Virtually everyone in the modern world has at some point made a purchase online. Ecommerce started off as a convenient solution for shoppers’ problems. Today, it is the dominating force in the field of trade – dictating how a large portion of businesses operate. Out of the 7.5 odd billion people on earth, it was reported that about 1.8 billion of them were global shoppers. According to Statista, eCommerce even accounted for 14.1% of all retail sales as well. This figure is slated to reach 19% by the year 2021.
It isn’t surprising that entrepreneurs everywhere want to carve themselves a slice of this lucrative pie. Manufacturers and suppliers are getting savvier, while resourceful marketers are finding ways to simplify the process.
The boom of eCommerce birthed a business model called ‘dropshipping’. The term has been misconstrued and even overused across various channels – but what exactly does it mean?
Dropshipping is a method of retail fulfillment in which the seller or store does not hold physical inventory of their own. They instead depend on third-party manufacturers and suppliers to source their products. The shop or seller purchases items from a supplier’s warehouse and has it shipped directly to the customer. The seller does not have any physical contact with the inventory on sale. Some suppliers nowadays even handle shipping, making the process even simpler.
Traditional retailers and shops have their own physical inventory. Maintaining stock in warehouses has its advantages, but the costs of storage and maintenance rack up pretty quickly. There’s also the added issue of having to pay for manpower to handle goods. Dropshippers take this inconvenient part of the sales process out of the picture.
When a customer visits their favorite online store and buys a product they like, they pay the seller upfront. The seller then uses this money (or fronts their own money) and buys the desired product from a trusted supplier. The seller then uses third-party shipping companies to transport the product to the customer. They never see or touch the product they’re selling. Some suppliers and shippers offer custom packaging, logo printing, and express shipping, ensuring great customer experience.
Dropshipping can be started off by budding founders without significant starting capital. Sellers don’t have to shell out thousands of dollars for upfront inventory, warehouse rents, and manpower salaries. They don’t have to purchase anything from the supplier unless a sale has already been made on their website – which means close no losses. Testing new products is easy as well. Winning products can be identified quickly and the store can be scaled up easily. The model also allows the seller to be flexible with their location. This means the seller can conduct business from anywhere in the world.
Since the seller is not worried about creating, manufacturing, or sourcing the products, they can focus their attention exclusively on sales, marketing, and growth. Dropshipping marketplaces like Oberlo make the sales and checkout process highly automated, which further reduces the burden on the seller.
Dropshipping does have its pitfalls, however. Even if sellers obtain samples from suppliers beforehand, there’s no guarantee of quality. The product the customer receives might be defective or completely different. Since most popular and affordable suppliers are based in China, long shipping times can be a hassle. There’s also the issue of rampant fraud, online scams, and missing deliveries. Since packaging and transportation are handled by other entities, the seller has a very limited scope in terms of branding and customization.
It’s imperative to develop relationships with trustable suppliers. It’s also recommended to source products locally from suppliers in the area. This adds a dash of personal touch to the transaction process, while also ensuring trust is maintained.
eBay is a household name at this point. The popular website is an online auction platform that connects sellers and prospective buyers. On par with eCommerce giants like Amazon, eBay’s customer has been expanding steadily over the years. The platform had about 182 million users in 2019.
Online sellers are attracted by the simple platform offered by eBay. The existing user base means there is no shortage of customers. The chances of converting a prospect and making a sale are significantly higher than using personal websites.
The business model of eBay is quite simple. Sellers list their products on the platform after registration. The product can be anything – cars, electronics, fashion accessories, autographed rarities, etc. Sellers attach a starting bid to the item – a reasonable expected price. The bidding process then starts, with potential buyers bidding the amount they think the product is worth. The process lasts for a specific period of time predetermined by the seller. At the end of the bidding process, the highest bidder gets to take home the product.
The ‘buy it now’ option introduced by eBay lets buyers buy the product directly (for a predetermined fixed price) without entering the bidding process.
Several sellers on eBay currently do not actually handle or store the items they list. They have means of procuring them for customers, but they don’t actually have the products with them. The branding factors like the image, description, and title are usually the same as what their supplier uses.
Once a buyer buys a product from a seller’s listing, the eBay dropshipper then fulfill the order through their supplier. The product is then transported to the buyer via an independent shipping company. The seller essentially plays the part of a middleman in the process. This method of item/ product fulfillment is what’s called dropshipping on eBay. It’s transferring the business model of zero inventory holding onto eBay’s successful platform. With improving seller-supplier relationships, it has never been easier to get started with dropshipping with eBay.
The good news is, anyone with a valid eBay account can start eBay dropshipping right now. But is dropshipping on eBay worth it?
Dropshipping is a great way to make money, both short-term and long term. Considering the size of eBay’s customer base, it’s the easiest platform for dropshipping beginners to start out. Let’s take a look at a step-by-step breakdown on how to dropship on Ebay.
While dropshipping is a completely legal business model, eBay has recently started clamping down on sellers in order to curb fraudulence. So, how to do dropshipping on eBay? Let’s take a look at eBay’s policies regarding dropshipping.
Dropshipping on eBay is permitted but heavily restricted. eBay has a clause that says “fulfill orders directly from a wholesale supplier.” This means sellers are technically allowed to dropship on eBay’s platform provided they adhere to the regulations. Sellers are allowed to promote and sell products on eBay as long as they pre-purchase bulk quantities of products available on the seller’s listing from a wholesale supplier.
Traditional dropshipping on eBay was done by promoting and reselling items purchased from third-party retail websites like Amazon and Aliexpress. The seller would purchase in-demand products at cheap prices from these marketplaces and resell them on eBay for a higher price and pocketing the margins. This model of operation is now banned on eBay and sellers doing this are liable to be banned from the platform. eBay’s legal policy clearly states “purchasing the item from another retailer or marketplace that ships directly to customers is not allowed on eBay.” So buying trinkets from Aliexpress for dirt cheap rates and listing them on eBay is not allowed anymore.
Sellers found to be violating this rule are open to a ton of negative effects. eBay has the right to lower and bury such listing on their search algorithms and even remove them. Long-term sellers who have a preexisting relationship with eBay are liable to lose their ratings on the platform, which destroys their credibility.
eBay Customers kept receiving packages with other websites’ gift cards and order details. This led to a lot of them getting provoked, as they were paying an extra premium to have their orders fulfilled by another company. In other cases, the delivery time was outrageous, ranging upwards of 60 days. Some customers never even received their orders. This prompted eBay to crack down on dropshippers in general. Even genuine sellers were affected due to the actions of a small percentage of fraudulent entities.
The only legit way of dropshipping on eBay presently is to purchase bulk amounts of products from a wholesaler beforehand. The products can be stored and fulfilled on behalf of the seller by the wholesaler, but not every wholesaler is happy to do this. Since the products are pre-ordered by customers, they can be sitting in warehouses for an indefinite time period (until the sellers manage to create sales.) The products can be shipped to fulfillment companies too. These companies will take care of storage, fulfillment, and shipping on behalf of the seller.
This business model still conforms to the definitions of a dropshipping business, but the difference is that the seller has to purchase bulk inventory upfront with no guarantee of sales.
If a seller can trace a reliable, trusted supplier who can fulfill and ship orders to customers within 30 days, getting started on eBay is quite easy. It’s crucial to remember to obey eBay’s drop shipping policy.
Dropshippers on eBay face several challenges. It’s quite an uphill battle to maintain this type of business on eBay.
As mentioned previously, sellers are required to purchase bulk inventory from wholesales before they make a single sale. If the product does not gain popularity, falls out of fashion, or is defective, the seller is stuck with a huge order of products. There is nothing to do in this case than eat the loss and move on.
Tracing manufacturers and wholesalers who are prepared to sell individual items to online sellers is quite hard.
Sellers are also required to shell out a listing fee to eBay. eBay also takes a cut of the final sale (up to 10%). The free option comes with a catch where the seller loses a large part of the margin. The best items to dropship on eBay are usually priced above $10 to $20. While the margins on low-cost items are thin, moving large quantities can help offset the purchase cost. The upfront purchase and the eBay listing fees might make dropshipping on eBay financially unviable for most beginners.
Most of eBay’s loyal customers flock to the platform in hopes of finding the best available deal. The manufacturer charges a fixed price on products regardless of the situation, but the seller has to be flexible when it comes to price. Undercutting the competition can be useful to drive sales initially, but it might prove to be costly in the long run. Pricing control is a huge challenge for eBay dropshippers in this aspect. Unwilling to budge on price might cost the seller their customers.
Ensuring the availability of the listed products and proper fulfillment might be the hardest challenge eBay dropshippers face. Keeping a constant track of the supplier’s inventory and removing out-of-stock products from listings is crucial. Asking suppliers for daily reports on inventory counts can be the solution to this. Reliable suppliers who fulfill orders promptly and give sellers constant tracking information is a rarity. The most important part of the sales process – the fulfillment – is out of the hands of the supplier. Unfulfilled orders, out-of-stock products, defective items can very quickly garner horrible customer reviews and damage the reputation of the seller permanently. eBay dropshipping suppliers who have rigid shipping timescales are hard to find.
In order to scale an eBay business, it’s important to keep customers happy and satisfied. The best way to achieve this is to offer items priced competitively, and ensure the ordered products reach the customers in one piece, one time.
The best part about dropshipping eBay is the simplicity of it. Where else can a store be set up and ready to sell in a matter of minutes? Not to mention the exposure and visibility to millions of customers.
Sellers can concentrate on building manufacturer relations and sourcing new products instead of marketing. Since listings are displayed to tons of customers, sellers have to put minimum effort into SEO and paid traffic. This frees up a lot of time.
If a seller can source and fulfill products in a timely manner eBay drop shipping is definitely worth looking into.