Digital Nomad Desires: What is Dropshipping? Is it For Us?
In the previous two Digital Nomad Desires posts, I mentioned that Chiang Mai in Northern Thailand is the digital nomad capital of the world. We’ve been in Chiang Mai for nearly four months now and have met plenty of successful online entrepreneurs. From attending dozens of digital nomad meet-ups and talks, we discovered that a large portion of these entrepreneurs are in the E-commerce business, and there are two E-commerce business models that seem to be the most popular way to go. These are dropshipping and Amazon FBA private label.
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Both of these business models interested us enough to do some further research into each of them. We wanted to find out if any of these ideas could work for us. You might be thinking, but what about our blog? We’ll always have the blog and will continue to work hard on it, but there’s something else we hear a lot when it comes to making money online; digital nomads should not put all their eggs in one basket.
In this post, we’d like to share a brief overview of what dropshipping is, the pros/cons and our conclusion on whether we could give it a shot. I was originally going to include Amazon FBA private label in this post, but due to having enough dropshipping information to talk about, I’ll discuss Amazon in the next post 🙂 Before we answer the question, what is dropshipping? Let’s start with E-commerce.
What is E-commerce?
Some of you might be wondering what E-commerce is, it’s something we weren’t too familiar with either before we arrived in Chiang Mai.
E-commerce is the selling of goods or services over the internet. These online transactions can occur as either business to business, business to consumer, consumer to consumer or consumer to business. Maybe you’ve bought an item from an online store such as Amazon or sold an item yourself to someone on eBay. If so, then you’ve played your part in E-commerce.
So let’s go into a little more detail on what is dropshipping. We’re not experts but have learnt a lot about the subject which we’d like to share with you if you’re interested.
What is Dropshipping?
Dropshipping is having an online store where you’re able to display and sell physical products but without the need to hold any inventory. The manufacturer of the products you are selling holds the inventory for you in their warehouse and will even send the product to your customer when they make a purchase. With dropshipping, you don’t have the overhead costs of buying huge inventory and the rental of warehouse space.
How Does Drop Shipping Work?
Let’s say you want to sell bikes, so you set up an online store called BestBikes.com. Great, you’ve got a store online, but now you need some bikes to sell. Traditionally, as the owner of BestBikes.com, you’d go and buy some bikes from a wholesaler or manufacturer at wholesale price. You’d then rent a warehouse and fill it up with all the bikes you’ve just bought. It’s then up to you how much you want to sell the bikes for on BestBikes.com. Whatever profit you make is yours, after the overhead costs of course, like staff and warehouse lease etc.
With dropshipping, instead of buying those bikes from the wholesaler or manufacturer, you negotiate a commission structure for each bike sale you make on BestBikes.com. The agreement includes the wholesaler or manufacturer delivering the bike to your customer for you.
Dropshipping Simply Works Like This:
- Customer buys a bike from BestBikes.com
- You process the order with the wholesaler or manufacturer
- The wholesaler or manufacturer sends the bike to the customer
- The customer receives the bike
Everyone’s happy! The customer gets the bike they ordered, the wholesaler or manufacturer sells a bike and you make a nice commission. Yes, you would have made more money if you sold the bike in the previous traditional way, but there would have been a lot more work and capital involved.
The dropshipping business model allows you to work from anywhere in the world, providing you have a laptop and internet access. With no warehouse or bricks and mortar store, you’re not location dependent. Once you’ve successfully built your online store and negotiated contracts with your wholesalers or manufacturers, all there’s left to do is process those orders as and when they come in.
Dropshipping Pros & Cons
It probably sounds too good to be true to most of you, but like any business, it has its pros and cons.
- Very little upfront capital needed due to not needing to lease property or buy inventory.
- Little hassle involved – No inventory to deal with, no packing issues and no shipping to worry about. It’s almost passive.
- Great way to test products without having to buy inventory first.
- No website development skills needed as services like Shopify make it extremely easy to build a professional looking online store.
- Can work remotely.
- You partly have to rely on your wholesalers or manufacturers to keep your customer happy. If they make a shipping mistake, for example, it makes your business look bad.
- It’s difficult to keep up to date with your wholesalers and manufacturers stock levels in real time. This makes it difficult to keep your site accurate for seamless customer service.
- As a store grows, it becomes difficult to manage the logistics if using multiple wholesalers and manufacturers.
- Due to only making a commission per sale, many sales are needed to make a decent living.
- Because of the low cost of entry, there are many people trying this business model. This makes it a very competitive market so you need to be one of the best in your niche to succeed.
Dropshipping Conclusion for Us
There’s obviously more to dropshipping than what we’ve written above, but we hope it’s enough to give you a good idea. We’ve done a load of reading on it and are aware it’s not as easy as it sounds. That’s why we’ve come to the conclusion that dropshipping is not for us at this stage in our journey. There are two main reasons why.
1 – We’d Struggle to Provide Good Customer Service
When running an online store, you have to offer a good level of customer service if you want to be successful. We’d want to do it properly by offering a customer phone number and email address. This would be almost impossible while we’re travelling. We’d be mostly uncontactable by phone and even by email in some destinations. At the moment, we’re too nomadic to run this type of business.
We could hire a Virtual Assistant to answer customer calls but this is not something we’d want to do from the opening of our first store. Plus financially, we could not afford to hire VA’s at the moment.
2 – Dropshipping is Not as Common in the UK
Every successful dropshipper we’ve met in Chiang Mai is from the US. Dropshipping is big business in the US and everyone over there seems to know what it is. With the term being so familiar, it’s easier to negotiate with wholesalers and manufacturers as they are already aware of the potential benefits of having a third party seller.
We’ve found it very difficult to find dropshipping information from the UK. The internet is flooded with US dropshippers sharing information, but the lack of UK dropshippers doesn’t fill us with much confidence. We tried to arrange a meet up here in Chiang Mai with UK dropshippers but there doesn’t seem to be any!
This could be a good thing as there would be less competition. There are so many people dropshipping in the US that niche stores are now hard to find and its very competitive. All the online dropshipping courses we found such as the popular Dropshipping Lifestyle are also by US dropshippers. If we were to start a UK dropshipping store in the future, we’d at least need the support from current UK dropshippers.
We may look into dropshipping again later down the line. For now, we’re going to concentrate travel blogging and enjoy the next phase of our travels through the Philippines. That’s enough to think about for the time being. We’re still super busy! But in the next post, we’ll share our thoughts on another online business model we discovered and looked into; Amazon FBA private label.
Are you a dropshipper? Or thinking about opening a store? We’d be interested to hear your thoughts below, especially if you’re from the UK.
To follow our Digital Nomad Desires journey from the start. Check out our Introduction post.