trying to identify which products will do well when added to your online store.
There are many ways in which to identify products that might do well, but ultimately your marketing which we explore next largely determines the success of your chosen product or products.
Importantly we need to point out that your drop ship store can sell a single item or a range of products. The choice is yours but each type comes with considerations which you must be aware of before you choose that particular route. We explore these considerations in detail on the drop ship course.
Pricing of your products on your drop ship online store is a matter of trial and error. However, it must be with reference to what your target market can bear and what your competitors are charging. At Nairobi Business Courses we show you how to create a pricing spreadsheet that takes into account your prices from the supplier, exchange rates if those suppliers are not in Kenya and a profit markup after costs.
d) Digital Marketing
It is possible to run a drop ship business without a digital footprint but that is an extremely difficult proposition and one we definitely do not recommend.
The drop ship model we teach revolves around creating a website based retail store. Creating the store and marketing will consume the largest proportion of your 10,000 Shillings startup budget depending on how you create the store.
At Nairobi Business Courses we also teach a web design course which gives you sufficient knowledge to build your own store without having to pay a professional to create one for you. Course details available by clicking HERE
Having created your website store the business must market itself using a mix and variety of digital marketing and advertising strategies. These include paid ads, social media marketing, local search, organic search and email campaigns.
At Nairobi Business Courses we also teach a digital marketing course which teaches key digital marketing strategies for marketers and business owners. Details available by clicking HERE
e) Customer Service
The final key challenge we look at in this post for a startup drop ship retailer, is how to service customers. The success of your drop ship business rests fundamentally on your customer service. A great experience for shoppers on your store will drive growth where poor experiences will do the opposite.
Indeed bringing together all the components we have been discussing are part of the customer service equation. Your business must provide high quality products, priced competitively and marketed to the target audience to solve their problems or enhance their lives.
3) Advantages of Drop Shipping
Now for the advantages of the product fulfillment model
a) No Stock Required
We’ve already seen the first and biggest advantage is there is no need to lock up scarce capital in stock and warehousing. Your business can be operation once you have a website within a matter of days rather than needing months to buy and catalog stocks in a warehouse at great cost.
This single advantage is why we confidently say you can start up the business with a budget of 10,000 Shillings.
This budget will allow you to create the initial digital footprint required to start the business and you can make improvements as profits from sales start to come in.
b) Zero Financial Outlay
Customers purchase products at your advertised prices from your web store. They do this before you place the back order to your suppliers.
This is a huge advantage of the drop ship model because you are using the customers money to buy goods that are then shipped directly to the customer. You are not using your own capital and financial resources to purchase goods for onward sale to your customers.
The risk for the business by using customer money to purchase goods and not its own resources is hugely reduced and this low risk is of course key for any startup business.
Clearly the financial benefits of drop shipping are its biggest advantages over other forms of startup. Business is always risky and by lowering the financial and monetary risk, drop shipping is a business model every entrepreneur should look at seriously.
A drop shipping business is one of the quickest ways to start in business online, which after all is where most people particularly in the COVID pandemic era do their research for products, gifts, and other things that they need to buy. It is cheap to start and given enough effort and attention to detail on the entrepreneurs part, it can become a thriving, and very successful business.
At Nairobi Business Courses we ensure that you understand everything that you need from start to finish, in order to set up such a business.
Nairobi Business Courses https://nairobibusinesscourses.co.ke is a one on one trainer for professional and personal business skills in Nairobi, Kenya.