How does dropshipping work, some answers.

Here is a quick write up about dropshipping and how it works, for people new to dropshipping.
If any one wants to add any more info to this thread, please feel free.

Droship suppliers allow you to stock your own website using their complete range, meaning you can sell their products from your own site and make profits without having to hold any of the stock yourself, the dropshipper does that for you and sends the items directly to your customer for you, packed in plain packing which means your customer does not see any details regarding your supplier. Buying wholesale would give you a slightly higher profit margin but it would also include more work and the need for space, not to mention the initial outlay to buy the stock, storing the goods, packaging and postage etc, using a dropship supplier cuts down your workload and means you don’t need to hold any stock yourself, you can concentrate purely on marketing and creating sales. It also means that you have no need to pay for any order from your supplier till after you make a sale on your own site, your customer orders an item on your site, then you place the order for that one product on your suppliers site and then it gets shipped straight to your customer.

One rather important point to make here is, this is not a get rich quick scheme, if you do not approach this with the attitude that this is a retail business and you will have to work quite hard to make your retail business bring in the customers you need, then the chances of you making any money at all are slim at best.
A dropship supplier allows you to stock your store with products and takes away the need to handle the stock, your job is to market your retail business, advertise, get yourself known and turn a profit. Many people under estimate this and expect their website to make sales and roll in the profits without them having to do any work, hence the idea that dropshipping is useless. Dropshipping is not a money making scheme, it is an order fulfilment service, nothing more. Used properly, dropshipping does allow you to get online with a full range of stock, without the need to buy stock wholesale, it does this cheaply and quickly. An online shop is exactly that, a shop, a retail business that needs to be worked on constantly to keep the customers returning to your shop.

So how do you make a website using a dropship supplier, earn a profit? How does any retail business turn a profit? With alot of work is the honest answer.

Business plan, this is a retail business after all so first things first, you will need a business plan. This should contain information regarding your target market, who they are, age range, gender, as much information as you can get, even down to what type of job they are likely to have, all this info will help you plan a marketing and advertising strategy.
Competition, you need to know where your target market spend their money and how your competition is drawing these customers in, then you need to formulate a plan on how you intend to draw the customers to your shop and not the competition, this is pure retail tactics, the same type of tactics used by any retail business regardless of size, you should be using these same type of methods on your own marketing, tried and tested retail marketing is what you need to know, research is the key.
Marketing, how are you going to market your business, seeing as you have identified your target market and have researched tried and tested retail marketing strategies, you should have all the info you need in order to create a marketing plan. Your marketing plan should detail all your ideas on how to draw in enough customers to turn a profit. Advertising campaigns, where these ads will appear, for how long, how much they cost, why you think these ads will be effective. Advertising can be effective but only if you understand why certain ads work. Failing to understand this could lead to you throwing money away on advertising and getting no return.
Social networking should be included in your list of marketing plans aswell, even vodka and toilet roll manufacturers are using twitter and facebook pages and ads in their marketing campaigns, you should be doing the same, but plan to catch the attention of your specific target market.
Google and other search engines can bring in quite alot of customers but only if you keep on top of the SEO (Search Engine Optimisation) and SEM (Search Engine Marketing) work. Your business plan should detail all the work you plan to do regarding search listing rankings.
Offline advertising, one of the best ways to get your business known is using word of mouth. Use your local area, get people talking about your products. You could offer freebies to a few selected people to get them talking about your products, advertise in your local newsagents, local newspaper, magazines etc, you can even advertise on buses, bus shelters, railway and tube stations for a reasonable price. Regardless of your business being an online shop, offline advertising can be very useful and should be used.
Costings, you will need to know what your bottom line is, your break even point. How much will your retail business cost you to run, including all your advertising campaigns and your office running costs and any other cost relating to your retail business. Despite the fact that your office is likely to be in your own home, you still need to have an office space to run your online shop, this should be in your costings aswell, as a sole trader you need to include all business costs in your tax returns so all your costings should be included in your business plan along with your plan to generate enough sales to meet your bottom line costs.
Don’t forget your National Insurance Contributions, as a sole trader you will need to pay this monthly. Tax will be decided at the end of each financial year, once you have declared all your earnings and your business costs to the tax office. You can get your tax return in early and the tax office will calculate the tax you owe for you, which removes the need to employ an accountant.
Contingency plan, there are a few things that need to be looked at here, the most important is cash flow. How will you cover yourself for unexpected costs such as orders being returned and refunds being given? As a retail business, you will have to deal with any returns of damaged or unwanted items, you will need to refund your customer before you are able to return the item for a refund from your supplier.

That is the information you will need on a day to day basis to help you plan and run your businesses marketing strategies and to ensure that you create enough sales to keep your business turning a profit. A business plan designed to be given to bank managers to secure funding should include slightly more information click here for more info on business plans